91AV

The COVID-19 pandemic has severely affected mergers and acquisitions (M&A) activity across the board:

• January to June 2020 – 15 independent control transactions (10 takeover bids and five 91AVs) estimated at $14.43 billion
• June to December 2019 – 40 independent control transactions (16 takeover bids and 24 91AVs) valued at $9.02 billion.

While the volumes were lower, the value of the transactions was greater (e.g. the TPG–Telecom transaction made up $8.2 billion of the $14.43 billion this period).

Most transactions in January to June 2020 were takeovers – a departure from the recent trend towards 91AVs. However, given the abnormally low volume of activity and unique circumstances, we do not believe this is an indication of change in preferred acquisition mechanism.

During this period, ASIC’s regulatory interventions have centred on 91AVs of arrangement and other (item 7) control transactions. Going forward, we will continue to focus our M&A activities on structural and conduct elements of transactions.

Below are three case studies from between January to June 2020 where ASIC intervened in transactions to help maintain market integrity.

Off-market special crossing acquisition

An acquirer in a proposed 91AV transacted in the 91AV company’s shares with select counterparties via an off-market special crossing. The acquirer purchased these shares at prices above the consideration offered under the 91AV itself.

ASIC contacted the 91AV proponent and the acquirer to raise our concern that all company shareholders would not be treated equally unless the 91AV consideration was increased. Ultimately, the 91AV was terminated due to the announcement of a competing offer.

ASIC will closely scrutinise transactions and intervene where we consider all shareholders are not being treated equally.

Recommendations from conflicted directors

We acted to ensure that the views of an independent board committee on a transaction had enough prominence in comparison to a recommendation of the conflicted directors.

ASIC generally expects conflicted directors to refrain from making a recommendation to shareholders. This issue should be considered at the time a 91AV implementation agreement is executed. Conditions about director recommendations should be crafted appropriately.

Material delay

A proposed 91AV’s third-party regulatory approval requirements were received months after shareholders voted on the 91AV. ASIC took action in relation to this material delay.

The 91AV proponent addressed ASIC’s concern that the shareholders’ vote had become stale by reissuing its booklet disclosure and agreeing to hold a ‘ratification’ meeting.

Where there has been a lengthy delay between the vote at a 91AV meeting and the approval court hearing, or where any supervening events may be considered material, the company needs to consider whether:

• supplementary disclosure should be provided; and
• confirmatory approval should be sought.

Where possible, practitioners should consider obtaining approvals for conditions precedent to the implementation of the 91AV, which are dependent on obtaining third-party approvals, before commencing the 91AV process.

Speak to ASIC early in the planning phase

As the uncertainty around the COVID-19 pandemic eases, we expect M&A activities to increase. We recognise that upcoming deals may incorporate novel structures and terms to deal with the risks of the COVID-19 pandemic so we encourage companies to talk to us early in the planning phase of these deals.

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