Determine Takeover Premiums as You Will, But Make Sure You Explain Why
By David P. Selig, Partner and Renee Shipp, Senior Associate
7 July 2008
The Takeovers Panel has recently handed down another decision in InterMet Resources Limited [2008] ATP 17 which, consistent with its previous decisions in Programmed Maintenance Services Limited 02 [2008] ATP 9 and Magna Pacific (Holdings) Limited [2007] ATP 02, confirms the Panel’s view that bidders and targets should not be limited in the ways in which they calculate premiums implied by takeover offers. The Panel confirmed that it will leave bidders and targets free to calculate premiums using share prices at different times and by using different valuation methodologies (such as a VWAP compared with a quoted price on a single day) provided that where comparisons are made on a basis that is not ‘like for like’, an explanation of why a particular valuation methodology was chosen must be given.
On 12 May 2008, Hillgrove Resources Limited (Hillgrove) announced an off-market scrip takeover bid for InterMet Resources Limited (InterMet). Hillrove served its bidder’s statement on InterMet on 2 June 2008 and lodged it with ASIC and ASX on the same date. On 11 June 2008, InterMet applied to the Panel for a declaration of unacceptable circumstances in relation to several alleged deficiencies in Hillgrove’s bidder’s statement. The Panel declined to make a declaration of unacceptable circumstances. In so finding, the Panel’s decision provides important authority for takeover participants calculating and disclosing value premiums to target shareholders.
In its bidder’s statement, Hillgrove had calculated the Hillgrove and InterMet share premiums using share prices at different times. The Hillgrove share price was calculated at 30 May 2008, being the last trading day before the lodgement of the bidder’s statement. The InterMet share price was calculated as at 9 May 2008, being the last trading day before the announcement of the offer. Hillgrove had also calculated the premiums using a range of VWAP prices for InterMet shares and compared it to the Hillgrove price on a specific date.
InterMet submitted to the Panel that:
- the calculation of the premiums using share prices at different times inflated the premium between the implied offer price and InterMet’s share price;
- the VWAP/single date price comparison was misleading, as it implied that the value of the Hillgrove offer was a fixed and certain amount;
- Hillgrove had failed to disclose an adequate explanation for using the method of share premium calculation; and
- Hillgrove should have made additional disclosure of the premiums based on more up-to-date share prices.
The Panel did not consider that it should limit the ways in which premiums might be calculated. However, in circumstances where share prices are compared on a different basis (i.e. not on a ‘like for like’ basis), an explanation of why the particular valuation methodology was chosen will be required.
The Panel also considered that, in any event, it was best practice for Hillgrove to disclose the most recent share prices of Hillgrove and InterMet in the bidder’s statement. Whilst the Panel did not require Hillgrove to re-calculate the premiums to be based on the most recent share prices for InterMet and Hillgrove, Hillgrove was required to give additional disclosure as to what those prices were.
On a separate note, interestingly, the Panel saw fit to comment in its decision that a number of minor issues were raised in the proceedings which could not be substantiated and detracted from the issues considered by the Panel in the proceedings. The Panel indicated that an application which contains such minor issues detracts from the overall credibility of the application and makes it difficult for the Panel to determine the substantive issues. This decision serves as a timely reminder to parties seeking orders from the Panel that the applicant’s interests are best served by only making applications that focus on substantive, and not minor, issues.