Corporate M&A 2025 Comparisons

The Australian public M&A market rebounded strongly in 2024, with 74 public M&A transactions being the largest number of deals announced within a calendar year since 77 transactions were announced in 2012, over a decade earlier.

The private M&A market was equally robust and included Australia’s largest transaction for the year – the A$24bn acquisition of data centre provider AirTrunk by Blackstone and the Canada Pension Plan Investment Board. 

The impetus for improved M&A activity in 2024 emanated from a combination of:

• increasing economic certainty and stability due to a decline in inflationary pressures and interest rates being locked at 4.35% for the duration of the year (noting the Reserve Bank of Australia recently cut interest rates to 4.1% in February 2025). While the extent of further rate cuts internationally and domestically is far from certain, the tightening cycle appears to be over;
• the availability of quality assets combined with a perception that Australia remains a jurisdiction with a relatively safe and stable governmental and regulatory environment; and
• better alignment in pricing expectations between buyers and sellers.

In the first quarter of the 2025 calendar, the Australian M&A market is showing no signs of slowing down, as evidenced by a string of competitive bid situations presently playing out. 

Some of the key trends in Australian M&A have been outlined below.

• Technology sector growth: digital transformation, including the adoption of generative artificial intelligence, has occurred across various industries and increased the demand for companies with advanced technological capabilities and digital innovation.
• ‘Dual track’ structures:  Continued use of dual-track (concurrent) scheme and takeover bid structures (see 3.1 Significant Court Decisions or Legal Developments).
• Private equity activity: private equity firms have amassed significant capital and actively seek investment opportunities to deploy that capital. Private equity firms are also due to exit long-held Australian investments. 
• ‘Stub-equity’:  Stub-equity deals involve offering target shareholders flexibility to maintain an investment exposure in the target rather than exiting in full for cash at a point in the cycle where they may perceive the potential for higher future value.
• Shareholder activism: this continues to be prevalent in Australian M&A transactions (see 11. Activism).
• Cross-border M&A: despite heightened geopolitical tensions and increased regulatory scrutiny, Australian companies are still engaged in cross-border transactions, whether as targets or acquirers. With the Australian dollar recently hitting a five-year low against the US dollar in January 2025, offshore acquires are likely to see significant value in Australian targets, which are ‘ripe’ for M&A transactions.
• Consolidation: in sectors such as energy, mining, building materials, technology and financial services, companies are merging to achieve economies of scale, diversify their operations, and enhance competitiveness.

Transactions in the following four industries dominated the Australian M&A market in the past 12 months:

• technology;
• mining and minerals;
• energy and resources; and
• industrials. 

In particular, we saw significant demand for technology companies focused on cloud computing, data protection/storage, cyber security and generative artificial intelligence, mining and minerals companies focused on the development and extraction of gold, copper, aluminium and rare earth minerals, companies supplying and servicing renewable energy businesses and industrial companies supplying building materials to Australia’s housing and infrastructure sectors, buoyed by significant Government funding commitments.

In Australia, the legal avenues for acquiring a company fall into one of the four primary categories outlined below. The first two are used for privately negotiated acquisitions of closely held companies and are regulated by the general law of contract, with limited statutory overlay. The last two are used to acquire widely held public companies, principally ones that are listed on the Australian Securities Exchange (ASX) and are highly regulated by statute and guidance published by regulators.

Share Purchase

This is when an individual or a company buys all or a majority of the shares in another company. On completion, the target company continues to own all of its operating assets, all of its intellectual property, and all of its regulatory licences and permits; it continues to hold the benefit and the burden of its contractual arrangements to employ all of its employees and to be exposed to its actual and contingent liabilities. There is a change in the upstream ownership of the shares and a reconstitution of the target’s board, which comprises nominees of the buyer. Typically, this change in control triggers a requirement to obtain consent from counterparties to the target’s material contracts and from regulatory authorities that have issued relevant licences and permits to the target company.

Asset Purchase

In an asset purchase, the buyer acquires specific company assets rather than buying shares. The buyer typically also takes on an assignment or novation of key customer, supplier, or other material contracts and makes offers to re-employ the existing workforce. The buyer also typically assumes only specific liabilities of the company, such as accrued employee entitlements. Employees do not automatically transfer in an asset purchase. If, as is usually the case, the buyer wants to retain the existing workforce, the employees’ employment with the seller company terminates, and the buyer makes new offers of employment. An asset purchase is often intended to deliver the same economic outcome for a buyer as a share purchase (namely, ownership and control of the target’s underlying business) but without exposure to the target company’s actual or contingent liabilities (eg, tax, litigation and regulatory compliance), beyond the specific liabilities that the buyer is willing to assume.

Takeovers

This is the conventional structure for acquiring an ASX-listed public company or an unlisted public company with more than 50 shareholders. Under a takeover, the prospective acquirer (bidder) makes separate identical offers directly to all target shareholders to purchase their shares in exchange for cash, shares in the acquirer (“scrip”) or a combination of cash and scrip. A takeover bid can be either an off-market bid or an on-market bid. On-market bids are rare, as these must be for cash only and unconditional. Usually, an off-market takeover bid is subject to conditions (see 6.4 Common Conditions for a Takeover Offer). Takeover bids are characterised as “friendly” or “hostile” depending on whether the bidder has secured the support of the target’s board in publicly recommending acceptance of the bid.

Scheme of Arrangement

Acquiring a widely held Australian public company can often be accomplished through a members’ scheme of arrangement. In fact, most friendly takeovers of such companies are now conducted using this method. A scheme is a process initiated and managed by the target company, in which the target proposes a "scheme" (plan) for approval by its shareholders. Typically, the scheme involves all the shares of the target being transferred to the prospective acquirer in exchange for payment, which can be made in cash and/or shares. If the scheme is approved and implemented, the target continues to exist as a corporate entity – the scheme process does not automatically dissolve it. The target simply becomes a wholly-owned subsidiary of the acquirer. If the target is listed on ASX, it will be de-listed shortly after implementation of the scheme.

A scheme requires the approval of the target shareholders and the court. Specifically, a scheme needs the approval of at least:

• a simple majority of the target’s shareholders by number present and voting at a meeting convened by order of the court; and
• representing at least 75% of the votes cast (excluding any votes cast by the prospective acquirer or any of its associates if they hold any target shares).

Importantly, shareholders who do not vote (due to apathy, being untraceable or otherwise) are not counted for this purpose and, therefore, do not affect the scheme voting process. 

Between these four primary acquisition methods, the chosen method depends on various factors, including the target company’s size and ownership structure, the acquirer’s objectives, and tax considerations. Legal, taxation and financial advice are typically taken at the preliminary stages of a potential transaction to determine the most appropriate method. 

In Australia, M&A activity is primarily regulated by the following authorities.

Australian Securities and Investments Commission (ASIC)

ASIC regulates Australian companies, financial markets, and financial services organisations. Its remit is to ensure markets are fair and transparent.

Australian Securities Exchange (ASX)

The timetable and general process for a takeover or scheme of arrangement must comply with ASX’s listing rules.

