Two Herbert Smith Freehills M&A partners, Rodd Levy (pictured left) and Baden Furphy (pictured right), have called for reforms to Australia’s takeover law, with four key proposals.
"Despite takeovers being regarded as an integral part of the operation of equity markets and of the Australian economy, there has been no general review of the principles underlying our takeovers laws for many decades," Mr Levy, who is also a member of the Australian Takeovers Panel, said.
"In this respect, Australia lags behind many overseas countries which have revised their rules from time to time as their markets have developed."
According to Mr Furphy, current elements of the regulatory framework are overly complex and in some cases unnecessary.
"Our suggested reforms are intended to reflect the current principles in legislation of providing fairness for shareholders, and to promote greater takeover activity for the benefit of the Australian economy," he said.
The first proposal is that a person who controls more than 50 per cent of the shares in a company should be free to acquire further shares without having to make a bid or satisfy another exemption.
Mr Levy and Mr Furphy believe that the law should focus only on transactions resulting in a change of control, and that regulating acquisitions by a person already in control just introduces red tape and unnecessary cost.
The second proposal is that all bids should be subject to a mandatory 50 per cent minimum acceptance condition so control of the target company only passes at a price acceptable to the majority of shareholders.
According to Mr Levy and Mr Furphy, this would bring our laws into line with the rules in many other jurisdictions and would ensure that effective control could not pass quickly unless the bid was strongly supported.
Thirdly, they proposed that where a bid has been recommended by target directors, the bidder should be able to compulsorily acquire all the shares in the company if it achieves acceptances for 75 per cent of outstanding shares.
Mr Levy and Mr Furphy consider that the dual test of target director support and 75 per cent acceptance provides sufficient protection. Lowering the threshold from 90 per cent to 75 per cent would bring the rule more into line with the rule applying in scheme of arrangement, reductions of capital and alterations to company constitutions.
Lastly, they proposed that a bidder should be free to obtain commitments to accept the bid from shareholders with more than 20 per cent of the shares on issue, subject to the commitment lapsing if a higher bid is made.
Mr Levy and Mr Furphy said this is the ordinary effect of our rules now with bidders frequently securing public commitments under the 'truth in takeover' rule anyway. Introducing a specific rule would at least clarify the legal position.