[Last updated: 1 January 2025, unless otherwise noted]

3.1 Basic takeover prohibition

The Corporations Act prohibits a person from acquiring a 'relevant interest' in issued voting shares of a company if, because of the transaction, either that person's or someone else's 'voting power' in the company increases:

• from 20% or below to more than 20%; or

• from a starting point that is above 20% and to a level below 90%,

unless the acquisition occurs under one of the permitted exceptions permitted by the Corporations Act (as discussed in 3.2 below).

The Corporations Act regulates acquisitions of more than 20% of:

• the voting shares in a listed Australian company, or in an unlisted Australian company with more than 50 shareholders; and

• the voting interests in a listed managed investment scheme (the most common example of which is a listed unit trust, such as a REIT).

The key concept in determining whether or not an acquisition breaches the 20% limit is the "voting power" which results from the acquisition.

1. "Voting power"

   A person's "voting power" in a company is the aggregate of that person's "relevant interests" in voting shares and the "relevant interests" of that person's "associates", expressed as a percentage of all issued voting shares.

2. "Relevant interest"

   The concept of "relevant interest" is broad, covering almost all situations where a person has direct or indirect control over the voting or disposal of a share.

3. "Association"

   An associate of a person is defined to capture a broad range of circumstances. In essence, two persons will be associated if:

   • they are both corporate bodies and one controls the other or they are under the common control of another person;
   • there is an agreement, understanding or arrangement (whether legally enforceable or not) between them for the purpose of controlling or influencing the relevant company's board or affairs; or
   • they are acting or proposing to "act in concert" in relation to the relevant company's affairs.

3.2 Exceptions to the basic takeover prohibition

Where a bidder aims to take control of the target company (generally 100%, but can be as low as 50%), the main structures for achieving this result are

Unlike the takeover laws of some other jurisdictions, there is no "follow-on" or "mandatory bid" rule in Australia which would allow a bidder to acquire shares above the 20% limit if it then immediately makes a general offer to all other shareholders in the target company. Instead, a bidder must stop at the 20% limit, and then make its bid from that point.

3.3 Shareholding thresholds

The table below provides an overview of the key shareholding thresholds for a public company under the Corporations Act:

3.4 Restrictions and careful planning

In Australia, there is established market practice and certain rules that impose restrictions prior to the announcement of a takeover, including in relation to prior stake building by a bidder and prior due diligence by a potential bidder. Accordingly, some careful planning is necessary if a potential bidder or target company intends to commence a process that may lead to a takeover.

3.5 Due diligence

In a friendly or solicited bid, the bidder may be given pre-bid access to confidential information of the target company. Given that publicly listed entities in Australia are subject to extensive reporting requirements and have strict continuous disclosure obligations in respect of price sensitive information, the due diligence should generally tease out additional detail around what has already been publicly disclosed.

Once a bidder comes into possession of non-public price-sensitive information, its ability to buy any shares before launching the bid may be hindered by insider trading restrictions.

In a hostile bid, there will most likely be no opportunity to undertake detailed due diligence on the target, and the bidder has to take the risk that the target company's public announcements may be incomplete or may not be sufficiently detailed.

3.6 Confidentiality and standstill agreement

A potential bidder will usually be required to enter into some form of confidentiality or non-disclosure agreement restricting its use and disclosure of the confidential information it receives.

As a trade-off for granting due diligence access, a target company may require the potential bidder to agree to a standstill restriction. Standstills will generally last for up to 12 months and will prohibit the potential bidder from buying shares or launching a bid other than on terms which the target company's directors have approved. Care needs to be taken before agreeing to a standstill, as these agreements will be enforced by the Takeovers Panel. A bidder should therefore ensure that a standstill lasts for no longer than is necessary, and that it releases the Bidder in appropriate circumstances.

Standstill agreements serve a number of purposes for a target company. They achieve a strategic goal for a target company by giving it some measure of control over the terms on which a takeover will occur. Furthermore, they provide some protection for the target company from potential liability for "tipping" under the insider trading provisions of the Corporations Act. "Tipping" is where a person discloses non-public, price- sensitive information to a person who the first person believes would be likely to acquire target company shares.

3.7 Pre-bid acquisitions

A potential bidder may seek to acquire a relevant interest in the target company's shares in advance of acquiring shares under a control transaction.

There are several benefits to a bidder in acquiring a pre-bid stake, including:

• it forces the target company to take the bid seriously and engage with the bidder;

• a bidder can deter potential rival bidders with a "blocking stake";

• the bidder has a first-mover advantage if the bid turns competitive;

• an existing holding counts towards the 90% compulsory acquisition threshold in a takeover bid; and

• it can reduce the overall average acquisition cost if acquired at below the bid price.

There are risks involved in acquiring a pre-bid stake. The following table outlines the key considerations in respect of a pre-bid acquisition.

 3.8 FIRB applications

A fee is payable in relation to any application to FIRB for approval of a proposed transaction, at the time the application is submitted. The amount of any fee payable depends on the size of the proposed transaction. The FIRB application process comprises an online application process. The FIRB application process is conducted on a confidential basis.