Mariner decision gives directors of bidders greater latitude when announcing takeover bids

Key Points:

The Federal Court has made clear that a bidder need not have certain, guaranteed, binding or unconditional arrangements in place at the time a takeover bid is announced, at least in order to satisfy the requirement in section 631.

Bidders and their directors can be more confident they will not breach the Corporations Act by announcing proposed takeover bids even if they have not arranged firm funding, following the Federal Court decision last Friday in Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589. Clayton Utz acted for one of the successful defendant directors, the former CEO, in the proceeding. 1

The case is a significant decision on both takeovers and directors' duties. It also serves as a forceful reminder that the approach taken by the Takeovers Panel, expressed in its Guidance Notes and decisions, as well as by ASIC in its Regulatory Guides, are not binding on a Court when determining the legal meaning of specific provisions of the Act.

The decision is the first on the Act's prohibition on bluffing bids in section 621(2). In essence, the Court held that the requirement of recklessness in the section sets a high bar so that a contravention will only occur in egregious circumstances, such as where there is no genuine intention to follow through with the bid. The Court rejected the proposition that the prohibition means that a bidder must have reasonable grounds to believe that it will be able to perform its obligations if a substantial proportion of offers under the bid were accepted.

At the same time, the Court made a number of significant points in relation to directors' duties, including their ability to invoke the business judgment rule.

Mariner puts a toe in the water - and Austock in play

Mariner was a listed company which targeted and engaged in mergers and acquisitions in the small cap sector. It had set its sights on Austock, based on an assessment that Austock's market cap did not reflect its true value, which would be unlocked if its separate parts (a property business and a life insurance business) were sold off.

On 25 June 2012, Mariner announced a proposed off-market bid for Austock. At that time, Mariner did not have enough resources of its own to satisfy its obligations under the bid. It would need external resources, which would only be available if the arbitrage opportunity was attractive enough. It had had discussions with a keen prospective purchaser of Austock's property business and other potential sources of finance, but had not confirmed anything as at 25 June. So what was it doing?

The bid was announced at a price which was not much higher than the then current market price and around half the value for which Mariner considered the assets of Austock could be realised. It was also...