Roger Wallis: Takeovers set for makeover

Just before Christmas, the Securities Legislation Bill was referred to the commerce select committee for public submissions by February 18.

While the provisions attracting immediate attention were those proposed to replace our present obscure insider trading laws with complex rules imported from Australia, and the introduction of jail time for individual insider traders, the bill contains other significant proposals.

The bill would considerably extend the Takeover Panel's powers.

At the moment, the panel can enforce breaches of the Takeovers Code through short-term restraining orders or by seeking more permanent remedies from the High Court. However, the panel's oversight is limited to the documents required by the code - offers, target company statements and independent adviser reports.

The panel is impotent to intervene in market conduct outside the formal code documents. In reality, many takeover contests are won through other communications, such as newspaper advertising campaigns, letters sent to shareholders by the bidder or the target and media commentary.

In the 3 1/2 years since the code began, we have seen several fervent campaigns waged by bidders and target companies, supported by public relations advisers.

In the bitter scrap over Otago Power, many parochial claims were made by one side, matched by equally strong exhortations from the other bidder and the target itself about the best deal available.

At the start of last year, we saw claim and counter-claim waged in two high-profile partial offers. We've also seen instances when bidders have said "We are not extending our offer" or "We are not increasing the price", and shareholders say "We're not accepting the offer", only to go ahead and do so.

The bill will introduce prohibitions on misleading and deceptive conduct in takeovers, whether in the formal documentation, other communications or through conduct.

The equivalent Australian rules, colloquially called "truth in takeover" rules, make it difficult for bidders to make "last and final statements" about extending an offer, or increasing the price, unless they are carried through.

Equally, target companies and shareholders will need to be careful with their own communications. If you say you are not going to accept an offer, the panel will be able to intervene if you subsequently try to.

The panel will be able to seek "declarations of contravention" from the High Court, which make it easier for investors to piggy-back on the panel's establishment of a breach, to recover their individual loss.

The prohibitions on misleading conduct will be backed up by criminal liability for false or misleading statements, where the person making or disseminating a statement knows it is not true.

As with insider trading, penalties for individual offending include imprisonment for up to five years. These offences are drafted widely enough to extend to communications advisers, as well as the directors and officers of the bidder or target.

In combination, these new rules have the potential to significantly curb the enthusiasm of bidders, targets, major shareholders and their PR advisers in takeover contests.

* Roger Wallis is a partner at Chapman Tripp, specialising in corporate and securities law. The opinions expressed in this article reflect his own views and not necessarily those of Chapman Tripp or its clients.