What is tender offer relief?

ASIC's tender offer policy is set out in Regulatory Guide 102: Tender Offers by Vendor Shareholders (RG 102). Under the policy, ASIC can provide relief from the takeover provisions that normally prohibit the acquisition of a more than 20% interest.

The relief enables a prospective purchaser to submit a tender offer to a seller and, if successful, acquire a stake of more than 20% provided the purchaser subsequently makes a follow on bid.

Minor International bid for Oaks Hotel & Resorts

In 2011, Minor International announced an unsolicited cash takeover bid for Oaks at 35 cents per share, as well as announcing the acquisition of a 19.9% pre-bid stake in Oaks. PricewaterhouseCoopers as receivers and managers for two entities associated with the former Oaks CEO held a 34.4% shareholding in Oaks. Shortly following the announcement of Minor International's takeover bid, PwC announced an expression of interest campaign in relation to the 34.4% stake. The sale process for the controlling stake was conducted in accordance with the tender offer process described in RG 102.

Minor International participated in the tender offer process and was the successful tenderer at 52 cents per share. PwC agreed to accept into the takeover bid at this price. As it had already made a takeover bid for Oaks, Minor International increased the takeover offer price to 52 cents per share and declared its bid to be unconditional in accordance with ASIC's tender offer requirements. 

Minor International ended up with more than 90% of the outstanding shares and moved to compulsory acquisition.

This appears to be only the second time where the tender offer process has been successfully used. The other occasion was in 2007 when Gunns Limited acquired a 25% stake in Auspine Limited from a group of shareholders who invited tenders for their combined holding. Gunns subsequently acquired the remaining shares in Auspine through its follow on takeover offer.

The tender offer process

ASIC will only grant relief if it is satisfied that the tender process is conducted at arm's length and that there has been a 'serious test of the market'. In order to assess this, ASIC expects to be provided with details about the process, the tender parties and the terms of all offers received.

This requirement derives from control being effectively determined by the private auction conducted during the tender process rather than by a public auction in a takeover process. In order to increase the certainty associated with the tender process, the vendor would typically apply to ASIC for an early stage 'in principle decision to grant relief' in due course to a successful tenderer.

Once a decision to undertake a tender offer is made, an invitation to tender needs to be broadly advertised (which usually includes a notification to ASX). Tenders are then invited on the basis of publicly available information or non-public information provided equally to all parties. The successful tenderer needs to make an application for ASIC relief immediately after being informed of being the successful party.

ASIC relief is conditional on the successful tenderer promptly making a follow on takeover bid for the remaining shares in the company. The terms of the bid must be for cash consideration (or include a cash alternative) at a price equal to or more than that agreed to be paid under the tender offer and subject only to a no-prescribed occurrences condition (if any). In this way, the interests of minority shareholders are protected as they have the opportunity to participate in the benefits of the offer, including in relation to any control premium paid by the successful tenderer to secure the major stake.

Advantages of the tender offer process

The tender offer process offers the following advantages:

• It enables a major shareholder to test the market in relation to its shareholding. This provides it and the purchaser with price certainty if they proceed, but does not oblige the major shareholder to proceed with the sale. For example, a major shareholder holding a 28% stake in Bionomics Limited ultimately determined to not to proceed, after having contemplated implementing an ASIC tender offer process.
• By creating competitive tension in the tender process, a major shareholder can initiate the process and potentially maximise the value of its controlling stake. This is particularly the case where it is a likely seller, as was the case in the Oaks situation due to the receivers and managers appointment.
• It avoids the delay and risks associated with obtaining shareholder approval for a sale of a more than 20% stake, particularly if the target is not keen to facilitate such approval.
• It is flexible as it may be structured as an outright sale (thereby enabling the major shareholder to benefit from early payment) or as an acceptance into the takeover bid (thereby allowing the major shareholder to obtain the benefit of any potential increase in offer price which may eventuate).
• Once a serious test of the market has occurred, it provides an avenue for a potential bidder to enter into a permitted agreement with a major shareholder where the bidder does not want to commit to a takeover bid without knowing that the major shareholder is on side. This reverses the usual takeover position in Australia.
• Minority shareholders quickly receive an unconditional opportunity to accept the same price for their shares as received by the major shareholder who initiated the tender.
• It is flexible, as ASIC relief is available for shareholder groups wishing to combine their individual holdings in order to make a joint tender offer in respect of a collective holding of greater than 20% (which would otherwise be prohibited by Australia's strict association rules).

At the same time, a feature of the tender offer process is that once the process is closed, it does not enable higher offers to be acted on once the tender sale agreement has been entered into. In other words, parties who do not submit their best price during the tender offer process miss out on the opportunity of changing their minds and subsequently offering more than the highest price received for the controlling parcel. The tender offer process provides price certainty instead. An unsuccessful tenderer can only offer a higher price outside the tender process by way of a takeover bid in the normal way.

Strategic considerations

The tender offer process in the Minor International/Oaks transaction involved several strategic nuances. For example, the preparedness of Minor International to acquire a pre-bid stake and lodge a takeover bid in advance of the imminent tender offer process gave Minor International a material tactical advantage. 

Understanding the practical and timing aspects involved with the way in which the tender offer was structured and how the ASIC relief process operated (which had several components) was also important.

The tender offer process will not suit every change of control transaction. It takes some time proceeding with a serious test of the market and obtaining the requisite ASIC relief. At the same time, it represents a useful tool in the armoury of a more than 20% shareholder situation wishing to transact, or a bidder to obtain a major shareholding.