Manhattan/MYOB: Be Careful What You Intend

What you need to know

• Be aware that ASIC's "Truth in Takeovers" policy¹ means that certain public statements by participants in a takeover bid (referred to as "last and final" or "best and final" statements) are effectively binding.

• The Panel considers that unqualified statements by shareholders to a bidder of an intention to accept a bid can create a relevant interest for the bidder in the shares held by those shareholders and, if those statements relate to shares exceeding the 20% threshold, amount to a contravention of the Corporations Act.

• Bidders can still solicit statements of intention to accept a bid provided that such statements are suitably qualified. Typically, this means that the shareholders would state that they will accept the bid in the absence of a superior proposal.

• Cost agreements between a bidder and a major shareholder are likely to require disclosure in the bidder's statement.

Background

On 30 October 2008, Manhattan Software Bidco Pty Ltd (a bid vehicle for Archer Capital and HarbourVest Partners) announced an off-market takeover bid for MYOB Limited.

Manhattan's bid announcement and bidder's statement included the following statement:

"A number of MYOB institutional shareholders have already indicated to Manhattan Software that they will accept the Offer as soon as the Offer opens for all of their MYOB shares. These shareholders are Guinness Peat Group Australia, Colonial First State Global Asset Management Australian Equities, Growth Team and Octavian Special Master Fund, LP. MYOB's other significant institutional shareholder, Schroders Investment Management, has also indicated an intention to accept the Offer once it is open on the basis that acceptance will increase the likelihood of the Offer being increased to $1.25². In aggregate, MYOB Shareholders that have indicated that they will accept the Offer once it is open represent 34% of the outstanding shares and 48% of the non Board member shareholdings."

Each of the identified MYOB shareholders had consented to the unqualified intention statements above.

The Panel made a declaration of unacceptable circumstances and final orders in connection with the statements outlined above, including, broadly, that:

• each of the MYOB shareholders that consented to the unqualified intention statements (MYOB Institutional Shareholders) were released from their obligation to accept the Manhattan bid;

• none of the MYOB Institutional Shareholders were permitted to accept the Manhattan bid before 9 December 2008; and

• each of the MYOB Institutional Shareholders were required to accept a superior proposal if one was announced before 9 December 2008 and no further superior proposal was made (including a further superior proposal by Manhattan).

Commentary

It is common for bidders to solicit statements of intention in relation to acceptance of the bid from directors and key shareholders prior to the bid announcement. The application of ASIC's "Truth in Takeovers" policy means that these statements effectively become binding obligations on each of the directors and the key shareholders to accept into the bid and, accordingly, provide important reassurance for bidders.

However, the standard terminology used in these announcements is that those shareholders or directors intend to accept the bid in the absence of a superior proposal (or similar words). By including this qualification, there is scope for continued competition for control of the target and, of course, the shareholders are able to accept any improved offers.

However, the Panel did not rely on the "Truth in Takeovers" policy or similar reasoning³ in the MYOB decision, rather the Panel focussed on the agreement, arrangement or understanding between Manhattan and the MYOB Institutional Shareholders. The Panel determined that the unqualified intention statements and the consent of the MYOB Institutional Shareholders to those statements appearing in the bidder's statement (supported by other evidence) gave rise to at least an understanding between Manhattan and MYOB Institutional Shareholders that they would accept into the bid immediately after it opened and gave Manhattan a relevant interest in the shares of the MYOB Institutional Shareholders in contravention of the Corporations Act.

Even if the circumstances hadn't amounted to a contravention, the Panel held that the circumstances would have still amounted to unacceptable circumstances due to the effect they had on an efficient, competitive and informed market and on control or potential control of MYOB.

The Panel made it clear that the decision does not affect a bidder's ability to solicit statements of intention from key shareholders and directors stating:

"We should not be taken to be saying that a shareholder cannot make a statement that attracts the truth in takeovers policy without giving rise to a relevant interest. A bidder is free to canvass a shareholder on its likely reaction to a bid. The shareholder may inform the bidder that its present intention is to accept the bid."

In our opinion, this should extend to where those statements relate to shares exceeding 20% of the target company provided that those statements are suitably qualified (that is, they allow the makers of the statement to accept a superior proposal should one arise). In our view, these qualified statements do not have an unacceptable impact on an efficient, competitive and informed market or on control or potential control of target companies. In fact, these statements are likely to aid in ensuring that the market is appropriately informed about the intentions of key shareholders in relation to a bid without inhibiting competition for control of the target.

Despite the statement from the Panel above, you should be cautious about qualifying an intention to accept the bid only by using the words "present intention". In the "Truth in Takeovers" policy, ASIC made it clear that stating that an action was intended rather than to occur (i.e. "we intend to accept" rather than "we will accept") was not a sufficiently clearly qualified statement. We think that there is similar risk with using the words "present intention" and we do not think the Panel intended that such words be used to qualify a statement. We recommend that shareholders use more typical qualifying words such as "we will accept the bid in the absence of a superior proposal".

The Panel also mentioned that Manhattan and GPG (through related parties) entered into a cost agreement in relation to that bid and indicated that this was material information that should be included in a supplementary bidder's statement.

Footnotes

1 ASIC Regulatory Guide 25 "Takeovers: false and misleading statements"

2 The actual price to be paid by Manhattan is reduced by $0.1285 for a share capital reduction.

3 The Panel has adopted reasoning similar to that underpinning ASIC's "Truth in Takeovers" policy in other decisions – see, for example, Rinker Group Limited 02R

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.