The Takeovers Panel has found that the circumstances around a proposed selective share buy-back by CSF company Montu Group Pty Ltd (“Montu Group”) were unacceptable. This is the first ever declaration of unacceptable circumstances in relation to the affairs of a proprietary CSF company in the Panel’s history. The Panel has accepted undertakings from Montu Group and its major (83.7%) shareholder, MG Invest Limited (“MG Invest”), to correct deficiencies in disclosure and restrict certain actions following the buy-back.
Cowell Clarke represented the applicants in this matter, being two minority CSF shareholders who were concerned with the quality of disclosure given to shareholders in the notice of meeting regarding a proposed selective share buy-back offered to Montu Group’s minority shareholders. Montu Group has approximately 2,350 shareholders. The major shareholder, MG Invest, holds 83.7% of the company’s shares, whereas the remaining shareholders hold a combined 16.3%.
The case has implications for capital management strategies involving major shareholders and confirms that certain CSF companies are subject to the Panel’s jurisdiction.
The three key takeaways from the Panel’s decision:
1. Buy-Backs effecting a control transaction
Where a buy-back will have the effect of consolidating control over a company (even if it does not cross a major threshold, such as 50%, 75%, or 90%), sufficient disclosure must be provided to shareholders to allow them to decide whether or not to participate in the buy-back. The current Montu Group selective share buy-back had MG Invest consolidating its control over Montu Group from 83.7% up to 89.9% as a result of the buy-back, subject to the number of acceptances by CSF shareholders.
The information provided to shareholders should meet the requirement in Chapter 6 of the Corporations Act to ensure an “informed market”. In essence, shareholders should receive sufficient information to allow them to make an informed assessment of the merits of the proposed buy-back, particularly with regards to the valuation.
2. Treatment of proprietary CSF companies under takeovers provisions
The decision regarding Montu Group has made it clear that proprietary CSF companies, particularly when they reach a size that they are no longer “eligible CSF companies” under the Corporations Act, will be treated the same as any other company that is subject to the takeovers provisions of the Corporations Act.
3. Compulsory acquisitions
The Panel accepted an undertaking by MG Invest, Montu Group’s controlling shareholder, to not initiate a compulsory acquisition of remaining Montu Group shares within 12 months of the buy-back, even if it subsequently reaches the compulsory acquisition threshold of 90%. For Montu Group’s shareholders, the undertaking allows a prolonged period to react to the buy-back’s outcome and consider their investments.
Any company subject to the takeovers provisions should exercise caution when relying on the buy-back exemption in section 611 item 19 of the Corporations Act. Regard must be had to whether a major shareholder stands to increase its voting power in a substantial way, including whether it reaches, or gets close to reaching, the key thresholds of 50%, 75% or 90%.
This decision is a win for CSF shareholders. It is clear that the reduced disclosure and other concessions in the Corporations Act for CSF companies are designed to make it easier for CSF companies to raise capital, but does not reduce a CSF company’s other obligations (including as to disclosure) when offering exit events for its CSF shareholders, particular where those exit events consolidate control for the major shareholder.
Click here to see the Media release by the Takeovers Panel.
For more information please contact Richard Beissel, Thomas Hill or Alex Dorrington in the Corporate Team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.