The Courts 

If the proposed transaction is structured as a scheme of arrangement, the Federal Court of Australia or a State Supreme Court is required to review and approve the scheme. There are two court hearings in the scheme process. At the first hearing, the court determines whether exercising its discretion to convene the scheme meeting is appropriate. If the scheme is approved by shareholders at that meeting, the target (scheme) company returns to court for a second hearing seeking orders to approve the scheme. Court approval of a scheme is primarily concerned with ensuring that procedural and disclosure requirements have been satisfied; the court’s role is not to assess the commercial merits of the scheme.

Australian Competition and Consumer Commission (ACCC)

The ACCC, as Australia’s antitrust agency, regulates M&A transactions to ensure they do not substantially lessen competition. It has the ability to take enforcement action in court (including to seek to injunct a transaction) or may require undertakings (eg, a divestment) before clearing a transaction. On commencement of Australia’s new merger control reforms on 1 January 2026 (see 3.2 Significant Changes to Takeover Law), the ACCC will become the primary decision maker and may prevent the implementation of a transaction without having to take enforcement action in court.

Foreign Investment Review Board (FIRB)

FIRB examines certain proposals by foreign persons to invest in Australia, including through M&A transactions. FIRB makes a recommendation to the Treasurer of the Commonwealth Government whether to object to the proposed investment. This recommendation is based on FIRB’s assessment of whether the proposed foreign investment is contrary to Australia’s national interest.  The overwhelming majority of applications for FIRB clearance are approved (see further 2.3 Restrictions on Foreign Investment).

Takeovers Panel

The Takeovers Panel is the primary forum for resolving disputes about a change-in-control transaction involving an ASX-listed public company or an unlisted public company with more than 50 shareholders. It was established to resolve takeover disputes swiftly and cost-effectively while removing tactical litigation from the courts. The Takeovers Panel can make declarations of unacceptable circumstances and has the power to make a broad range of remedial orders.

Foreign investment in Australia is primarily regulated by the Foreign Acquisitions and Takeovers Act 1975, which is administered and enforced by FIRB. FIRB reviews foreign investment proposals and advises the Treasurer of the Commonwealth Government on whether those proposals are contrary to Australia’s national interest.

For M&A transactions, some key points regarding foreign investment restrictions in Australia include the following.

Notification requirement

“Foreign persons” must notify FIRB before making a significant investment in an Australian entity or business. A subset of “foreign persons” known as “foreign government investors” (FGIs) are required to notify FIRB of a broader range of proposed transactions.

Percentage and monetary thresholds

Depending on the type of investment, certain percentage and monetary thresholds apply, which, if exceeded, will require FIRB approval. The thresholds vary based on the type of investment, the country of origin of the investor and whether the investor is characterised as an FGI. 

Sensitive businesses

Businesses in certain sensitive sectors such as media, telecommunications, transport, defence, and military-related industries may attract more scrutiny and may require approval regardless of the value of the investment.

National interest

All foreign investment proposals are examined case-by-case to assess whether they are contrary to Australia’s national interest. Factors considered can include the impact on national security (see 2.6 National Security Review), competition, the economy, the community, and the investor’s character.

Consultation

To inform its assessment of whether a foreign investment proposal is contrary to Australia’s national interest, FIRB consults with a range of government departments and agencies.

Conditions

The Treasurer may impose conditions on an investment to ensure that Australia’s national interest is appropriately protected. These include conditions to ensure Australian taxation laws are complied with, conditions relating to the storage of and access to customer data, cybersecurity conditions, and governance conditions. 

“Standstill”

It is an offence to complete (close) or otherwise proceed with a proposed transaction before receiving FIRB clearance. The penalties are imprisonment and/or substantial fines. Transaction documents may be signed prior to obtaining FIRB clearance, provided there is a condition precedent relating to FIRB clearance and the agreement does not become unconditional before receiving that clearance.

Timeframe

The timeframe for approval varies significantly depending on a range of factors such as:

• the complexity of the proposed transaction;
• the sensitivity of the sector;
• the character and country of origin of the applicant;
• whether the acquisition raises potential antitrust (competition), national interest or national security concerns; and
• whether the application straddles a shut-down period for FIRB over late December to mid-January and whether the application straddles a federal election period, during which FIRB typically enters a caretaker mode.

Considering these broad variables, approval can take as little as six weeks for straightforward applications and several months for more complex or sensitive ones.

No avenue of appeal

The Treasurer’s decision on whether to grant FIRB clearance is final; that is, there is no avenue of appeal.

In Australia, the Competition and Consumer Act 2010 (CCA), which is administered and enforced by the ACCC, regulates the acquisition of shares or assets which have the effect or are likely to have the effect of substantially lessening competition (SLC) in any Australian market. The CCA applies to domestic and offshore transactions. 

Significant reforms to Australia’s merger clearance regime are imminent (see 3.2 Significant Changes to Takeover Law). With effect from 1 January 2026 (with transitional arrangements available from 1 July 2025), Australia’s voluntary notification regime will be replaced by a mandatory and suspensory model under which transactions that satisfy certain prescribed thresholds must be notified to the ACCC. 

The Fair Work Act 2009 (Cth) governs Australia’s labour or industrial relations laws. This legislation establishes a range of standards for employment conditions and regulates the relationship between employers and employees.

Some important considerations for acquirers in relation to labour laws during M&A transactions are set out below.

• Transfer of business: If a business is sold by way of an assets transfer and the employees accept employment with the new owner, the new owner must recognise their prior service with the old employer to determine entitlements such as annual leave and personal/carer’s leave.
• Redundancy: Employees may be entitled to redundancy or severance pay if made redundant due to a business acquisition. The amount is usually based on the employee’s length of continuous service with the employer. However, the employee may not be entitled to redundancy pay if the employee was offered employment with the new owner and refused.
• Unfair dismissal: Certain classes of employees who believe they have been unfairly dismissed can apply to the Fair Work Commission for a remedy. Any dismissals relating to a business acquisition must be carried out lawfully.
• Long-service leave: Long-service leave entitlements are based on the laws of each state and territory and can sometimes be complex in a business transfer situation. Generally, the new employer takes on the liability for employees’ accrued long-service leave.
• Superannuation (pension): Employers must contribute a minimum percentage of each eligible employee’s earnings (currently 10%) to a complying superannuation fund. This obligation continues even if the business is sold or transferred.

FIRB reviews certain foreign investment proposals, including mergers and acquisitions, to determine whether they are contrary to Australia’s national interest. This entails considering the impact of the proposed investment on national security. In January 2021, a new national security regime for Australian foreign investment commenced. Under these reforms, the following apply:

Mandatory Notification

Foreign persons must obtain prior FIRB approval for starting or investing in a “national security business”, regardless of the foreign person’s country of origin and the investment’s value. This includes businesses in sectors such as defence, telecommunications, and critical infrastructure (such as energy, water and ports).

Last-Resort Power

The Treasurer has the ability to reassess previously approved foreign investments where subsequent national security risks emerge. This power can be used to make divestment orders and unilaterally impose a new condition or vary existing conditions, even after FIRB approval.

Call-In Power

Investments not notified to FIRB that may raise national security risks can be reviewed by the Treasurer by means of call-in power. The Treasurer can “call in” these investments for review for up to ten years after they are completed and decide whether to impose conditions or order divestment.

