Corporations are separate legal entities and are financed through the ownership which is represented though shareholding. Thus the capital of the company originates from the shareholders who purchase equity in exchange for ownership and voting rights in the venture. The higher the shareholding of an individual or entity the more voting capacities are held by them in the venture. Corporate finance is dependent on this structure. The phenomenon of an entity purchasing majority voting rights in a venture and thus acquiring its majority ownership is known as a takeover and this form of corporate financing is similar to that of mergers and acquisitions which are also modes through which entities are taken over and financed by other commercial entities. The Australian Commonwealth has various key legislations and judge-made laws which define and regulate the interactions of entities which engage in such modes of corporate financing. This report will seek to identify, analyze and recommend resolutions to issues which could arise during a takeover bid of the entity Aussie Fuel Service Stations Limited by the entity Omega Petroleum Limited. The report will also glance upon the various statutory and legislative implications of such a takeover bid and its ultimate viability.
Omega Petroleum Limited is a corporation engaged in the business of refining and distributing petroleum products. It was incorporated within the jurisdiction of the Australian Commonwealth and carries on business activities within the same. Aussie Fuel Service Stations Limited on the other hand also deals with the distribution of petroleum products however it deals in the retail sector. Aussie Fuel Service Stations Limited was also registered and incorporated in Australia and carries on business transactions in the same jurisdiction. Thus the takeover would be in primarily the same industry in a vertical format similar to vertical mergers. Aussie Fuel Service Stations Limited also has considerable shareholdings in other entities like Onsite Retail & Logistics Ltd of which the company owns 41% shares.
In the territorial jurisdiction of the Australian Commonwealth the primary legislation dealing with companies is the Corporations Act, 2001 (Cth). The Corporations Act, 2001 (Cth) defines and regulates corporations within the jurisdiction of the Australian Commonwealth and furthermore governs takeovers. It applies to corporations incorporated within Australia as well as companies formed outside and carrying on business activities within the same. Omega Petroleum Limited and Aussie Fuel Service Stations Limited are incorporated within the jurisdiction of the Australian commonwealth and thus would be subject to the provisions of the Corporations Act, 2001 (Cth).
The primary regulatory Authority to consider when dealing with takeovers is the Takeovers Panel which is established by virtue of the provisions prescribed under Part 10 at Section 172ff of the Australian Securities and Investments Commission Act, 2001 (Cth) which is also known as the ASIC Act. The powers conferred to this Panel however, which encompass a majority of the compliance procedures in the process of takeovers, is defined under Part 6.10 Division 2 of the Corporations Act, 2001 (Cth). These powers allow it to review, accept or reject applications for takeovers. The primary provision of the Corporations Act, 2001 (Cth) which deals with the appropriate circumstances for a takeover is defined under Section 602 of the act. It states that for a bid to be valid it must be in an efficient, competitive, informed market and that the holders of voting rights or shares that confer such a power must be well informed and well-versed with the identity and implications of the same. It has also been prescribed that the Panel would be able to deliberate over disputes arising from takeovers and thus it has the right to assess policy and legal issues relating to the same as stated in Section 675A of the Corporations Act, 2001 (Cth). Thus the takeover Panel is not only tasked with scrutinizing applications for takeover bids but also acts as an adjudicating and mediating body in cases of disputes arising from such takeover bids. It has also been clarified that the Takeover Panel can decided when unfavorable circumstances for such a takeover has arisen as reiterated in the land mark case law Attorney-General of the Commonwealth v Alinta Limited & Ors. In this case the High Court of Australia which is a federal judicial authority laid down that such a power is conferred to the panel under the provisions of Section 657D of the Corporations Act, 2001 (Cth). Moreover the Panel is also able to review its own decisions on its own motion or suo moto. This power is conferred under Section 657EA of the Corporations Act, 2001 (Cth). Thus, the first step that would have to be taken by Omega Petroleum Limited in placing a takeover bid is to file an application for the same before the takeover Panel. It is also clarified that Omega Petroleum Limited already possesses ownership of 9% of the current shareholding of Aussie Fuel Service Stations Limited and thus already has voting rights in the company. Further other entities possessing 10% and 8% respectively of Aussie Fuel Service Stations Limited’s current shareholding have agreed to sell their ownership in the same once the bid has been approved and executed.
Omega Petroleum Limited primary concern would be to establish that the takeover is not anti-competitive. Anti-competitive takeovers and mergers are those transactions that cause detriment to market competition. This can be seen as activities aimed at obtaining a monopolistic position or being anti-competitive by acting as a price setter in the market. It has also been considered that such a transaction would be grossly unethical and illegal as it would be against the Competition and Consumer Act, 2010 (Cth) which deals with the regulation of market competition. This act ensures that all activities such as mergers are regulated in a way that endorses and amplifies the free market system as opposed to causing detriment to it. The Australian Competition and Consumer Commission (ACCC) is the regulatory authority which regulates market competition and provides for statutory prohibitions on anti-competitive activities. Moreover, the Australian Competition and Consumer Commission (ACCC) is also tasked with resolving disputes relating to market competition within the jurisdiction of the Australian Commonwealth. Since this is a takeover happening in the same industry Omega Petroleum Limited would ideally gain a higher market share than before as it would now be transacting in the distribution networks as well as the retail sector in the petroleum industry. Thus it would have to establish that such a takeover would not adversely affect market competition. Omega Petroleum Limited also already own shares in Aussie Fuel Service Stations Limited and after acquiring 100% of its share capital it would also own 41% of Onsite Retail & Logistics Ltd (which is currently owned by Aussie Fuel Service Stations Limited). Thus in order to ensure that this is not anti-competitive it would have to establish that it is not adopting a monopolistic approach to its market standing. The Competition and Consumer Act, 2010 (Cth) encompasses all parties involved within market transactions and thus it also covers consumer protection. It needs to be ensured that the when executing such a form of corporate financing the consumers in the market must not be adversely effected. This happens when an entity acts as the price setter and then sets the market price of commodities at exorbitant rates. Thus, the Competition and Consumer Act, 2010 (Cth) would have to be adhered to when bidding and applying for such a takeover. As envisaged in Section 50 of the Competition and Consumer Act, 2010 (Cth) a merger that has a significant detrimental effect on market competition is prohibited. In case of a breach of a federal statutory obligation 39B (1A)(c) of the Judiciary Act 1903 would confer jurisdiction on civil courts to take cognizance of and adjudicate on such matters. The Australian Competition Tribunal which is an authority which reviews decisions can be applied to in case of a party is aggrieved by a decision.
