Bid Tactics: Panel makes declaration and orders in the matter of Allegiance Mining NL

The Corporations Act (Cth) 2001 allows a bidder making an unconditional off-market bid to extend the offer period at any time before the end of the offer period.  Given that target shareholders are often unwilling to accept an offer where there is doubt as to whether the consideration offered is the bidder's 'best and final' offer, it is not uncommon for a bidder to delay announcing an extension until the last possible moment.  The hope is that some target shareholders will accept to avoid missing out.  Of course, if a bidder fails to get the timing right, the tactic can fail as evidenced by the recent decision of the Takeovers Panel (Panel) in the matter of Allegiance Mining NL (announced on 22 February 2008).

By way of summary, Zinifex Australia Limited (Zinifex) has made an off-market takeover bid for all of the ordinary shares in Allegiance (Offer).  The Offer was scheduled to close at 7.00pm on Friday 8 February 2008.  At 4.55pm on 8 February 2008, Zinifex lodged the notice of variation to extend the closing date with ASIC (Notice of Variation).  A letter advising each Allegiance shareholder of the Offer extension was collected by Australia Post at around 5.00pm.  Zinifex emailed the Notice of Variation to Allegiance at 6.56pm, and at 7.18pm emailed an announcement containing the Notice of Variation to ASX.  At 7.30pm on 8 February 2008, the Notice of Variation appeared on the ASX website.

In its application to the Panel, Allegiance claimed Zinifex had implied to the market that it did not intend to extend the Offer.  It also claimed that some Allegiance shareholders accepted into the Offer between 5pm and 7pm on 8 February 2008 (including an acceptance of more than 5% of Allegiance from the target's largest shareholder) in the mistaken belief that the Offer would not be extended.  There has also been media speculation that at least one of those shareholders had a representative at the offices of Zinifex's share registry, and it only accepted after being told by a representative of the registry that the bid would not be extended¹.

The Panel's reasons for its decision are yet to be released, so it is not clear what, if any, weight the Panel gave to such matters.  However, it is clear the Panel considered that by failing to inform Allegiance of the extension of the Offer as soon as practicable after the Notice of Variation to shareholders was collected by Australia Post:

• The acquisition of control over voting shares in Allegiance had not taken place in an efficient, competitive and informed market.
• Allegiance's shareholders were not given enough information to assess the merits of the extension of the Offer and a reasonable time to consider it².

Having declared the circumstances to be unacceptable, the Panel granted withdrawal rights, ordering that:

• Zinifex issue a statement to the market informing Allegiance Shareholders who accepted the Offer after 5pm but before 7.30pm (Melbourne time) on 8 February that they have a right to apply to Zinifex to cancel their acceptance (exercisable at any time prior to 5.00pm on Wednesday 27 February 2008). 
• Certain contracts formed on the acceptances of the Offer after 5.00pm (Melbourne time) but before 7.30pm (Melbourne time) on 8 February 2008 be cancelled.

It will be interesting to see the Panel's reasons for its decision, and the impact of its decision on future bid conduct.  It will also be interesting to see what, if any, response it elicits from ASIC and ASX as, on the surface at least, it appears as though the decision raises some interesting questions.  For example:

• Should Zinifex have made an announcement under Listing Rule 3.1 (continuous disclosure) earlier than it did?  Given that the decision to extend must have been made some time prior to 4.55pm on 8 February, was it information that a reasonable person would expect to have a material effect on the price or value of Zinifex shares?
• Is it necessary for ASIC to issue a Regulatory Guide addressing the issue?  One possibility would be to impose a deadline on bidder disclosure where a bid is unconditional and there is speculation as to whether an offer will be extended or closed at the scheduled closing time.

For the time being however, one thing is certain; the tactic of delaying the announcement of an extension to an unconditional bid was not, in this case, a success.

For further information, please contact:

Andrew Crean, Senior Associate
Tel +61 3 9274 5024
andrew.crean@dlaphillipsfox.com

Mark Burger, Partner
Tel +61 3 9274 5586
mark.burger@dlaphillipsfox.com

1 Bryan Frith, "Allegiance complains about Zinifex", The Australian, February 14 2008
2 based on Panel MR 16 of 2008