In the public M&A space, Australia’s most significant legal development in recent years is the heightened use of a dual-track (concurrent) scheme and takeover bid structure. This dual-track structure typically entails a prospective acquirer launching a scheme and a takeover offer concurrently: the takeover offer is priced slightly below the scheme, with the takeover offer being conditional on the scheme vote failing. In this sense, the takeover offer is a “Plan B” offer structure, but it is formally initiated at the same time as the slightly higher-priced “Plan A” scheme. 

This dual-track offer structure is typically used where an existing shareholder of the target – who might emerge as an opposing shareholder and/or a competing bidder – holds a stake large enough to potentially vote down the Plan A scheme (noting that a scheme requires the approval of at least 75% of the votes cast), but where that opposing stake is not large enough to defeat a Plan B takeover with a 50.1% minimum acceptance condition. However, this is only a viable option for acquirers prepared to accept the possibility of ending up with less than 100% ownership of the target under the Plan B takeover.

In 2024, the dual-track structure was most notably deployed by Japanese energy generation company J-POWER on its acquisition of renewable energy developer Genex Power Limited. J-POWER successfully deployed the dual-track structure as a means to circumvent the potential for a major shareholder holding a 19.9% stake in Genex to block a J-POWER acquisition.

Other significant legal developments include clarification of the Takeovers Panel’s approach to standstill agreements (see 5.4 Standstills or Exclusivity), potential reform, among other things, to enhance disclosure in relation to interests held in ASX-listed entities through equity derivatives (see 4.5 Filing/Reporting Obligations) and the significant changes to Australia’s merger control regime (see 3.2 Significant Changes to Takeover Law).

There are major reforms to Australia’s merger control regime on the horizon, with legislation passed by the Federal Parliament in November 2024, which will overhaul Australia’s existing voluntary informal merger clearance regime and replace it with a mandatory, suspensory regime. 

Under the reforms, transactions involving the acquisition of shares or assets that meet prescribed notification thresholds and other criteria must be notified to the ACCC (subject to limited exceptions). The suspensory nature of the regime prevents parties from closing or taking steps to close a transaction before clearance has been obtained. 

The new regime will commence on 1 January 2026, with transitional arrangements that allow acquisitions to be notified under the new regime commencing on 1 July 2025. 

Hostile Takeover Bid

For public M&A transactions, acquiring a pre-bid stake may be a helpful strategy for a bidder. Particularly in a hostile takeover bid, a bidder will typically confidentially approach one or more major target shareholders to purchase their shares up to the 19.9% limit. A pre-bid stake can be helpful for a hostile takeover bid as it not only gives the bidder immediate momentum but also creates a strong platform to achieve the control threshold of 50.1% and may discourage a third party from making a rival offer.

Friendly Takeover Bid

In a friendly takeover bid, or where the transaction proceeds by way of a recommended scheme of arrangement, the need for a pre-bid stake is less pressing. This is because the bidder will benefit from the target board’s public recommendation that the target shareholders accept the bidder’s offer. Nevertheless, a pre-bid stake may help discourage a third party from making a rival offer. That said, the presence of a pre-bid stake (even up to the maximum of 19.9%) has consistently been shown not to act as a deterrent to rival bidders.

Scheme of Arrangement

Also, in a scheme of arrangement, a large pre-bid stake may be counter-productive for the acquirer: any target shares held by the acquirer are excluded from voting on the scheme or must be voted in a separate class. This makes achieving the voting approval thresholds for a scheme harder, not easier.

Call Option

As an alternative to an outright purchase of shares, an effective stake can be acquired by the use of a call option granted by a target shareholder to the acquirer. The call option is typically only exercised by the bidder if a competing proposal for the target emerges. Therefore, the call option can be advantageous to the acquirer in warding off the threat of a competing bidder and also has the advantage of not requiring any immediate financial outlay by the acquirer (beyond the typically nominal fee for the grant of the call option).

For an ASX-listed company, the key shareholding disclosure threshold is 5%. A person must file a “substantial holder notice” with ASX and the target if the person has a relevant interest in 5% or more of the voting shares in the entity. They must then disclose subsequent movements of 1% or more up or down in their voting power in the company.

Australia’s corporations legislation imposes certain restrictions on persons building a stake in ASX-listed entities or unlisted companies with more than 50 non-employee members.

The most significant of these restrictions is the takeovers prohibition, which states that an individual, along with their associates or related parties, cannot acquire shares if doing so would result in them holding “voting power” in more than 20% of the entity. However, there are several exceptions to this 20% prohibition. The most relevant exceptions for Australian M&A transactions allow for the acquisition of shares above the 20% threshold through either a takeover bid or a scheme of arrangement.

Dealings in derivatives are allowed in Australia.

The Takeovers Panel expects disclosure whenever the long position of a person and their associates is 5% or more, and if so, where that position changes by at least 1% or falls below 5% (in line with the equivalent position with physical holdings as described in 4.2 Material Shareholding Disclosure Threshold).

In November 2024, the Commonwealth Treasury released a consultation paper, including a draft bill, regarding changes to Chapters 6 and 6C of Australia’s Corporations Act to enhance the substantial holding and tracing notice regimes, which, amongst other things, govern the disclosure of beneficial ownership for listed entities.

If the proposed reforms are implemented as currently drafted, there will be a substantial increase in the number of market participants required to disclose their material shareholdings. This includes banks and funds that trade in equities and derivatives without any intention of gaining control, as well as foreign-registered companies listed on Australian markets. It remains to be seen whether the proposed reforms, as currently drafted, will be enacted.

Whether or not the holder of a long position is contemplating a control transaction, the Takeovers Panel expects disclosure of all long positions over 5%. This promotes an efficient, competitive and informed market. Where a derivative position exceeds 20%, the Takeovers Panel considers that this may constitute unacceptable circumstances unless the holder of the position is not attempting to influence control of the company and would otherwise be able to rely on the 3% creep exception under the Corporations Act.

As discussed above, the Commonwealth Treasury has proposed reforms requiring enhanced disclosure of equity derivative positions.

An ASX-listed target must only disclose a deal when a definitive agreement is signed. This disclosure should attach a copy of the definitive agreement so that all market participants (including potential competing bidders) can assess the full terms, conditions, and deal protection arrangements agreed upon by the target.

ASX’s guidance confirms that a target company is not required to disclose the receipt of a non-binding indicative proposal, provided it remains confidential. By their nature, these proposals are subject to due diligence and further negotiation. Therefore, ASX considers that they are insufficiently definite to warrant disclosure.

Despite this, the Takeovers Panel expects disclosure of the material terms of any deal protection arrangements at the non-binding indicative proposal stage, where those arrangements include an obligation on the target to:

• notify the prospective acquirer of the identity of a competing bidder or the terms of its competing proposal; or
• recommend a transaction if the prospective acquirer makes a binding proposal on terms consistent with its indicative proposal (or if a material cost reimbursement fee would be payable by the target if the target board failed to recommend a binding proposal on the same or better terms than the indicative proposal).

