‘Cause I’m T.N.T., I’m dynamite: Nitro board navigates the Australian Takeovers Panel

As noted by the Panel in its original decision, since Goodman Fielder 02 [2003] ATP 5, it has been clear that there is no general requirement that the board of a target company must provide equal access to information about a target to rival bidders.  Further, in Virtus Health Limited 02 [2022] ATP 7, the Panel reiterated that “the Panel on a number of occasions has recognised that it is for the target board to decide to whom and on what terms it provides access to due diligence.”

As part of its application to the Panel, Potentia submitted that:

• “[c]ommencing from 30 August 2022, Potentia Capital has made repeated attempts to obtain access to Nitro so that it may conduct a commercial and legal due diligence investigation of Nitro. However, that access has repeatedly been denied by Nitro”;
• “for Nitro to deny Potentia Capital due diligence access is contrary to the interests of Nitro Shareholders”;
• “Potentia has made numerous public statements that if it is afforded due diligence access it will assess whether it can then match or exceed $2.15”; and
• “[t]he last time Potentia matched Alludo’s price with a binding offer that was clearly superior in its minimal conditionality, Potentia was still refused due diligence. Why would it not assume, barring the Panel’s intervention, that Nitro will do the same again?”

In response, Nitro submitted that “[t]he Nitro Board's fiduciary obligations to shareholders are very clear, well understood and clearly catered for in the Implementation Deed. There is nothing stopping Potentia (or any rival other bidder) from submitting a Superior Proposal and the Nitro Board granting access to due diligence and, subject to Alludo exercising its matching right, changing its recommendation.”

The Panel did not consider the actions of the Nitro board as constituting unacceptable circumstances, stating “[a]ccess to due diligence is a valuable tool that a target board has to create a competitive auction” and “[w]e have no reason to doubt, on the material before us, that the Nitro board is acting in good faith in the interests of Nitro shareholders.  We note that Potentia has not put forward a superior proposal, merely the prospect of one. This avenue remains available to Potentia so giving it the opportunity to achieve the desired outcome of accessing Nitro’s confidential information.  We consider that the decision whether or not to grant due diligence access to Potentia, and on which terms, is at the discretion of the Nitro board, acting in good faith and in accordance with its statutory and fiduciary duties to ensure the best outcome for shareholders.” 

As part of contesting that the dual structure of the transaction gave rise to unacceptable circumstances, Potentia submitted that:

• the structure under the Alludo Transaction, being a concurrent scheme and takeover offer with a 50.1% minimum acceptance threshold was “inherently contradictory and confusing for Nitro shareholders” due to its increased complexity, which “…creates problems for regulators, advisers and even the most experienced of investors”;
• the concurrent scheme/bid structure under the Alludo Transaction was anti-competitive;
• Alludo was in fact actively seeking the failure of the Alludo Takeover Offer by working with Nitro to achieve the success of the Alludo Scheme, which undermined the ability of the Nitro board to provide clear advice to Nitro shareholders;
• issues may arise which would affect the efficiency of the market, such as “[s]hareholders and others whose interests may be affected will be unclear about whether they should complain to the Panel or the Court if they have an issue with the disclosures in the Transaction Booklet”; and
• “[t]he above complexities arise from forcing a takeover bid and a scheme proposal into the one document. That is not what the Corporations Act contemplates, and it is not what the market is familiar with.”

In response to Potentia, ASIC submitted that:

• “[t]he Act does not expressly prohibit a bidder and target agreeing to conduct a scheme of arrangement and takeover bid at the same time or in circumstances where one is conditional on the other, provided that all relevant obligations are met…”;
• while dual or multiple structure control transactions may give rise to regulatory risks not present in singular control transactions, it was cognisant of these risks;
• “a number of the risks the subject of submissions in this matter do not solely exist in relation to dual or multiple structure control transactions” and that many of the issues identified by Potentia in the context of a concurrent scheme/bid structure would “similarly exist where a target is subject to a takeover bid and a scheme of arrangement from different, competing bidders”; and
• while a combined transaction booklet may necessarily be lengthier and more complex than a disclosure document with respect to a singular transaction, “there is some merit in reducing the duplication of information”.

The Panel considered that a dual structure did not give rise to unacceptable circumstances, stating:

• “we are not prepared to say that a scheme/bid structure, whether employing a single disclosure document or not, is unacceptable due to complexity”;
• “…having regard to previous examples of concurrent scheme/bid structures such as Prime Infrastructure (2010), Healthscope Limited (2019), Huon Aquaculture Limited (2019) and Virtus Health Limited (2022), there has been no comprehensive consideration or analysis of the scheme/bid structure by the Courts. However, this does not mean that such structures are problematic or unacceptable”; and
• “while it may be advisable in the future for further guidance to be provided by ASIC or the Courts in relation to these transactions, we do not consider in this case that the concurrent scheme/bid structure is unacceptable.”