Takeovers for Ordinary Shares

General Principles

In a takeover offer it should be ensured that equal treatment of all offerees is given in respect of the offer terms and conditions and that secrecy is maintained from the outset so that there is no creation of a false market.

Types of Takeovers

Generally there are three types of takeover schemes:

  • Offers made to purchase on-market
  • Direct offers to all security holders of the target company to acquire all or a proportion of holdings for cash, shares or a combination.
  • Scheme of arrangements.

Offers are referred to as:

Part A - Where a document is issued by the offeror to all shareholders of the target company which must include statements of the offer terms and conditions.

Part B - Is the response document by the offeree target company to a Part A usually mailed separately but can accompany the Part A document.

Part C - Offer document in the case of on-market purchases by the offeror.

Part D - Response by the target company to an on-market Part C offer.

Offer to Purchase Direct ("Part A" Offer)

The offer may be for cash, shares or convertible stock or a combination and may be subject to conditional requirements such as obtaining 75% of holders and 90% of holdings. The issue of securities may involve an underwriter and the offer may include a cash alternative.

The exchange of shareholder information from the offeree target company to the offeror will depend on whether the takeover bid is regarded as "friendly" or "hostile". The minimum requirement includes the name and address and number of securities held, the security holder's reference number (SRN) for issuer operated subregister holders or the Holder Identification Number (HIN) for CHESS subregister holders. Other information which could be requested include security certificate numbers and any loan details for staff shares, although there is no obligation to provide this information.

Offer to Purchase On-Market ("Part C" Offer)

There are strict rules laid down in the Corporations Law and the ASX Listing and Business Rules covering the requirements for a "Part C" offer. Apart from meeting the requirements laid down in the abovementioned regulations for both the offeror "Part C" and the offeree target response "Part D", procedurally there are no specific requirements other than those which apply to an on-market sale and subsequent registration of the securities.

Setting up a takeover in CHESS

Under the ASTC Business Rules an offeror company's share registry is not entitled to act for the offeror as a non broker participant (NBP) so the offeror must apply to CHESS to become a CHESS NBP or to appoint an existing CHESS participant who has been specially accredited for takeover processing to act as the offeror's NBP for the purpose of the takeover. The rules also provide for a restricted level of participation to facilitate the takeover processing. A special application form is required by CHESS for the offeror to become an NBP together with the appropriate fee.

Important points to consider in making the application:

  • In a "Part A" offer where the shares of the target company are CHESS approved, the only valid form of acceptance for these shares is an electronic acceptance transmitted by the sponsoring broker/controlling participant.
  • CHESS allocates a new Unique Identification Code (UIC) or Participant Identifier (PID) to the CHESS participant who acts for the offeror. An existing (UIC) cannot be used.
  • Special accreditation requirements apply in relation to takeovers and the registry must be accredited for takeovers in order to operate a CHESS interface as the offeror's agent.
  • If the takeover is successful, stamp duty details for electronic acceptances need to be electronically transmitted to CHESS together with lodgement of a monthly return and cheque for CHESS to onforward to the relevant State Revenue Office.

Offer Documents

The offer documents, including the form of acceptance and transfer, are governed by requirements of the Corporations Act and the ASX Listing Rules. Drafts must be submitted for approval by the ASX prior to despatch. The form must contain the following details of the securityholder:

  • Name(s) and address
  • The securities held subject to the offer
  • The SRN for issuer operated subregister holders
  • The HIN for CHESS subregister holders

Other information includes:

  • The offer price consideration
  • Provision for signing the acceptance
  • Provision for signing a Section 1089 statement for replacement of missing certificates (optional)
  • In the case of CHESS subregister holders a statement that the holder will contact the sponsoring broker or other CHESS sponsor instructing it to initiate an electronic acceptance on the CHESS system.
  • Provision for a CHESS subregister holder to enter the HIN and sponsoring broker details.

NOTE: Acceptances by CHESS subregister holders can only be initiated through the sponsoring broker or controlling participant.

Dealing with Acceptances

Issuer Operated Subregisters

As acceptances are received they must be checked for proper completion ie signed by the security holder(s) or by the authorised attorney. For certificated subregister holders acceptances must be accompanied by security certificates or if some certificates are missing then a Section1070D statement has been completed validating the acceptance.

Some offer terms permit the offeror company directors to treat as valid irrevocable acceptances even if unaccompanied by all certificates but this is usually subject to the offer becoming unconditional. Other examples of provisional acceptance include acceptances with discrepancies such as authority to sign which has not been established.

Issuer sponsored subregister holders acceptances need only be checked for proper completion.

NOTE: If an offer period is extended all holders who have previously accepted are permitted by the Corporations Act to withdraw and accept at the later date.

CHESS Subregister

In accordance with the SCH Business Rules, CHESS subregister security holders of the target company can only accept a takeover offer by instructing their controlling participant of their acceptance. The controlling participant is then required to transmit an electronic acceptance message to CHESS who in turn will transmit the message to the CHESS approved offeror's registry.

Offer documents sent to CHESS subregister security holders must state acceptance of the offer can only be initiated directly with the holder's controlling participant and not with the offeror's registry.