Market practice on the timing of disclosure sometimes varies from the legal requirements. For example, many target boards elect to voluntarily disclose the receipt of a non-binding indicative proposal. The usual rationale is that:

• this signals to the market that the company is potentially in play, generating the potential for competing proposals to emerge; and
• publicly announcing the receipt of an indicative proposal and its price may neutralise the pressure tactics that the prospective acquirer may otherwise use (eg, leaks to key shareholders and/or the media), and it puts the onus on the prospective acquirer to firm up its approach.

The scope of due diligence generally extends to financial, operational, legal, and regulatory matters. An acquirer will focus its due diligence on areas of the target’s business which are of specific concern or importance to it. These include the target’s capital structure, key contracts, real property ownership and/or occupancy arrangements, intellectual property, labour law (employment) arrangements, debt financing and associated security arrangements, litigation exposure, and regulatory compliance issues.

For a Target Listed on ASX

If the target is listed on ASX, there is typically a large volume of public filings and other publicly available information that a prospective acquirer can review beforehand. If the target agrees to allow the prospective acquirer to undertake due diligence, this will entail access to the target’s non-public information. Access to that information is intended to allow the prospective acquirer to confirm matters already identified in its prior due diligence review of the target’s publicly available information and/or to close any specific information gaps.

Standstill Restriction

An ASX-listed target that agrees to provide a prospective acquirer with due diligence access to its non-public information will typically insist that the prospective acquirer agrees to a standstill restriction. This precludes the prospective acquirer from acquiring any (further) target shares other than through a transaction structure that is publicly recommended by the target’s board or with the target board’s consent. Sometimes, other exceptions are negotiated. The Takeovers Panel’s expectation is that standstill restrictions should not exceed 12 months. Otherwise, they unduly inhibit a potential change of control of the target.

The Takeovers Panel has also confirmed, through its 2024 decisions in Metallica Minerals Limited and Westgold Resources Limited, that it is unlikely to interfere with commercially agreed standstill provisions to enable a party to be released from a standstill in circumstances where commercial situations have developed or changed following agreement of the standstill or despite no confidential information having been provided.   

Exclusivity

In a “friendly” takeover of an ASX-listed target, the prospective acquirer will, as part of its non-binding indicative proposal, usually request a period of exclusive due diligence access to firm up its proposal. Whether exclusivity is granted is a matter for the target board to assess. This entails evaluating whether other interested parties could likely emerge, as well as the overall attractiveness of the indicative offer.

If a target board is minded to grant exclusivity at the non-binding indicative proposal stage, it should ideally negotiate a so-called “fiduciary carve out”. This allows the target to disregard its exclusivity obligations if it receives an unsolicited proposal from another party that is or could be superior. Increasingly, prospective acquirers are seeking and receiving, at the non-binding indicative proposal stage, so-called “hard” exclusivity; that is, a fixed period of exclusivity with no fiduciary carve-out for the target to be relieved of its exclusivity obligations during that period. The Takeovers Panel’s guidance is that any “hard” exclusivity grant at the non-binding indicative proposal stage should be the exception, not the rule, and should not exceed four weeks.

If a non-binding indicative proposal evolves into a binding one, the definitive agreement usually includes a suite of exclusivity provisions for the prospective acquirer’s benefit. These supersede any exclusivity arrangements that were negotiated at the non-binding indicative proposal stage and apply between signing and expected completion. These exclusivity provisions comprise undertakings from the target around “no shop”, “no talk”, “no third-party due diligence access”, “notification of competing proposals”, and a “right to match” an unsolicited superior offer. At the binding proposal stage, the “no talk” and “no third-party due diligence access” must be subject to the fiduciary carve-out.

Friendly Takeover Bid

In a friendly takeover bid, immediately before the takeover bid is publicly announced, the bidder and the target will typically enter into a “takeover bid implementation agreement” which:

• specifies the price, conditions and other terms of the offers to be made by the bidder to all target shareholders;
• obliges the target board to support the takeover bid, including by accepting the offer for all of their own shares and publicly recommending that target shareholders accept the offer, in each case in the absence of a superior proposal;
• sets out the respective procedural obligations of the bidder and target throughout the takeover bid process, including for satisfying conditions and the despatch of the offer documents to target shareholders (comprising the “bidder’s statement”, the target’s statement and any supplementary statements);
• imposes exclusivity obligations on the target board (see 5.4 Standstills or Exclusivity); and
• imposes an obligation on the target board to pay the bidder a break fee (generally not exceeding 1% of the equity value of the target) in various circumstances, including if the target board withdraws or changes its public recommendation (eg, in response to the receipt of a superior offer that the bidder elects not to match).

If the friendly takeover is being structured as a scheme, the definitive agreement is known as a “scheme implementation agreement”. Its provisions are similar to those for a takeover bid implementation agreement, with appropriate adjustments to reflect the scheme process.

Hostile Takeover Bid

A hostile takeover bid necessarily proceeds without the target company’s co-operation or public support. Therefore, there is no definitive agreement between the bidder and the target. Instead, the price, conditions and other terms of the bidder’s offers are contained in a document that is mailed to target shareholders. This is called a “bidder’s statement” and its content is highly regulated.

The target formally responds to the bidder’s statement with its “target’s statement", which must include a statement from each director recommending that shareholders either accept or reject the offer. The recommendation is typically (although not always) unanimous and supported by a set of collective reasons.

Private-Treaty M&A Transaction

In a private-treaty M&A transaction, the period between the submission of the non-binding indicative offer and the signing of a definitive agreement varies considerably. The length of time depends on the level of due diligence required by the prospective acquirer, the extent of issues arising from due diligence, any pauses in negotiations due to commercial impasses and the complexity of the transaction documents (typically negotiated concurrently with due diligence). In turn, the time between signing a definitive sale agreement and completion can take anywhere between days, weeks or months. The timeframe depends on numerous factors, including the timing for receipt of regulatory approvals, the receipt of third-party consents to change in control of the target or assignment of key contracts, the timeframe for when the acquirer’s funding becomes available, and the overall complexity of the transaction.

Public M&A Transaction

In a public M&A transaction, the period between the submission of the non-binding indicative offer and the signing of a definitive agreement also varies considerably. The time required for a private treaty process depends on the same factors described above. Once a definitive agreement is signed, statutory timeframes govern the period to closing. These differ depending on whether the transaction is proceeding as a takeover (tender) offer or a scheme.

Tender offer

For a tender offer, the minimum offer period is one month, but most bidders commence with a slightly longer offer period. In any event, the initial offer period is invariably extended at least once to provide extra time for receipt of regulatory approvals and to deal with typical developments in the offer process, including satisfaction or waiver of conditions, price increases, emergence of competing proposals, etc. Certain extensions in the offer period occur automatically by law (eg, by 14 days if the bidder increases the offer consideration or if the bidder’s voting power in the target increases to more than 50% within the last seven days of the offer period). The maximum offer period is 12 months.

Scheme of arrangement

For a scheme of arrangement, due to the various embedded timeframes that apply to the sequential steps in the process, the shortest possible length of time between signing the definitive agreement and closing is approximately two months. Typically, due to external factors such as delays in receiving regulatory approvals, the emergence of a competing offer or shareholder activism, the timeframe can be extended to anywhere from three months to a year.

