More from the Takeovers Panel on shareholder intention statements

The Takeovers Panel has held a Finders Resources Ltd shareholder to its unqualified public intention statement not to accept Eastern Fields Developments Limited’s $0.23 per share takeover bid, ordering that the shareholder’s subsequent acceptance of the bid be cancelled.

In brief

• The Takeovers Panel’s decision in Finders Resources Ltd demonstrates that the Panel provides no leeway to target shareholders departing from unqualified public statements regarding their intention not to accept a bid.
• The Panel relied on fundamental Chapter 6 principles stating that a departure from an unqualified public statement results in a bid not being conducted in an efficient, competitive and informed market.
• The Panel ordered the reversal of an acceptance by an 11.31% shareholder who had previously stated that they would not accept the bid.
• The consequence of the Panel’s decision is that the bidder, who had reached the 90% compulsory acquisition threshold, will have to close its bid short of that threshold (given the bidder had declared its offer price final and the Panel made orders that the shareholder could not accept at the final offer price).

Background facts

In October 2017, Eastern Fields Developments Limited (Eastern) announced an off-market takeover bid for Finders Resources Ltd (Finders) of $0.23 per share and subject to a 50.1% minimum acceptance condition (the Offer), valuing Finders at approximately $177 million.

Finders is a copper producer operating the Wetar Copper Project in Indonesia. Eastern is a consortium comprising two Indonesia Stock Exchange listed companies and an Indonesian private investment company. At the commencement of the Offer, Eastern and the consortium members held a total of 19.8% of the Finders shares.

Throughout December 2017:

• in the target’s statement, Finders’ independent directors recommended rejection of the bid and stated they intended to reject the bid in respect of the shares they owned or controlled;
• Finders announced that Taurus Funds Management Pty Ltd (Taurus) (which managed approximately 11.31% of the Finders shares) did not intend to accept the Offer at the offer price. The statement was made with the consent of Taurus;
• a number of other non-substantial Finders shareholders consented to Finders making announcements that they too would not accept the Offer at the offer price; and
• Finders announced on separate occasions that shareholders holding 33.19%, 37.58% and 38.21% of the Finders shares in aggregate had no intention of accepting the Offer at the offer price (these numbers included the shares controlled by Taurus and Finders’ independent directors).

On 14 February 2018, Eastern declared the bid unconditional. On 12 March 2018, Eastern announced that it would not increase the Offer consideration. By 16 March 2018, Eastern had 48.40% voting power in Finders and on 19 March 2018, Taurus accepted the Offer taking Eastern past 50% to 60.22%. 

On the same day, Finders announced that despite the independent directors’ belief that the Offer did not represent fair value, in light of Eastern’s controlling stake, the independent directors now intended to accept the Offer (which occurred on 28 March 2018) and recommended that shareholders should also consider accepting to avoid becoming a minority shareholder in Finders.

By 28 March 2018 Eastern’s voting power increased above 90%. On 29 March 2018 it was announced that ASIC had applied to the Takeovers Panel for a declaration of unacceptable circumstances in relation to the acceptances by Taurus and the independent directors on the basis that the acceptances were contrary to ASIC’s truth in takeovers policy (as contained in ASIC Regulatory Guide 25 Takeovers: false and misleading statements) and that Finders shareholders had potentially suffered losses in trading in Finders shares in reliance on the public intention statements attributed to the relevant shareholders (including Taurus).  

Declaration of unacceptable circumstances and orders

On 26 April 2018, the Panel made a declaration of unacceptable circumstances. The Panel found that the effect of Taurus’ conduct was such that Finders shareholders would have reasonably assumed that Taurus would not accept the Offer at the $0.23 per share price. Taurus doing so was contrary to that assumption and had the potential to affect shareholders’ assessment of whether to accept the Offer and decisions to acquire or dispose of Finders shares. Resultantly, the Panel found that the bid was no longer being conducted in an efficient, competitive and informed market.

The Panel was also of the opinion that by aggregating the other shareholder intention statements with those of Taurus, Finders shareholders did not have sufficient information to assess when a person may change their intention or act inconsistently with the public statements. Effectively, it was not clear whether any shareholders had qualified their statements.

The Panel ordered that Taurus’ acceptance of the Offer be cancelled and that, while the bid remained open for acceptance, Taurus must not accept the Offer or sell any shares it manages at or below $0.23 per share. The Panel also ordered withdrawal rights for Finders shareholders who had accepted the bid subsequent to Taurus’ acceptance.

The Panel’s detailed reasons for its decision have not yet been released. When they are, it will be interesting to see whether the Panel provides further commentary on its views of the acceptances of the independent directors and the other shareholders.

Commentary

ASIC’s truth in takeovers policy states that market participants (including major shareholders) cannot depart from intention statements unless they have clearly and unambiguously reserved the right to do so.

The Panel’s decision is a reminder of the implications for shareholders of making statements that are governed by the truth in takeovers policy – namely that they will be held to those statements of intention unless they are appropriately qualified.

The application of the truth in takeovers policy to shareholder intention statements is clear cut in comparison to last and final statements by bidders, where the Panel has in the past applied more flexible remedies (including compensation orders) rather than simply holding the bidder to their statement – see, for example, the Rinker Group (2007) and Ludowici (2012) decisions. One key difference is that in those circumstances, target shareholders stood to benefit from a less strict application of the truth in takeovers policy that allowed the bidder to increase its offer (albeit, one might argue, at the expense of market integrity).