Australian takeover laws are an essential component of an effective capital market.
Designed to create a fair but competitive playing field, these laws regulate the acquisition of control of listed Australian companies, managed investment schemes
and unlisted Australian companies with more than 50 members.
This guide breaks down the key principles of takeover laws in Australia, including the “20% rule”, relevant interests, voting power and association, as well as outlining the most common means of effecting a takeover: schemes of arrangement, off-market takeover bids and on-market takeover bids.
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Takeover Laws in Australia
Australian takeover laws are a combination of legislation and policy that apply to only certain entities:
Australian Takeover Laws - Main Principles
The Australian takeover laws ensure that several main principles are applied:
- Target shareholders have an equal opportunity to participate in any benefits for a shareholders under a control proposal
- Acquisition of control should take place in an efficient, competitive and informed market
- Target shareholders and directors should know the identity of those who propose to acquire a substantial interest
- Target shareholders and directors should have a reasonable time to consider a control proposal
- Target shareholders and directors should be given enough information to assess the merits of a control proposal
- An appropriate procedure is followed before compulsory acquisition of target shares can take place
How the Main Principles Are Applied
The main principles of takeovers in Australia are applied by prohibiting the acquisition of control (unless it is through an exception).
The prohibition on acquiring control is largely achieved through a rule known as the “20% rule”.
What is the 20% Rule?
A person must not acquire a “relevant interest” in voting shares of a company, or voting securities of a management investment scheme, that is subject to the takeover laws, if that acquisition would result in any person’s “voting power” exceeding 20% (unless it is through an exception).
The ‘20% rule’ relies on some key concepts:
Relevant Interest
A person will have a “relevant interest” in voting shares if they are the holder of the shares, or if they have direct or indirect control over the voting or disposal of the shares.
Voting Power
A person’s “voting power” is the aggregate of the number of votes attached to all of the voting shares in which that person or their “associates” have a “relevant interest”.
“Voting power” is expressed as a percentage of all issued voting shares in the company or management investment scheme.
Associates
Associates include:
- Persons who are acting together in relation to control of a company or managed investment scheme
- Parties to any agreement for the purpose of controlling or influencing the composition of the board or the conduct of the affairs of the company or managed investment scheme
- Members of the same corporate group
Learn more about the exceptions that allow acquisitions of control.
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On-market Takeover Bids in Australia
What Is an On-market Takeover Bid?
An on-market takeover bid, also known as a market bid, is a procedure under which a bidder can acquire up to 100% of the shares in a company that is subject to the Australian takeover laws.
Under an on-market takeover bid, a bidder appoints a stockbroker to stand in the market on ASX on behalf of the bidder and purchase target shares at the offer price.
In the five-year period between 2017 and 2022, there were 14 on-market takeover bids announced for ASX-listed companies, making on-market takeover bids far less common than off-market takeover bids.
Learn more about the key features, the step by step process and the timetable of on-market takeover bids.
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Off-market Takeover Bids in Australia
What Is an Off-market Takeover Bid?
An off-market takeover bid is a procedure under which a bidder can acquire up to 100% of the shares in a company that is subject to the Australian takeover laws.
Under an off-market takeover bid, a bidder makes offers on the same terms to all target shareholders to acquire their shares in return for consideration paid by the bidder to those target shareholders who accept the bidder’s offer.
The offers are sent to target shareholders by the bidder, and acceptances of the bidder’s offer are sent back to the bidder by those target shareholders who chose to accept the bidder’s offer.
Learn more about the key features, the step by step process before and after the announcement, the role of the bidder and the target, and the timetable of off-market takeover bids.
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Schemes of Arrangement in Australia
What Is a Scheme of Arrangement?
A scheme of arrangement is a procedure under which a company can reconstruct its capital, assets or liabilities.
A scheme of arrangement can be used to enable a bidder to acquire up to 100% of the shares in a company, giving an equivalent outcome to a takeover bid.
Under a scheme of arrangement, the target company proposes an arrangement between the target and the target shareholders. The terms of the arrangement require 100% of the shares in the target to be transferred to the bidder in return for consideration paid by the bidder to all target shareholders.
The arrangement only becomes legally binding on the target and the target shareholders if the target shareholders vote to approve it and the court also approves it. Once legally binding, the arrangement binds all target shareholders, even those who voted against it or who did not vote.
Learn more about the key features, the step by step process leading up to and after the announcement, the approvals required, and the timetable of schemes of arrangement.
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Takeover Bids Versus Schemes of Arrangement in Australia
While a scheme of arrangement can be used to effect the same outcome as a takeover bid, the two procedures operate in different ways. These differences have tactical and strategic impacts.
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Takeover Bid |
Scheme of Arrangement |
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Control of Process |
Bidder largely controls the process, as it makes the offers and determines the offer price, the offer terms and conditions, and the offer period. |
Target largely controls the process, as it seeks the approval of its shareholders and the court following an initial approach by the bidder. |
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Friendly or Hostile |
Can be friendly when made with a target board recommendation or hostile when made with no cooperation or support from the target. |
Requires the cooperation of both the target and the bidder, so it cannot be hostile. |
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Approvals Required |
Target shareholders either accept or reject the bidder’s offer. No approvals are required from target shareholders or the court. |
Approvals are required from both the target shareholders and the court:
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Threshold to Reach 100% |
To achieve 100% ownership, compulsory acquisition must be undertaken. To commence compulsory acquisition, the bidder must reach a 90% relevant interest. |
For the scheme to be approved, a resolution in favour must be passed at meetings of each class of target shareholders by both:
Typically, the bidder and its associates will not vote on the resolution to approve the scheme. |
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Outcome |
Once the offers become unconditional, the bidder will own the shares that have accepted the offer. It is typical that the offer will become unconditional before the bidder can reach a 90% relevant interest, which creates a risk that the bidder will hold a less than 100% interest at the end of the offer. |
If the scheme is approved, the bidder will acquire 100% ownership of the target, or if the scheme is not approved the bidder, they will not acquire any target shares. This makes schemes the preferred way to effect a ‘takeover where reaching 100% ownership is the goal. |
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Terms |
Any form of consideration, including cash, shares or both
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Disclosures |
Bidder prepares a bidder’s statement that includes the terms of the offer and all other information known to bidder that is material to target shareholders. Target responds with a target’s statement that contains the target directors’ recommendation and all other information known to the target that is material to target shareholders. The target’s statement usually includes an independent expert report valuing the target shares. |
The target sends to its shareholders a scheme booklet that contains all information known to the target and the bidder that is material to target shareholders. ASIC expects the scheme booklet to effectively contain the same level of disclosure as a bidder’s statement and the target’s statement combined. The scheme booklet usually includes an independent expert report valuing the target shares. |
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Timetable |
Typically takes a minimum of two to three months from offer announcement to close, but exact timing will depend on the number of extensions of the offer. |
Typically, the process will take three to four months from announcement to implementation. |
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ASIC Oversight |
ASIC does not review a bidder’s statement or target’s statement before it is sent to target shareholders, but it may apply to the Takeovers Panel for declarations of unacceptable circumstances where such documents are deficient. |
ASIC reviews scheme booklets before they are submitted to the court to be approved for despatch to shareholders. The court must not approve a scheme unless ASIC has provided a statement of no objection (or the court is satisfied that the scheme has not been proposed in order to avoid the takeover laws in Chapter 6 of the Corporations Act). |
Learn more about the advantages and disadvantages the schemes offer, compared to takeover bids.
For more information about anything related to takeover bids in Australia, please contact one of our team listed below.