Australia does not have a mandatory takeover-offer threshold, a threshold above which a follow-on takeover bid must be made to all other shareholders. Rather, the primary rule is the 20% prohibition described in 4.3 Hurdles to Stakebuilding. However, provided an acquirer stays under 20%, they can lawfully remain at that level indefinitely without being required to make any follow-on offer. If and when a shareholder wishes to move beyond 20%, they can rely on an exception to the 20% prohibition. If the shareholder seeks control of the target, the most common exceptions are making a takeover offer or proposing a scheme of arrangement. If the shareholder is not necessarily seeking control, other commonly relied-on exceptions include the “3% in six months” creep rule as well as non-associated shareholder approval.

Consideration in the form of cash or shares (ie, scrip) or a combination of cash and scrip is relatively common. In a public M&A transaction, an all-cash consideration is generally preferred by target boards (due to the certainty of value it offers) and is more common than an all-scrip (or combined scrip-and-cash) consideration.

Stub-Equity Offer Structures

In public market M&A transactions where the target’s key shareholders comprise founders and/or executives, so-called “stub-equity offer structures” are common. These comprise an offer of shares in an unlisted public company controlled by the acquirer. Stub-equity offers allow founders and key management of the target to roll over all or some of their shareholding in the target by accepting shares in the unlisted public company, which, on closing, will be the holding company of the target. This allows founders and key management to retain their investment exposure to the target’s future upside rather than exiting in full for cash.

Earn-Out Mechanisms or Deferred Consideration

Earn-out mechanisms and deferred consideration are commonly used in private treaty M&A transactions but are generally not employed in public M&A transactions. However, when there is a significant disagreement on valuation between a prospective buyer and the target company’s board, public M&A offers can be structured with a base cash amount, along with a contingent right for target shareholders to receive an additional cash payment if a specific future event occurs after the deal closes, which adds value to the target.

In the past, these contingent top-up payments have been linked to favourable outcomes, such as successful results from a future mineral resource test for the target or the outcome of litigation related to a tax refund claim the target had been pursuing. Contingent uplift payments can provide a creative solution to valuation impasses and help facilitate a deal that might not otherwise proceed.

For private M&A transactions, it is more common for the consideration to be in the form of cash, with any valuation gaps being bridged by earn-out mechanisms, deferred consideration or a post-completion adjustment mechanism.

For an off-market takeover offer, common conditions include the following:

• receipt of regulatory approvals;
• a minimum level of acceptance (see 6.5 Minimum Acceptance Conditions);
• no material adverse change in the target;
• no material acquisitions, disposals or new financial commitments by the target; and
• no prescribed occurrences, such as any issued new shares.
• A bidder may elect to waive all or any of its conditions during the offer period (other than regulatory approval conditions). Bidders typically do so during the second half of their offer period to make the offer less conditional and, therefore, more attractive to target shareholders.

Various rules apply to conditions of takeovers, including:

• offers under an off-market bid cannot be subject to a maximum-acceptance condition;
• offers under an off-market bid cannot be subject to a defeating condition that depends on the bidder’s (or an associate’s) opinion, belief or another state of mind or that is within the control of the bidder or its associates (eg, a due diligence condition); and
• on-market takeover bids must be unconditional, except for certain prescribed occurrences.
• For a scheme of arrangement, the conditions are similar to those outlined above for a takeover, except that:
• there will be no minimum-acceptance condition – this is not required for a scheme given the “all or nothing outcome” it produces; and
• the scheme will instead be subject to approval by the requisite majority of target shareholders (75% by value and more than 50% by number) as well as the approval of the court.

Although on-market takeover bids must be unconditional, off-market takeover bids may be subject to defeating conditions, including minimum acceptance conditions.

The bidder may specify in the offer the number of shares (specified as a number or percentage of the total shares of that class) chosen as the minimum acceptance level.

Minimum acceptance conditions often reflect relevant control thresholds in Australia and are generally either 50.1% if the bidder merely wants to control the target or 90% if the bidder wishes to proceed to compulsory acquisition and own 100%. 

For private M&A transactions, there is no legal impediment to the inclusion of a funding condition. It is a matter of negotiation. Targets are generally not receptive to funding conditions, especially in a competitive sale process where a target will evaluate offers not just on headline price but also overall execution certainty – which entails assessing the certainty and timeliness of the prospective acquirer’s funding arrangements.

For public M&A transactions (whether by tender offer or scheme), a prospective acquirer must have an objectively reasonable basis for believing it will be able to pay target shareholders. This applies at the time of the initial announcement of the takeover or scheme and throughout the entire process.

For public M&A transactions, deal protections typically sought by prospective acquirers in the definitive agreement include:

• positive public recommendation – an obligation on the target’s board to (unanimously) publicly recommend the bidder’s proposal to target shareholders in the absence of a superior proposal (and generally, also subject to the receipt of a “positive” opinion from an independent expert);
• target directors to accept/vote in favour of their own shares – an obligation on the target to make sure that each target director who owns or otherwise has a relevant interest in target shares acts consistently with their public recommendation by accepting the bidder’s offer (if it is structured as a takeover bid) or by voting in favour of the bidder’s proposal (if it is structured as a scheme), in the absence of a superior proposal (and generally also subject to the receipt of a “positive” opinion from an independent expert);
• exclusivity – a suite of exclusivity undertakings by the target in favour of the prospective acquirer, typically comprising:
1. a “no-shop” restriction;
2. a “no-talk” restriction (this must be subject to a fiduciary carve-out – see 5.4 Standstills or Exclusivity);
3. a “no due-diligence” by third parties restriction (this must also be subject to a fiduciary carve-out);
4. a right to be notified of any unsolicited competing proposal (this can, by negotiation, be displaced by a fiduciary carve-out); and
5. an opportunity to match any superior proposal; or
• a break fee – this is payable by the target to compensate the prospective acquirer if the contemplated transaction is not completed in specified circumstances.

The Takeovers Panel’s position is that deal protections for a prospective acquirer must be subject to appropriate structural limits to ensure that they strike the correct balance between, on the hand, providing an inducement to the prospective acquirer to make its offer and, on the other hand:

• not having an overly anti-competitive effect by discouraging other potential bidders from making a competing offer; and
• not “coercing” target shareholders into accepting the bidder’s offer.

These structural limitations include:

• at the non-binding indicative proposal stage, if a target board determines that it is appropriate to grant so-called “hard” exclusivity (ie, exclusivity without a “fiduciary out”), ensuring the exclusivity period is capped at four weeks;
• at the definitive agreement stage, ensuring that there is a fiduciary carve-out to confirm the exclusivity arrangements (see above); and
• at the definitive agreement stage, ensuring that any break fee payable by the target to the prospective acquirer does not exceed 1% of the equity value of the target, as implied by the offer value (this 1% cap is intended to not discourage competing bidders from emerging, as they will, if successful, effectively inherit any break fee paid by the target to the first bidder; in limited cases, it may be appropriate for the 1% guideline to apply to a company’s enterprise value, eg, because the target is highly geared).

Private M&A Transaction

In a private M&A transaction, any additional governance rights are captured in a shareholders’ agreement that regulates the rights of the bidder and all other shareholders (eg, drag-along rights, tag-along rights, right to set dividend policy, and material decisions over which the majority shareholder has veto rights).