The second legislative provision which would have to be adhered to by Omega Petroleum Limited is the Merger Guidelines, 2008. These guidelines provide a comprehensive look at the rights of parties and the duties of the entities entering into such a merging of entities. Takeovers would also have to adhere to these guidelines as it embodies a process through which two entities merge. It can also be considered that this takeover would effectively be a vertical merger.
It would also be Omega Petroleum Limited’s duty to establish that the takeover is not hostile. However as there has been no resistance from the directors of Aussie Fuel Service Stations Limited it can be inferred that such a takeover is friendly.
As the entity being taken over the focus for Aussie Fuel Service Stations Limited would be to ensure that each and every one of its stakeholders are compensated appropriately. The prohibitions prescribed under Section 606 of the Corporations Act, 2001 (Cth) must also be adhered to when acquiring voting rights in the company. Thus Aussie Fuel Service Stations Limited would have to ensure that the prohibited categories of acquisitions of interest are not traversed while executing such a takeover. Omega Petroleum Limited in order to assume total control over Aussie Fuel Service Stations Limited would have to acquire a minimum of 90% voting interests in the company with acquisition of 100% being the ideal percentage. Such a transaction would purely be a transaction in securities and thus would be regulated by the provisions of Section 64 of the Corporations Act, 2001 (Cth). These securities would have to constitute equity and would be governed by the provisions of Section 92 (3) of the Corporations Act, 2001 (Cth). Section 608 defines relevant interests in the securities and thus would govern the acquisition of voting rights in such an entity. Omega Petroleum Limited and Aussie Fuel Service Stations Limited would have to ensure that these prescriptions are adhered in order to successfully execute such a takeover. Voting power under the Corporations Act, 2001 (Cth) is defined under Section 606 (1) (c), it lays out the modes through which the takeover would confer total control over Aussie Fuel Service Stations Limited. However both parties are indemnified against failures arising due to the fault of the other party through mutual agreement.
Conclusion
To conclude the takeover of Aussie Fuel Service Stations Limited would be a friendly takeover due to the absence of resistance from the board of the company. It would be in the same industry and thus competition laws would have to be closely considered. However, the takeover would be a prudent step and would benefit all stakeholders of the entity being taken over. Omega Petroleum Limited being the entity that is taking over the company would stand to gain a larger market. With the advent of the indemnities provided by both parties it would be a reliable and prudent step to move forward with the execution of the same.
Australian Securities and Investments Commission Act, 2001 (Cth).
Corporations Act, 2001 (Cth).
Competition and Consumer Act, 2010 (Cth).
Judiciary Act 1903.
Case laws
General of the Commonwealth v Alinta Limited & Ors [2008] FCA 2.
Articles
Akhtar, Farida. “The probability of a firm making a takeover bid: an empirical analysis of Australian firms.” Australian Journal of Management 41.1 (2016): 27-54.
Cartwright, Sue, and Cary L. Cooper. Mergers and acquisitions: The human factor. Butterworth-Heinemann, 2014.
Humphery?Jenner, Mark, Zacharias Sautner, and Jo?Ann Suchard. “Cross?border mergers and acquisitions: The role of private equity firms.” Strategic Management Journal 38.8 (2017): 1688-1700.
Lee, Ashley. “Warrnambool takeover tests Australian regulations.” International Financial Law Review (2014).
Payne, Jennifer. “The use of schemes of arrangement to effect takeovers: a comparative analysis.” (2014).
Ramsay, Ian. “Takeover Dispute Resolution in Australia and the United States–Takeovers Panel or Courts?.” (2015).
Ratcliffe, Chris, and Bill Dimovski. “An investigation into the drivers of Australian REIT merger and acquisition announcements.” Journal of Property Investment & Finance31.5 (2013): 441-461.
Reddy, Kotapati Srinivasa. “Determinants of cross-border mergers and acquisitions: A comprehensive review and future direction.” (2015).
Seltzer, Andrew J. “Implicit contracts and acquisitions: An econometric case study of the 19th century Australian banking industry.” German Journal of Human Resource Management31.2 (2017): 185-208.
Soo, Say-Kit. “Truth in Takeovers: A Discussion on the Policy and its Application in Australia.” (2013).
Zahid, Nauman, and Asif Mujtaba Shah. “Mergers and Acquisitions in International Business.” European Scientific Journal, ESJ 22 (2014).
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