01 Jul 2010

Watch out for an increase in low-ball offers

Listed companies should brace themselves for an increase in low-ball unsolicited offers to their Mum & Dad shareholders before Parliament shuts down a loophole later in the year.

The Bill, designed to deny access to share registers for the purpose of making unsolicited offers at below market value, was unfortunately not passed into law before Parliament rose for the Winter recess. With Parliament not due to meet again until 24 August (even if there is no election in the interim), the Bill is unlikely to become law for several months.

This effectively gives low-ball offerors a window of opportunity in which to get access to share registers. They may also be encouraged by the recent decline in the stock market.

What can be done in the interim?

Companies that wish to protect their shareholders against low-ball offers should contact us as soon as they are aware that a predator is sniffing around. A program of legal vigilance and shareholder education can then be devised to minimise the impact of any unsolicited offer and to make life difficult for a predator.

Although low-ball offers are not illegal, they are very tightly regulated by the law.

At the very least, therefore, companies should insist that those who intend to make a low-ball offer comply strictly with the existing requirements of the Corporations Act - in relation to both access to the share register and subsequent offers to shareholders.

It is also advisable to inform shareholders of the downsides of accepting a low-ball offer.

The company should also alert ASIC. Low-ball offers are a serious concern to the corporate regulator. It has intervened on numerous occasions when shareholders have been targeted in this way. ASIC is also prepared to issue public warnings to retail shareholders about low-ball offers.

In short, although low-ball offers will remain a fact of life - and may increase - during the next few months, companies can take a number of steps to minimise their effects and therefore protect the interests of small shareholders.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.