Public M&A Transaction

In a public M&A transaction, if a bidder ends up with less than 100%, there is limited scope to secure additional governance rights outside of its shareholding (noting, however, that a majority shareholding carries the right to control the composition of the board, being the primary decision-making organ). This is especially the case if the target remains listed on ASX. All ASX-listed companies must have a constitution compliant with the ASX Listing Rules. In a stub-equity transaction, the bidder will co-exist as a shareholder alongside founders, key management and potentially other target shareholders who have elected to roll over into a holding company controlled by the bidder. In that scenario, the shareholders’ agreement for the holding company will govern the rights and obligations of the relevant shareholders. That agreement will often enshrine additional governance rights in favour of the bidder as the majority shareholder.

In Australia, shareholders can generally vote by appointing a proxy to attend a shareholders’ meeting to vote on their behalf. A proxy may be directed or undirected. The chair of the meeting will usually be named as the proxy, but there are generally no restrictions on appointing someone else. A proxy does not need to be a fellow shareholder.

Direct voting is also possible if provisions facilitating this exist in the company’s constitution. Direct voting allows shareholders to cast their vote on resolutions of a meeting, either online or by completing their personalised voting form, without having to attend the meeting in person and without needing to appoint a proxy to vote on their behalf.

Australian law allows for the compulsory acquisition of remaining shares following a takeover bid when the bidder has an interest in at least 90% of the bid class securities (by number) during or at the end of the bid and has already acquired 75% of the securities (by number) that the bidder made offers for under the bid.

Commitments from key target shareholders supporting a public M&A transaction are commonly seen in Australia. They usually take the form of a wide variety of acceptance agreements and/or a positive pubic statement that the shareholder intends to accept the takeover or vote in favour of the scheme (as the case may be). A public intention statement can be as effective as a more formal agreement. This is because of ASIC’s “truth in takeovers” policy, which requires the party making the public statement of support to act consistently with it, as the market will be relying on this to inform trading in the target’s shares.

These agreements and public intention statements are often qualified by reference to no superior proposal emerging within a certain timeframe. If a superior proposal emerges, the shareholder can revoke their commitment and pursue the superior proposal. 

Generally, a target is not required to disclose the receipt of a non-binding indicative takeover proposal to ASX. Nevertheless, a target may elect to do so for tactical reasons.

If and when a definitive, legally binding agreement is entered into, disclosure will then be mandatory. For market transparency, the disclosure should attach the full form of the agreement (see 5.2 Market Practice on Timing).

Generally, if shares are being issued as consideration for a takeover bid or a scheme, prospectus-level disclosure is required in either the bidder’s statement (for a takeover bid) or the scheme booklet (for a scheme). This typically entails disclosure of:

• a profile of the business operations of the merged group;
• the capital structure of the merged group, including pro forma historical financial information for the merged group;
• the composition of the board and senior management of the merged group (or, if that is still to be confirmed, the principles for determining the composition);
• the rights attaching to securities in the merged group; and
• the risks associated with an investment in the merged group.

If shares are being issued as consideration for a takeover bid or a scheme, it is common for bidders’ statements and scheme booklets to include pro forma historical financial information. This provides target shareholders with a clearer hypothetical view of what the financial profile of the merged entity would have been like if the merger had been finalised in the past six months. It is also common for an investigating accountant’s report to be included, providing assurance as to the methodology adopted for the pro forma historical financial information.

In terms of forward-looking financial information, profit forecasts or cash-flow projections are not typically included because they are inherently speculative. As a result, these forecasts are not always helpful and may potentially be misleading unless they are appropriately qualified and/or accompanied by a sensitivity analysis to show impacts if certain key variables or assumptions change materially or cease to be correct. 

In a public M&A transaction, the Takeovers Panel stated in 2013 (which has since become established market practice) that the definitive transaction document (ie, either a bid implementation agreement or a scheme implementation agreement) is to be disclosed in full. This is typically done by attaching it to the ASX announcement released by the target following the signing of the agreement.

In a private-treaty M&A transaction involving an ASX-listed entity as the buyer or seller of a discrete business, ASX notes that it is up to the listed entity to lodge a copy of the definitive agreement as part of its announcement of the transaction. However, ASX recognises that a listed entity may be reluctant to do this (eg, if, as is often the case, it contains commercially sensitive information). In those circumstances, the listed entity’s announcement of the transaction should:

• contain a fair and balanced summary of the material terms of the agreement; and
• include any other material information that could affect an investor’s assessment of its impact on the price or value of the listed entity’s shares. 

Directors of Australian companies have statutory duties under the corporations legislation and fiduciary duties under the common law. These duties require directors to:

• exercise due care and diligence;
• act in good faith, in the best interest of the company and for a proper purpose;
• not make improper use of their position or information acquired through that position to gain an advantage for themselves or any other person or to cause detriment to the company; and
• avoid any actual or potential conflict between the obligations they owe to the company and their personal interests or other duties to which they may be subject.

These duties are principally owed to company shareholders as a whole (not external stakeholders, such as employees, customers, suppliers or even creditors), except where a company is insolvent or nearing insolvency, in which case, the directors’ duty to act in the company’s best interests also includes a duty to consider the interests of the creditors.

In an M&A setting, these duties require directors to make an informed assessment of whether or not the transaction is in the best interests of the company’s shareholders, having regard to all of the circumstances. In practical terms, this requires the directors of the acquirer and target companies, respectively, to consider:

• the material terms and conditions of the transaction (including whether the consideration offered is fair and reasonable with regard to the underlying value of the target company);
• the degree of certainty that the transaction will complete (having regard to regulatory approvals, funding and other execution risks);
• the appropriateness of deal protections sought by each party, including in the case of deal protections for the acquirer ensuring that their parameters comply with Takeovers Panel guidance (see 6.7 Types of Deal Security Measures);
• whether the transaction is otherwise the most favourable course of action for the company having regard to the opportunities and risks of not undertaking the transaction; and
• ensuring that actual or potential director conflicts of interest are identified and appropriately managed (see 8.2 Special or Ad Hoc Committees).

A company board may delegate authority regarding a business combination to a sub-committee, which has the authority to convene and respond to material developments in relation to a transaction. 

According to guidance issued by the Takeovers Panel, a target company should establish an independent board committee (IBC) as soon as the board becomes aware of an actual or potential business combination which involves or is likely to involve “participating insiders”. For example, a director of the target will likely be a “participating insider” if they are offered a significant new employment or other agreement with the bidder (on more favourable terms than existing arrangements with the target) or if they are offered an opportunity to acquire a material equity stake in the target, the bidder or the bid vehicle that is not available to other shareholders. 

The role of an IBC in this context is to apply independent judgment to promote a fair and balanced transaction process. This includes:

• regulating the provision of due diligence and other information to the prospective acquirer and otherwise managing the conflict of interest;
• evaluating the fairness and overall merits of the proposed transaction, including by engaging external advisers;
• negotiating the price, terms and conditions of the proposed transaction on behalf of the target;
• making recommendations to the target board and shareholders on the proposed transaction; and
• taking responsibility for disclosure documents and other communications provided to target shareholders about the proposed transaction.

