The Takeovers Panel is the commercial dispute resolution body that settles takeover disputes. Previously we had a court that decided these on a binary basis and what the Takeovers Panel does –  which is very different to the way a court solves problems – is they look for a commercial resolution, and it’s often a compromise.  It’s generally agreed that the Panel has been spectacularly successful.  Today I want to talk about one of their recent decisions where they’ve created more uncertainty rather than resolution.

The Ludowici takeover has been a spectacular takeover.  The first bid that was made for the company was at a 100% premium.  On the day that the bid was made, the managing director was interviewed in Denmark and he was asked the question by a Reuters reporter whether he’d be prepared to increase his bid.  He answered “no” and the next day Reuters published an article indicating that the managing director had made a last and final statement and that the bidder was prevented from increasing their bid.  They corrected that when it appeared in the Australian press a week later.  A week after they corrected it, a rival bidder came along and made another bid at a higher price and immediately applied to the Takeovers Panel.  What that rival bidder sought was the Takeovers Panel making an order that would prevent the first bidder from increasing the price of their bid on the basis that the managing director had said he wouldn’t increase the price.

There’s a policy that ASIC came out with some time ago called “Truth in Takeovers” and the second bidder was seeking to get that policy applied to hold the first bidder to the statement.  The Takeovers Panel decided to hear the matter and in the first decision that was handed down, they held that Truth in Takeovers (which was the ASIC policy) does apply to schemes of arrangement, which was the way that the first bidder proposed to acquire Ludowici. They also held that it applied in those circumstances, but that even though the policy applied, in the circumstances (and especially given that it was an interview and it was ultimately corrected) it wasn’t appropriate to hold the first bidder to the statement.  However they did go onto say that there was a period of one week during which that statement hadn’t been corrected and during that period if anyone traded and suffered loss, the first bidder would be required to compensate them.

Neither party was happy with that decision and both appealed.  The Takeovers Panel appeal considered whether or not they would change the orders and in fact they decided that they wouldn’t hear the case on the basis they thought there was no reasonable prospect they would reach a different decision.  But in doing that, they got to the same conclusion on a totally different basis.  What the second Panel did decide, having first decided that it was inappropriate to apply the Truth in Takeovers policy, they went on to conclude that during that one week period when the market remained misinformed and that statement was uncorrected, the market would be misled and on that basis it was incumbent upon the first bidder to compensate anyone who suffered a loss.

The significant distinction between the two is that the first Panel decided it on the basis of a Truth in Takeovers policy and the second decided it, on exactly the same circumstances, that it wasn’t a Truth in Takeovers statement but it was still appropriate to correct the market and until the market was corrected to compensate the market.  The difficulty we have after the event is that we don’t have any clear precedent. So now we’ve got a situation where a managing director responds to a question and we don’t know whether or not that’s a Truth in Takeovers statement to which he could be held or it would only ever lead to compensation. The unique nature of the Takeovers Panel is that it’s a decision-making body usually with an accountant, a director and a lawyer and any appeal is also heard by another Panel of an accountant, lawyer and director – but there’s no precedent.  That means that the second decision is no more valid than the first decision.  It just happens to be the one that’s last in time and the one that applies. 

In the circumstances given that the first Panel decided it was a Truth in Takeovers statement and the second Panel decided it wasn’t, the only way to clarify this is for the Takeovers Panel to actually come out with a policy and indicate what will be a Truth in Takeovers statement to which bidders will be held and what will not be, but will still give rise to the possibility of compensation orders.