This is a service specifically targeted at the needs of busy non-executive Directors. We aim to give you a ‘heads up’ on the things that matter for NEDs in the week ahead – all in two minutes or less.
In this edition, we discuss the results from Mergermarket’s 2022 Australian M&A Report, APRA’s updated policy and supervision guidance and IOSCO’s revised principles for regulation and supervision. We also discuss the review application received by the Takeover’s Panel in relation to Nitro Software and the disqualification of a director under section 206F of the Corporations Act 2001 (Cth).
In Over the Horizon, we consider the impending Reserve Bank of Australia’s decision on the February cash rate and the potential implications of a ninth consecutive rate hike.
GOVERNANCE & REGULATION
Mergermarket releases its 2022 report for Australian M&A. Following the extraordinary highs of 2021, Mergermarket has reported that Australian M&A deal values plunged 52% from US$205.19bn to US$98.44bn in 2022, reflecting a return to pre-pandemic M&A levels. Australia ranked third behind China and India in the Asia-Pacific region with the largest transactions comprising Brookfield and EIG Partners’ US$11.57bn takeover offer for Australian energy company Origin Energy and the demerger of Tabcorp’s The Lottery Corporation for US$8.9bn. The utility and energy sector led the way for Australian deal value, comprising US$17.35bn across 60 deals. Mining followed in second place falling just short of US$12bn. The year also saw an 80% fall in financial sponsor-backed buyouts, with the largest entry arising in the oil & gas sector, with MidOcean Energy Holdings announcing a US$2.15bn move for several assets divested by Tokyo Gas Co Ltd. The 2022 Report signifies what most market participants have known for some time - the COVID-stimulus fuelled deal-spree of 2021 is far behind us. For further information, see the Mergermarket 2022 report.
Australian Prudential Regulation Authority (APRA) releases policy and supervision priorities for 2023. The priorities announced by APRA, Australia’s statutory authority with regulatory oversight of the banking, insurance and superannuation system, are consistent with the strategic objectives in APRA’s latest Corporate Plan. The Corporate Plan outlines APRA’s key focus areas as it continues to protect financial stability and the interests of bank depositors, insurance policyholders and superannuation members. The annual paper sets a series of goals over the next 12-18 months to provide stakeholders ‘with a consolidated and transparent workplan with timeframes that enables more efficient forward-planning’. APRA Chair John Lonsdale stated, ‘[F]ollowing several years of regulatory reform, 2023 will bring a lighter APRA policy load. This will help regulated entities focus on embedding prior major reforms such as capital reforms in banking and insurance, as well as responding to challenges in the operating environment in the period ahead’. For further information, see APRA media release.
International Organization of Securities Commissions (IOSCO) revises its 2011 Principles for the Regulation and Supervision of Commodity Derivatives Markets. On 31 January 2023, the Board of IOSCO published its revised version of its 2011 Principles for the Regulation and Supervision of Commodity Derivative Markets. The aim of the revision is to ensure that the Principles continue to provide a resilient framework for the regulation and oversight of the commodity derivatives markets. In revising its Principles, IOSCO focused on market surveillance; transparency; price discovery; the correlation with physical markets; addressing disorderly markets; responding to market abuse; and strengthening the enforcement powers of trading venues against end-user behaviours. While the Principles reflected the characteristics of commodity derivatives markets in 2011, these markets have continued to evolve over the past decade, spurred by various market developments and international events in the form of external disruptions, such as the COVID-19 pandemic and the Russia-Ukraine conflict. For further information, see IOSCO media release.
Takeovers Panel receives review application following its decision to not make a declaration of unacceptable circumstances in relation to Nitro Software Limited (Nitro). Technology Growth Capital LLC, a special purpose vehicle managed by Potentia Capital Management Pty Ltd (Potentia), has made an application for review to the Takeovers Panel. Nitro is the subject of competing control proposals made by Potentia and Cascade Parent Limited (Alludo). The application follows the Panel’s decision declining to make a declaration of unacceptable circumstances in relation to the offer by Alludo to acquire 100% of Nitro by way of a scheme of arrangement or, in the alternative, via an off‑market takeover bid, and whether Nitro had undertaken a competitive process to secure the best outcome for Nitro shareholders. A review Panel has not been appointed at this stage and the Panel has not made a decision whether to conduct proceedings. For more information, see the Panel’s decision in Nitro Software Limited  ATP 2. The Panel’s approach to the application may provide further guidance on the use of concurrent scheme and takeover bid structures, which are becoming more common in the context of competitive bids.
ASIC disqualifies director from managing corporations after engaging in phoenix activity. A Queensland-based director has been disqualified for managing corporations for a period of five years under section 206F of the Corporations Act 2001 (Cth), following ASIC’s investigation into his involvement in four failed companies. It was found that the director breached their directors' duties by engaging in illegal phoenix activity when they transferred the assets of Tazzy Tyres Accessories and Tazzy Tyres to other companies for no consideration and further, that they failed to maintain proper financial records for all four companies. At the time of ASIC’s decision, the four companies owed unsecured creditors $1,944,418 including $855,121 owed to the Australian Taxation Office. For more information, see ASIC's media release.
OVER THE HORIZON
Further rate hikes expected as both banks and individuals prepare for the looming recession. The RBA is set to announce the February cash rate in the wake of the decision by the Federal Reserve to raise its funds rate by 25 points as expected to 4.50-4.75%. Although a step down from the previous 50 point increase by the Federal Reserve, Gareth Aird, Commonwealth Bank’s head of economics, believes the RBA could decide to deliver borrowers with a substantial 0.4 per cent rise, taking the cash rate to 3.5 per cent. However, it remains most likely the RBA lifts the cash rate by 25 basis points, or 0.25 per cent, to 3.35 per cent. The reality of a further increase would mean homeowners who acted in 2021 on the assurance from RBA Governor, Philip Lowe that interest rates were unlikely to rise above zero until 2024 are now facing their 9th consecutive rate hike. October 2022 research from the RBA indicated that at a cash rate of 3.6%, 15 per cent of all homeowners would see cash flow turn negative. Despite all this, the RBA remains confident that mortgage defaults will not become an issue due to Australia’s sizeable financial buffer, comprising approximately $270 billion in excess savings, around $110 billion of which is in mortgage offset accounts.