The business judgement rule in Australia provides that a director of a company will be taken to have met the duty of care and diligence in making a business judgement (defined as any decision to take or not take action on a matter relevant to the business operations of the company) if the director:

• has made the judgement in good faith for a proper purpose;
• did not have a material personal interest in the subject matter of the judgement;
• informed themselves about the subject matter of the judgement to the extent they reasonably believed to be appropriate; and
• rationally believed that the judgement was in the company’s best interests.

Depending on the nature, scale and complexity of a proposed business combination, directors of a bidder and target will commonly obtain independent external advice from investment bankers, lawyers, financial and tax advisers, public relations firms and proxy solicitation firms. Technical or other specialist advisers are also commonly engaged to undertake due diligence.

There is a statutory requirement for a target to commission an independent expert’s report where the bidder’s existing voting power in the target is 30% or more, or a director of the bidder is also a director of the target. Even outside these two mandatory circumstances, a target will often voluntarily commission an independent expert’s report (eg, in a hostile takeover where target directors consider the offer materially undervalues the target).

Where a business combination is structured as a scheme of arrangement, market practice requires the explanatory memorandum to include an independent expert’s report expressing an opinion on whether the scheme is in the best interest of target shareholders, even if such a report is not required by law.

Directors of Australian companies have statutory and fiduciary duties to avoid conflicts of interest.

Under Australia’s corporations legislation, a director must give notice to the other directors of a material personal interest related to the company’s affairs. Notice can be given at a directors’ meeting or by standing notice.

For proprietary companies, if permitted by the constitution, directors may vote on a matter in which they have a material personal interest, provided notice of the interest has been given.

For public companies, a director with a material personal interest being considered at a directors’ meeting must not be present or vote on the matter at the meeting, subject to limited exceptions.

The rules governing conflicts of interest in Australian M&A transactions are generally well understood and managed. This includes establishing an IBC and governance protocols where appropriate (see 8.2 Special or Ad Hoc Committees). Despite this, failures to appropriately manage conflicts of interest in an M&A context are occasionally ventilated in the Takeovers Panel.

For example, in a 2021 matter, the Takeovers Panel found that conflicts of interest between the directors of the bidder and the target (which shared common directors) were not adequately managed because governance protocols to address those conflicts were not implemented prior to negotiating the agreed terms of the proposed transaction and were not adequately disclosed to the target’s shareholders.

Hostile takeover bids are permitted in Australia. They typically arise in response to a failure by the target board to engage with an initial friendly proposal or the rejection by the target board of an initial friendly proposal. In those circumstances, the prospective acquirer may bypass the target board and make an offer directly to the target shareholders. In some cases, a prospective acquirer will launch a hostile bid without any prior attempt at friendly engagement with the target’s board.

Hostile takeovers remain far less common than “friendly” transactions, as they involve considerably higher execution risks and other uncertainties. This is because:

• a hostile bidder has no opportunity to undertake due diligence on the target beyond the target’s market disclosures and other publicly available information;
• a hostile bidder will usually encounter vigorous defence from the target board, including actively soliciting statements from key shareholders of their intention to:
1. reject the offer;
2. actively solicit competing bids; and
3. (if the target board is confident in its assessment of under-value) engage an independent expert to opine negatively on the fairness and reasonableness of the offer;
• a hostile bidder will not have the benefit of any of the deal protections that a friendly bidder typically secures (eg, exclusivity and break fee coverage), which leaves a hostile bidder commercially exposed if a competing offer emerges; and
• a hostile bidder may need to be willing to accept less than 100% ownership, noting that hostile takeovers rarely result in an acquisition of 100% ownership without the recommendation of the target board (which typically requires a price increase during the offer process).

For these reasons, the majority of business combinations in Australia are made with the public support and recommendation of the target board, usually via a court-approved scheme of arrangement which delivers a binary “all or nothing” outcome.

Once a takeover bid has been announced, target company directors are heavily constrained in the types of defensive measures they may adopt. 

For example, under the ASX Listing Rules an entity must not:

• issue or agree to issue new equity securities without shareholder approval for three months after it is informed a person is or proposes to launch a takeover bid (subject to certain exceptions, eg, issues of shares following the exercise or conversion of existing securities, pro rata issues available to all security holders, etc); or
• provide any termination benefits to a director or officer of the entity triggered by any change in the shareholding or control of the entity.

The Takeovers Panel’s policy on frustrating action seeks to ensure that target company directors do not take any action that may cause a takeover bid to be withdrawn or lapse or cause a potential bid to not proceed without first obtaining shareholder approval.   

The Takeovers Panel has set out a non-exhaustive list of factors that could constitute unacceptable frustrating action, including:

• share issues or repurchase arrangements;
• acquisitions and disposals of major assets;
• undertaking significant liabilities or changing the terms of its debt;
• declaring a special or abnormally large dividend;
• significant change to company share plans; and
• entering into joint ventures. 

The Takeovers Panel has wide powers to make orders in relation to unacceptable frustrating actions, including preventing an action or transaction from proceeding, requiring shareholder approval or unwinding an action or transaction.

When confronted with an unsolicited takeover bid that the target directors consider is not in the best interests of their shareholders, it is common for a target to adopt the following defensive measures:

• deny the bidder access to non-public due diligence materials (in Australia, there is no obligation to provide a bidder with access to due diligence; target directors have the right to choose to whom, and on what terms, to provide information, in the best interests of the company and its shareholders);
• publicly seek to discredit the merits of the takeover bid and recommend that shareholders reject the bid (eg, due to the bid undervaluing the target’s shares, being opportunistically timed, being highly conditional and uncertain about proceeding, or for other specific reasons);
• engage with key target shareholders to elicit from them a public statement that they intend to reject the takeover bid;
• seek to solicit alternative superior proposals;
• apply to the Takeovers Panel challenging the acceptability of the terms or conditions of, or the bidder’s disclosure in relation to, the takeover bid to undermine the credibility of the bid and/or to buy time for a competing bid to emerge; and
• commission an independent expert to prepare a report that independently validates the target board’s view that the offer materially undervalues the target’s shares – this step should only be taken if the target board is confident that an independent expert will arrive at a valuation range materially above the offer price.

More aggressive defensive measures that may be acceptable during a takeover bid in other jurisdictions (such as raising capital; acquiring, disposing or granting rights over material assets; or entering into significant strategic or financing arrangements with third parties) are uncommon in Australia. This type of conduct would generally either breach a takeover bid condition and/or breach the Takeovers Panel’s policy on frustrating actions unless the target has obtained the fully informed consent of its shareholders.

In responding to a takeover proposal, the target directors’ principal duty is to act in the best interests of the target as a whole – this duty is owed to all shareholders, not just the minority or any controlling shareholder (see 8.1 Principal Directors’ Duties). 

Accordingly, target directors must ensure that any defensive measures protect or advance the interests of all target shareholders and are not motivated by improper purposes, eg, entrenching the position of incumbent directors, entrenching the position of a controlling shareholder or safeguarding employees’ jobs.

In addition to their general statutory and fiduciary duties, target directors must comply with specific statutory obligations concerning a target’s response to a takeover bid. For example, the target’s statement that is required to be issued by the target in response to a takeover bid must contain a statement from each director recommending that the bid be accepted or rejected, accompanied by the reasons for making that recommendation (or giving reasons why a recommendation has not been made, eg, where a director has a conflict of interests). 

