Herbert Smith Freehills survey reveals new insights on takeover issues

Herbert Smith Freehills survey reveals new insights on takeover issues

07 June 2021 By Lauren Croft
Herbert Smith Freehills survey reveals new insights on takeover issues

Tony Damian, Amelia Morgan

Proxy advisers’ influence is rarely appropriate in change of control situations, according to a new survey from Herbert Smith Freehills. 

The international law firm surveyed leading ASX non-executive directors on key takeover issues for Takeovers – the view from the top, which showed a few changes since similar research from Herbert Smith Freehills in 2016. 

The survey explores key takeover issues including board preparedness and discretion in responding to change of control approaches, the role of third parties such as proxy advisers and private equity bidders, as well as topical issues regarding the legal and regulatory framework. The interaction of COVID-19 with takeover situations is also explored.

The survey found that nearly 70 per cent of respondents agreed that target boards treat approaches from private equity differently from other bidders, and only 19 per cent of respondents considered that proxy advisers’ influence in change of control situations was appropriate.

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Takeovers – the view from the top was conducted by Herbert Smith Freehills partner Tony Damian and senior associate Amelia Morgan. Mr Damian said that despite proxy advisers’ influence rarely being appropriate, their roles within the M&A market was increasing. 

“It’s a very active M&A market and this survey shows the perspective that boards bring to takeover situations. Importantly, the increasing role of activists, proxy advisers and superannuation funds in M&A is evident in the survey responses,” he said. 

The survey follows on from similar research conducted five years ago in the takeovers book Towns Under Siege, published by Herbert Smith Freehills in conjunction with the Ross Parsons Centre at the University of Sydney.

The firm’s latest survey highlights a number of shifts in perspective since 2016, including that over 40 per cent of respondents indicated that target boards do not have sufficient discretion in determining whether and when to publicly disclose approaches from potential bidders, versus just under 25 per cent of respondents who responded to similar research in 2016. 

Additionally, approximately 40 per cent of respondents considered that Australia’s foreign investment rules strike the right balance between the protection of Australia’s national interest and the economic benefits that can flow from change of control transactions, compared to approximately 50 per cent in 2016.

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The valuation of companies has always been a complex issue, and COVID-19 has only increased this complexity. However, according to the survey, over 50 per cent of respondents agreed or strongly agreed that Australia is now sufficiently through the pandemic and that companies can be reliably valued for a change of control transaction.

“It was interesting to see that, despite the ongoing COVID-19 pandemic, a majority of respondents believe that companies can be reliably valued for change of control transactions, suggesting that companies have become accustomed to operating in this environment,” Ms Morgan said.

Herbert Smith Freehills survey reveals new insights on takeover issues
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