CHESS subregister participants who hold securities in a single holding or on behalf of one or more persons will have their acceptances tagged with a "distinct portion indicator" to reserve the accepted securities in an "accepted offer" holding subposition.

After the end of the offer period or when the offer has been declared free of conditions the securities held in the holding subposition can be transferred by the offeror's registry initiating an electronic takeover transfer message to CHESS to move the number of accepted securities into the offeror's account set up on CHESS for this purpose.

Declaring an Offer Unconditional

The Corporations Act regulates the timing for an offeror to declare an offer unconditional or to extend the closing date for acceptances. Once a bid has been declared unconditional and advice has been notified to the ASX, CHESS subregister acceptance subpositions can be transferred to the offeror's account.

Issue of Documents Relating to Consideration

Despatch of Cheques

The takeover provisions of the Corporations Law stipulate the timing requirements for payment of the offer price once the offer has been declared unconditional and acceptance period has closed.

It is usual to transfer acceptances on the issuer operated subregisters prior to the despatch of payments. (Refer below to procedures regarding transfer of securities to offeror). For CHESS subregister acceptances payment must be made prior to giving effect to the related transfer message.

Security Certificates

If the takeover consideration includes an allotment of securities the offeror's registry will allot the securities and issue new statements (certificates for certificated subregister holders) and also initiate the electronic holding adjustment messages to CHESS.

Transfer of Securities to Offeror

Once the offer has been declared unconditional acceptances together with completed and stamped standard transfer forms can be forwarded to the target company's registry for registration into the offeror's account.

Issuer Operated Subregisters

Rather than complete individual standard transfer forms it is usual practice to arrange for the completion of a "master transfer" form with details of the total number of securities to be transferred together with supporting list of names, addresses, number of securities accepted and stamp duty calculations. These are forwarded to the State Revenue Office of the State of Incorporation of the target company for stamp duty assessment. Acceptance forms, securities certificates, stamped master transfer, list etc are then forwarded to the target company's registry for registration.

CHESS Subregister

For CHESS holdings the offeror's register electronically transmits transfer messages for accepted subposition holdings. CHESS will transfer acceptances to the offeror's CHESS account. CHESS also electronically notifies the transfer to the offeree's registry.

Stamp duty is payable on the takeover transfers and the offeror's registry must assess the duty payable on each transfer and include the details with the electronic message.

The offeror must then lodge a "Stamp Duty Return and Declaration" form to CHESS together with the payment within than 7 calendar days after the month of transfer.

Dealing with Dissenting Offerees - Compulsory Acquisition

Serving of Notice

After reaching the compulsory acquisition thresholds of 90% of securities and where applicable 75% of offerees, the offeror is entitled to acquire the remaining securities under the compulsory acquisition provisions of the Corporations Act. After the close of the offer a notice of compulsory acquisition is sent to each dissenting offeree. After being given the notice a dissenting offeree, anytime during the next month, may request the offeror for all the names and addresses on the register of dissenting offerees.

Transfer and Consideration

If there are no requests for a list of the dissenting offerees which may extend the expiry date of the notice period or following a court resolution, the offeror is required to a give notice to the target company together with a standard transfer form duly stamped and signed by the offeror transferring the remaining securities to the offeror. (Note that off-market rates of stamp duty apply as the target company's securities are no longer listed on the ASX).

The consideration payable or allotted to the dissenting offerees is also given to the target company who must hold it on trust and if cash, deposit it in a special purpose bank account until claimed by the dissenting offeree or paid over to the ASIC if still unclaimed in accordance with the requirements of the Corporations Law. The target company is also required to send a notice to the dissenting offeree that it is holding the consideration in trust and to enclose a form for the dissenter to claim the amount.

CHESS Requirements

The offeror is required to advise the ASX and CHESS when it is proceeding to compulsory acquisition and when it has sent the notice to dissenting offerees. The target company is then suspended and removed from official listing and CHESS rejects any transfers or conversions of securities after the end of the 7th business day after quotation ceases.

Once the target company has been given a notice to transfer the remaining securities to the offeror the target company's registry must transmit a holding adjustment message to remove all outstanding CHESS holdings. The registry initiates a further holding adjustment notice to move the securities into the offeror's account set up on CHESS.

The offeror's registry then transmits a CHESS to certificated conversion message following which the target company's registry is required to transmit to CHESS to archive the target company's CHESS subregister.

Offers for Securities other than Ordinary Shares

If a target company has securities other than shares on issue ie. Options then it is likely a separate offer will be made to those other security holders. Such offers are not Part A offers and as such do not have to be processed in accordance with the ASTC Business Rules ie. Acceptances for other security holders who are on the CHESS subregister will be in paper form (not electronic) unless the offeror applies to CHESS to provide for the offer for other securities to be treated in the same way as a Part A offer.

At the end of the offer period outstanding securities other than shares cannot be compulsorily acquired. However, offerors may accept counter offers form other security holders after the offer has expired.

Generally companies must be guided by their legal advisers relating to offers for their securities.

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