As noted in 9.3 Common Defensive Measures, it is common for a target board to recommend that shareholders reject a hostile takeover bid because it undervalues the target – these statements are commonly known as “undervalue statements”. The Takeovers Panel has issued a guidance note on undervalue statements. These statements are susceptible to challenge if they are “loosely” or “nakedly” expressed. Instead, undervalue statements must be supported by any disclosed financial methodology or sufficient financial information to give target shareholders an adequate foundation to meaningfully assess the bid.

Although target directors may take steps to prevent a business combination, for example, by simply not engaging with a prospective acquirer or withholding access to due diligence information, the target cannot prevent a bidder from:

• engaging directly with the target’s key shareholders and informing them that the target is being obstructive by not facilitating a potential control transaction – the institutional shareholder may, in turn, apply pressure on the target board to engage with the prospective acquirer so that shareholders are not deprived of an opportunity to at least consider a proposal that embodies a premium for their shares, and that may attract competing offers; and
• launching a hostile takeover bid despite the significant execution risks associated with this (see 9.1 Hostile Tender Offers). 

While the bidder may seek to bypass the target board, history shows that the views and recommendations of target directors will materially influence the outcome of a hostile takeover bid. In particular, history shows that it is rare for hostile takeover bids that do not embody a subsequent price increase that prompts a change in recommendation from the target board (from “reject” to “accept”) to result in the bidder acquiring 100% of the target.

In private M&A transactions, the definitive agreement typically contains an agreed approach to resolve disputes. This may include private negotiation, mediation and/or binding or non-binding arbitration. As a result, litigation is relatively uncommon in Australian private treaty M&A deals. 

In public M&A transactions, disputes concerning takeover bids and other control transactions are generally determined by the Takeovers Panel other than disputes in relation to scheme of arrangement transactions, which are more often (but not always) considered by the courts. Applications to the Takeovers Panel may only be made by bidders, targets, shareholders, ASIC and other persons whose interests are affected by the relevant circumstances (eg, a competing bidder). Since the Takeovers Panel was given exclusive jurisdiction over takeover disputes in 2000, it has heard approximately 28 cases per year. 

The types of issues raised in applications vary from year to year but often include:

• breach of the 20% prohibition (see 6.2 Mandatory Offer Threshold);
• breach of the substantial holding provisions (see 4.2 Material Shareholding Disclosure Threshold);
• bidder or target statement disclosure;
• the parameters of deal protection mechanisms (see 6.7 Types of Deal Security Measures);
• shareholder intention statements/truth in takeovers (see 6.11 Irrevocable Commitments);
• frustrating action (see 9.2 Directors’ Use of Defensive Measures);
• undervalue statements by targets in hostile takeovers (see 9.4 Directors’ Duties); and
• rights issues, share buy-backs and other share capital reductions that have a control impact.

Disputes in private M&A generally arise after completion. 

Conversely, disputes in public M&A generally arise prior to completion (ie, prior to or during the course of a takeover bid or scheme). Additionally, disputes are not uncommon to be taken to the Takeovers Panel even before a binding agreement has been struck between a prospective acquirer and the target. For example, a number of high-profile cases have recently been brought before the Takeovers Panel concerning the permissible boundaries of deal protection arrangements granted by a target to a bidder during the non-binding, indicative proposal stage.

The overwhelming majority of take-private deals publicly announced and recommended by the boards of ASX-listed targets close successfully. However, the Australian market has recently seen a proliferation of failed and disputed “friendly” take-private deals.

One live dispute presently playing out relates to the now abandoned scheme of arrangement transaction between Perpetual Limited and KKR. The independent expert issued its report, concluding that the scheme was not in the best interests of Perpetual’s shareholders, resulting in the Perpetual Board withdrawing its recommendation in favour of the scheme and terminating the scheme implementation deed. KKR has asserted that a break fee is payable as a result of the termination and has reserved its rights to seek further damages. Perpetual rejects these contentions. Given the court’s jurisdiction in relation to scheme of arrangement transactions, this dispute, should it remain unresolved, is likely to be heard by the court that presided over the scheme (rather than the Takeovers Panel).

Lessons for Prospective Acquirers and Targets

Prospective acquirers and targets can draw many lessons from these failed and disputed “friendly” take-private deals. One such lesson is discussed below.

Be wary of material adverse change (MAC) conditions

It has become standard in most public market deals for a prospective acquirer to have the benefit of a “no MAC” condition to allow it to walk away from an agreed transaction without paying a break fee or other penalty if the target suffers a MAC event between the public announcement and closing. 

There have been multiple examples of prospective acquirers successfully invoking MAC conditions to withdraw from a publicly announced deal or to renegotiate a lower price, especially following the onset of the COVID-19 pandemic. Even where the acquirer did not succeed, the purported reliance on the MAC condition created material delays and market instability for the target.

A target should seek to ensure that:

• the triggers for what constitutes a MAC are drafted by reference to clear, objectively ascertainable financial metrics and seek to avoid more general, qualitative criteria that are capable of subjective interpretation and reliance by the acquirer; and
• appropriate exclusions are incorporated into the MAC condition (that way, even if any of the financial and/or qualitative triggers are met, the exclusions will disqualify the prospective acquirer from relying on the condition). 

Shareholder activism is a well-embedded feature of the Australian corporate landscape, with activists regularly exerting their influence to impact transactions and corporate behaviour more generally. For example, shareholder activists are:

• leveraging their investment power to effect significant change in corporate governance, environmental, social and governance (ESG) issues, including the composition of boards and senior management teams (eg, addressing gender and cultural representation) and challenging excessive executive remuneration; 
• exerting influence on companies to re-set their strategic direction, including by undertaking material transactions or not proceeding with an announced transaction or otherwise altering course (see 11.2 Aims of Activists); and
• influencing the outcome of announced transactions by leveraging their voting rights, publicly expressing their views on proposed transactions, and mobilising other shareholders to either block or support deals based on an assessment of value creation and alignment with broader ESG objectives (see 11.3 Interference With Completion).

Shareholder activists regularly campaign for companies to initiate some form of M&A activity, for example, to de-merge or to spin off or divest non-core assets, to merge or acquire assets, or more fundamentally, to sell themselves or make themselves a more attractive target for potential bidders. 

Shareholder activists are increasingly interfering with the completion of announced transactions in Australia. This activism typically arises from:

• a long-standing institutional shareholder of the target who has a fundamentally different view on value to a bidder or the target board;
• a dedicated activist fund that takes a position in the target shortly after the public announcement of a proposed deal to improve the price and make money on its investment (known as “deal arbitrage”); 
• an industry competitor who acquires (further) shares in the target on-market shortly after the public announcement of a proposed deal to build a sufficient stake to either block an announced deal to protect its market position or to provide a “seat at the table” in extracting a side deal with the acquirer;
• environmental and socially conscious activists who attempt to exert pressure on either the bidder or the target company to provide assurances with respect to environmental issues; and
• environmental and socially conscious activists who acquire shares on the market after a corporate control transaction is publicly announced, to build a sufficient stake to block an announced deal that they consider to be environmentally and/or socially detrimental.