A.C.I adopts take-over code

Press, 22 May 1978, Page 21

A.C.I adopts take-over code

Australian Consolidated i Industries, Ltd, has adopted the strict proposed Australian take-over code, which was announced last Monday/ in its bid for Vulcan Industries, Ltd. In a short message to stock exchanges, the directors of the company say: “In accordance with the reported provisions of the proposed, new take-over code, as an-; nounced on Monday, May; 15, Australian Consolidated Industries, Ltd, advises that the company has an interest of 15.56 per cent in the shares of Vulcan Industries,' Ltd, and will make daily disclosures of any acquisitions.” The new code, including controls on creeping bids, has been agreed upon byj Australian Federal and State! Ministers responsible for corporate affairs, reports thej “Australian Financial Review.” The code, apart from controlling take-overs by' stealth, will restrict mis- ■ leading announcements by, offerors and protect small! shareholders by requiring' disclosure of escalation [ clauses. However, the- Ministers i decided against a recommendation by the Attorney-j General of New Sou-.i Wales' (Mr Frank Walker) to es-: tablish a take-over panel [ similar to that in the City of! London.

Because of the urgency taken on the code, legislation for it is expected to be introduced into State and Commonwealth Parliaments later this year. The take-over legislation is firstly to provide that a take-over offeror is prohibited from making only bids to selected shareholders. Second, where a bid is made for only part of the shares of a company, the offeror is required to prorata the acceptances so that each shareholder has the same proportion of his shares acquired by the offeror. The effect of these moves is to prohibit “first-come, first-served” bids. The proposed legislation allows for escalation clauses, because the Ministers believed it was part of common business practice. However, the escalation clauses must now be made public to provide for an informed market. An escalation clause is an agreement between the takeover bidder and a particular shareholder of the target company, such as a major institution, for the sale of the shareholder’s shares at a fixed price under which the offeror promises to pay this shareholder a higher price if he is forced to pay a higher price to other shareholders — on the open market for instance.

; Disclosure allows a share-' : holder to decide whether to : sell or hold to see if a higher price can be obtained fcrr the shares. Limits are also placed on those who do not make a take-over offer or like offer [to all shareholders. > First on obtaining 20 j per cent of a company’s! .capital the person will be I ; prohibit from purchasing I any further shares in the I company for four months. Second, at the end of I i four months he may resume [ purchasing shares at only 5 i per cent in any period of) tour months. This is to prevent attempts; to gain control of a company : without making a formal of-1 !fer, and would cover the “creeping bid.” The code also covers a .person wishing to acquire, j shares in a company in excess of the restricted quan- ! tides sei out above, but does not want to make a formal [offer. [ The relevant person would have to unconditionally undertake to purchase for a one-month period on the stock exchange at a publicly announced specified price all shares offered to him at that [price. : Upon acquiring 90 per cent, I he must buy the rest of the j shareholding of the company. The code also provides chat those holding more than; 5 per cent in the company

being bidded for, must make daily disclosures of acquisitions or dispositions. Restrictions are also placed on making statements by both the offerer and the offeree that relate to profits and profitability, and the take-over target may' not make statements as to the market value of its assets [which differ from the book value of the company, unless the value specified is backed up by independent expert advice.

The decision against a take-over panel was taken because of the difficulties in implementing such a body nation-wide and that the rules of the panel might infringe on existing stock exchange regulations.