This cycle of complication started in the months before March last year when Finders became an ASIC test case on the truth in takeovers regime and the rules that mandate the way targets, bidders and owners flag their intentions.
In effect, ASIC took on the Finders matter because it appeared the wider market had been misled by the little miner’s major owner, Taurus Funds Management. The idea that an owner might be held to account for commitments made through a takeover contest was novel but worth testing.
Low-ball offer
Taurus, whose principal Gordon Galt was a non-executive director of Finders, owns 11.31 per cent of the miner. Galt was party to the boardroom deliberations that saw Finders announce to the market that independent directors had rejected a 23¢ a share takeover offer from Eastern Field Development (EFD).
Two days after that initial December 2017 rejection Finders published on the ASX platform a statement noting that Taurus “does not intend to accept offer price of $0.23 per Finders share”.
That December 7 statement of intent was written for Taurus by Finders’ solicitors, Ashurst. The firm also wrote a draft covering letter introducing the planned ASX release. That letter carried the same statement of intent but arrived with the qualification that Finders would be informed as soon a possible should Taurus change its mind. Why this caveat was missing from the ASX announcement was not explained. Then again, explanation was not asked for. At 8.27pm on December 6 Galt signed off on the release.
While EFD had expected resistance by Taurus, its unequivocal nature was a surprise.
As it turns out, the bid price was not supposed to lure surrender from the likes of Taurus. EFD did not expect or desire the level of success implied by its minimum acceptance condition of 50 per cent. This was a low-ball offer that aimed to deliver Soeryadjaya & Co the ability to reconstruct management.
Among the logics that drove the low-ball strategy was that Indonesian tax law looks more kindly on minority foreign positions than it does on full ownership. Full ownership means only that the Wetar project would be liable to pay higher rates of domestic tax.
But that carefully manicured plan went out the window on February 14 last year when, in the name of building the momentum needed to maybe double its initial 19 per cent holding, EFD went unconditional.
About a month later, with its ambitions just about fulfilled, EFD went final on price. Two weeks later Taurus accepted the bid, tipping EFD to 60 per cent of the Finders. With the control threshold passed, previously resistant minorities began accepting into the offer and EFD suddenly found itself needing to raise further funds to cover the potential cost of taking out the whole business.
This unanticipated success saw EFD turn to ASIC in the name of truth in takeovers. The bidder’s proposition was that it should have been able to rely on Taurus’ public commitment that it would not accept 23¢ a share. ASIC agreed and took its case to the Takeovers Panel.
Unacceptable circumstances
Twice the Takeovers Panel heard the matter and both original and appellant panels found that there had been unacceptable circumstances.
The first panel ordered the cancellation of the Taurus acceptances and ruled that it could not sell its Finders position for anything less than 24¢ a share. But that penalty did not sit with two of the three members of the appellant panel.
Having found that there was a broad base of unacceptable conduct that was not owned by Taurus alone, the majority of the second panel of three changed the orders to allow for Taurus to put its shares to EFD at a point after the closure of the bid. It delivered EFD an unrequested right to call the Taurus shares. And it ordered that Taurus compensate “a class of Finders shareholders” that were potentially caught up by the unacceptable circumstances.
As we reported at the time, the dissenting voice in this decision was sitting president Ron Malek. He concluded that the original orders should stand. The way EFD saw things was that four of six panellists had decided the original orders were appropriate while only two felt the need for change. But the conclusion of that duo held sway.
While ASIC was irritated by the remodelling of those original orders, it decided not to take the matter further. But it also moved promptly to relieve EFD of legal constraints that would have prevented it from contesting the rulings. So, the matter moved to the Federal Court. The case was heard last October and the decision handed down in Perth last Friday. And the result was wholly reinforcing of the Takeovers Panel and its processes.
Federal Court Judge Neil McKerracher rejected EFD’s appeal on pretty much every point. The court was as untroubled by the variety of decisions as it was by the changed orders and instead offered ringing endorsement of “the decisional freedom of the Takeovers Panel”.
“In all the circumstances of this case, an alternative decision may have been reached, as the Initial Panel did and as the dissenting member of the Review Panel did. Nonetheless, that does not make the views of the majority in the Review Panel irrational or legally unreasonable,” the judge observed.
Complexity of failures
The court concluded that the panels were “entitled to engage in reasonable speculation in endeavouring to determine what would have happened if relevant circumstances did not exist”.
The panel is, equally, “entitled to use its expert judgment, based on the material before it and the experience of its members, when making this evaluation”.
What was good for the Takeovers Panel, though, might not be received so well by ASIC and any future interest it might have in testing the limits of the truth in the takeovers regime. McKerracher noted, for example, that the truth in takeover guidance does “not have the force of law” and is therefore not binding on the Takeovers Panel.
In the end, having described a complexity of failures that were not owned by Taurus alone, the court found there was no reason to alter the orders.
“The relief granted by the Review Panel did not ignore and was not inconsistent with its finding that the acceptance of the Takeover Bid by Taurus was part of the unacceptable circumstances. The finding was that the unacceptable circumstances had the effect that the acquisition of control of Finders did not take place in an efficient, competitive and informed market. The orders made were not inconsistent with that conclusion.
“It is true that the effect of the relief is that Eastern Field has been left with an obligation to acquire many more shares than it would have acquired in the absence of the unacceptable conduct. On the other hand, it went about an acquisition of 100 per cent and that is what it has got. It is not as though Taurus has escaped unscathed. Its obligation to pay compensation has been estimated by ASIC as being in the order of $500,000,” McKerracher concluded.
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