Takeovers and delistings

A quick reference guide to the UK and Australia

I find it incredibly frustrating to receive a takeover offer that’s nowhere even close to my prediction of underlying value - a situation that’s commonly referred to as a take-under!

In the UK, I’ve often found that the most disappointing offers are combined with the threat of a delisting. A choice that seems designed to bend the arm of minority shareholders into accepting a second-rate offer. Many investors (me included!) don’t want to lose the transparency and legal protections afforded by public markets. Therefore, we have little choice but to accept….

A good example is Cambria Automobiles (CAMB).

In 2021, this car dealership had been listed on the AIM stock market for over a decade. It had a CEO, Mark Lavery, who owned ~40% of shares outstanding. A large stake, which in theory provides minority shareholders with some alignment of incentives.

Yet, just as the business was rebounding from post COVID lows, Mark Lavery created a private company (Cambria Bidco) and launched a bid for the publicly listed entity, Cambria Automobiles. Offering a rather paltry ~20% premium to the last closing price.

Shareholders were given the choice to either accept the offer or roll their stake into illiquid shares in the new private company.

Despite the offer price being controversially low, the deal was signed off as “fair and reasonable” by a (so-called) independent committee of Cambria directors. Yet, even Mark Lavery seemed to suggest otherwise when he made comments in Automotive Management suggesting “the value that we see in the business has not been realised.” (But still “fair and reasonable”……..right!!?)

A more recent example was Gama Aviation (GMAA), which I wrote up in December 2023. Again, the business was rebounding. And again, the CEO Marwan Khalek (in concert with another large shareholder) offered minorities a choice between either accepting a tender offer or owning shares in a private company.

In fact, one of the many reasons I’ve been drawn towards Australian equities is the protections for minority shareholders. In Australia, it’s not possible to use this kind of carrot (the low-ball offer) and stick (the delisting) approach. Thankfully, the takeover rules mandate that a bidder must wait a full year before voting on a proposed delisting. To me, this seems like a sensible option and one that’s worth considering in the UK.

After some painful experiences, I’ve been digging into the Takeover rules and thought I’d share my findings here. Below, I’ve included my key questions, alongside some bullet point answers. After spending a few hours, I’m far from developing any real expertise on the subject - at best, this is my quick reference guide for takeovers and delistings in the UK and Australia.

Please let me know if you find it useful.

Where can I find the rules?

• The Takeover Code is administered by an independent body, The Panel on Takeovers and Mergers.

At what level of ownership is a bid required?

• A shareholder must make a takeover bid at 30% ownership.

When does the 30% ownership rule not apply?

• If 50% of the shareholders who are independent of the transaction pass an ordinary resolution.

• If there is a rescue operation where a company is in such a serious financial position where is can only be saved by an urgent issue of new shares/or other securities.

What price will I get?

• A cash offer must be as high as the highest price paid by the bidder for any shares purchased in the previous 12 months.

How could a bid be structured?

A Contractual Offer or a Scheme of Arrangement are the most common.

What is a Contractual Offer?

• A direct offer to Shareholder, who can agree to sell shares directly to the acquiring company.

  • Either directly through CREST or by completing a Form of Acceptance.

• Contractual Offers are normally used for hostile bids.

  • The bidder has effective control of the process.

• Requires only 50% of the voting shares to gain control.

• In practice, most bidders will want over 90% of the voting shares to squeeze out minorities.

What are the main advantages and disadvantages?

• Generally quicker than a Scheme of Arrangement.

  • No court approval is required.

• The bidder can more easily adjust terms or react to a competing bid.

• Any increase in the bid is not passed onto those shareholders who have already accepted.

What is a Scheme of Arrangement?

• A scheme of arrangement is a procedure whereby a company may make a

  compromise or arrangement with its shareholders

• A scheme needs the approval of 75% by value and 50% by number of each class of security.

  • The bidder (or associates) cannot vote on the scheme.

What are the main advantages and disadvantages?

• Generally used for bids that are recommended by the target board.

  • The target board effectively controls the implementation of a scheme.

• Approval is generally considered a lower thresholds than the 90% of all securities required to commence a Compulsory Acquisition.

• Can avoid 0.5% stamp duty.

• Generally slower than a contractual offer.

  • Requires court approval

    • the court will look at whether the approved scheme is “fair”.

• If approved, it’s binding to all shareholders.

At what level of ownership will minority shareholders be ‘squeezed out’?

• For a Compulsory Acquisition the bidder must own at least 90% of the shares.

What proportion of shareholders does a bidder require to Delist the company?

• Main Market

  • To delist requires at least 75 per cent of shareholders to vote in favour in a general meeting.

    • Also be approved by a majority of the votes attaching to the shares of

      independent shareholders.

• AIM

  • Requires at least 75 per cent of shareholders to vote in favour in a general meeting.

    • A bidder can vote on the delisting.

Where can I find the takeover rules?

• The Australian Takeovers Panel website.

At what level of ownership is a bid required?

• A shareholder must make a takeover bid at 20% ownership.

When does the 20% ownership rule not apply?

• Creeping acquisitions allow an investor with at least a 19% shareholding in a company to acquire an additional 3% in each six-month period without making a takeover bid.

What price will I get?

• The bid price must equal or exceed the maximum share price paid during the 4 months before the date of the bid.

What is a Market offer?

• An appointed stockbroker will place a 'buy-order' on the ASX trading platform at a price equal to the bidder's offer price

• Requires 50% of the voting shares to gain control.

  • In practice most bidders will want over 90% of the voting shares in order to squeeze out minorities.

What are the main advantages and disadvantages?

• Only unconditional cash offers

• Market Offers are normally used for hostile bids.

  • The bidder has effective control of the process.

• Any increase in the bid is not passed onto shareholders who have already accepted the bid.

What is an Off-Market offer?

• The bidder makes individual written offers directly to all target security holders to acquire their securities in return for payment of the offer price.

• Requires only 50% of the voting shares to gain control.

  • In practice most bidders will want over 90% of the voting shares to squeeze out minorities.

What are the main advantages and disadvantages?

• Unlike a Market bid, any increase in bid consideration is given to shareholders who have already accepted the off-market bid.

• A pre-bid stake in the target held by the bidder may be advantageous as it may deter third parties from entering the contest for control.

What is a Scheme of Arrangement?

• A Scheme of Arrangement is a type of Off-Market bid whereby a company may make a compromise or arrangement with its shareholders

• A scheme needs the approval of 75% by value and 50% by number of each class of security.

  • The bidder (or associates) cannot vote on the scheme.

What are the main advantages and disadvantages?

• Generally considered lower thresholds than the 90% of all securities required to commence compulsory acquisition following a takeover bid.

• Generally used for bids that are recommended by the target board.

  • The target board effectively controls the implementation of a scheme.

• Approval is generally considered a lower thresholds than the 90% of all securities required to commence a Compulsory Acquisition.

• Generally slower than the other types of offer.

  • Requires court approval

• If approved, it’s binding to all shareholders.

• A pre-bid stake may be a disadvantage under a scheme because those shares will not be voted in the same class as other target security holders to approve the scheme.

At what level of ownership will minority shareholders be ‘squeezed out’?

• For a Compulsory Acquisition the bidder must own at least 90% of the shares.

What are the requirements to Delist?

• Special Resolution requiring 75% of shareholders to vote in favour.

• Unlike the UK, a Bidder can only vote if approval is sought 12 months after the takeover offer closes.

Disclaimer. This article is for informational purposes only, and should not be seen as investment advice. Please do your own research before investing in any company mentioned.