Continuous disclosure and takeover offers

The significant increase in merger and acquisition activity has prompted discussion of when ASX-listed companies must announce offers received by them, even if they are conditional or only "indicative and non-binding".

Section 674 of the Corporations Act obliges a listed company to notify its market operator of "information that a reasonable  person would expect, if it were generally available, to have a material effect on the price or  value of … securities" of the company.

Generally if no firm offer has been made yet the target has no obligation to
make an announcement. For example, ASX Listing Rule 3.1A.3 excludes the
obligation to make announcements about incomplete proposals, matters of
supposition or matters that are insufficiently definite.

However if the offer is a prelude to a possible takeover bid, an announcement should be made to protect the interests of shareholders who may sell on-market at a lower price before a bid is announced. It is important to keep the market informed of price-sensitive information. Failure to alert shareholders of off-market offers may leave directors open to criticism that they have denied shareholders an opportunity to sell into the takeover offer. But if the announcement is premature (and there is no certainty the offer will be accepted) the market could be equally mislead: should the approach be disclosed without disclosing the indicative amount or the identity of the bidder?

An early announcement by the target may put pressure on the bidder to clarify or improve its offer. If the target makes no announcement but the bidder makes a unilateral statement the target may have to defend its silence. Disclosure is essential; it’s all a matter of timing. 

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