Emails, text messages and other electronic communications are commonplace during a takeover bid. They may be sent to all target shareholders or only to a selected group. To maximise their impact, often these messages are drafted to be very succinct. This article discusses the implications and whether further regulation is required.
In brief
- Emails, text messages and other electronic messages are now commonplace in takeover bids.
- There are no specific rules that apply to them, so bidders and targets are free to choose how best to use the technology to advance their goals.
- Typically, there is no need for copies of any messages to be given to the other side or to a rival bidder, filed with ASIC or ASX or published on the bidder’s or target’s website.
In recent years, there has been a significant increase in the use of electronic communications during takeover bids. This has been facilitated by requiring target companies to disclose to the bidder the email addresses of shareholders when the bidder requests a copy of the register, a change introduced in late 2023.
Sending emails is very convenient. Right now, on average in Australia, about two-thirds of shareholders (by number) have given email addresses to the company (a percentage that is increasing steadily and often is higher in smaller companies). This has led to emails becoming the predominant way information is disseminated in a takeover bid (apart from ASX releases).
In addition to emails, there has also been an increase in bidders (and target companies) obtaining mobile telephone numbers of shareholders. Even though telephone numbers are not typically recorded on the share register, people who are in the business of contacting shareholders don’t seem to have too many problems getting hold of the telephone numbers for large numbers of shareholders, if not all. This enables outward-bound telephone calls and the use of text messages during takeover bids.
A third category of communication is social media. There is nothing to stop a bidder or target posting information on X (formerly Twitter), Facebook, Tik-Tok, Instagram or any other social media website (such as HotCopper or Reddit).
These developments have led to a significant change in communications during takeover bids. Twenty years ago, communications were typically by way of a written letter, a laborious and very slow method to disseminate information. These days electronic communications are easy and efficient and the main mode of communication. This article discusses a number of issues that can arise.
Are there any rules?
There are no specific rules regulating the use of emails, text messages or social media during a takeover bid. The only rule that applies is the general rule prohibiting misleading or deceptive statements during a bid. There is a requirement for a supplementary bidder’s statement or target’s statement to be given to ASIC and ASX, but most of the messages I am talking about merely repeat messages already in the bidder’s statement or target’s statement, so fall outside the scope of that requirement.
This means that there is typically no need for copies of any messages to be given to the bidder or the target or a rival bidder, filed with ASIC or ASX or published on the bidder’s or target’s website. It all happens somewhat behind the scenes (which, incidentally, makes it impossible for ASIC to monitor all messages).
Furthermore, there is no requirement for messages to be sent to all shareholders. A bidder or target is free to send emails on a selective basis targeting only those shareholders that they wish to persuade to accept or reject and free to exclude other shareholders regarded as hostile to the sender. It would be common in a hostile bid, for example, for a bidder not to contact shareholders associated with directors of the target (and vice versa). But that is the same as with any private meeting with shareholders. You don’t have to meet every shareholder, just because you meet one or two.
Does brevity lead to over-simplification?
There is no particular reason why an electronic communication should contain less information than you would find in a written letter. However, in practice, it is common for many messages, particularly text messages, to be as brief as possible in order to convey a short and punchy message. That means there is a greater chance of the ultimate message being misleading by omitting qualifications that perhaps should be there.
In Pact Group Holdings Ltd 01 [2024] ATP 4, the bidder had sent a number of emails and text messages to shareholders about its intention to delist the company. The reasons for the Panel’s decision sets out ASIC’s submission that:
…an email or text message may attract the risk of unbalanced or incomplete disclosure. A party that elects to issue such communications, rather than through an appropriate detailed supplementary statement, does so undertaking the risk that information deficiencies may arise… ASIC considers that parties should be considerably more careful in assessing the content of such communications… bidders and targets can avoid the inherent risks of such statements by lodging and dispatching supplementary statements…
Apart from the danger that a brief message may be potentially misleading by omission, electronic communications (particularly a text message) may, depending on how it is drafted, leave the recipient unclear who has sent the message. Obviously, unlike a letter, there is no letterhead or need for the sender’s name to appear anywhere and there is no express requirement in the law for the bidder or the target to take responsibility for a particular message. In fact, it is not beyond the realms of possibility for one side to conclude that the message may carry more weight if the recipient thinks a message comes from the other side of a debate. That could lead to a deliberate omission of identifying indicators.
Social media
Commentary on social media seems to be typically by shareholders, not bidders and targets. A cursory glance at the posts made about takeover bids on sites like HotCopper will quickly reveal a passionate body of shareholders (mostly posting under pseudonyms) arguing the merits (or, more likely, the problems and deficiencies) of any given takeover bid. Much of this commentary, whilst well-intentioned, often misstates the finer points of the law and the implications for how a takeover bid may play out. I am not sure there is much that can be done about that. After all, you cannot regulate the internet. No doubt bidders and targets should monitor these posts and issue corrective messages (via more usual channels) if necessary.
There is a further dynamic that comes from social media. It provides a very effective way for small shareholders to connect and band together, compared to previous times when that would have been a very difficult and time-consuming matter. For example, it is common in hostile bids for formal or informal groups of small shareholders to come together and then issue statements that, as a group, they intend to reject the takeover offer.
This may be dangerous if these understandings are based on misinformation or purport to bind shareholders when, in reality, there is very little prospect of holding the shareholders to their statements. On the other hand, it must be the case that allowing shareholders to exchange views about a particular transaction is a good thing. After all, that is the purpose of a general meeting of shareholders and it is unlikely anyone would object if it was institutional shareholders exchanging views.
Due to the nature of the medium, there is, of course, a limit on how far statements gathered via social media can be relied upon. It would, for example, be unwise for the bidder or target to republish them.
The example considered in Bullabulling Gold Ltd [2014] ATP 8 illustrates the problems. In that matter, statements purporting to be from 88 shareholders were received by the target company in response to a shareholder who posted the following message on HotCopper:
I’ve gathered support from UK retailers who aren’t interested in [Norton’s] pitiful offer for our substantial asset. So far I manage to find 61.13 million which I emailed to [Bullabulling].
Brett [Lambert] has asked that all shareholders, UK and Oz, who are not interested in this offer, to email him directly (no spam pls) stating:
- Your name
- How many shares you have
- Who you hold the shares with (Helpful but not essential)
- State that you have NO intention of accepting the (woeful, insulting, laughable etc) offer.
Brett Lambert’s email is [email address provided].
I believe Brett has already engaged with ii’s [institutional investors] and together with retail suspect he will say that the offer isn’t even close to being adequate. I assume he will use this support for BGL as part of the Target’s Statement.
Pls spent 5 minutes emailing your support as above. Thanks.
The Panel examined the email responses and found them unreliable for various reasons (including that many of the so-called shareholders were not actually registered shareholders and the potential legal implications of their responses had not been explained to them). With a distinct element of understatement, the Panel observed:
Sourcing statements from an internet stock discussion site to include in a communication to shareholders in relation to a bid is inherently risky and should not be undertaken. The dangers and inappropriateness of this ought to have been obvious to Bullabulling.
The UK position
The UK has detailed rules dealing with these issues. It would be a serious breach of the UK’s Takeover Code for a bidder to send messages directly to some (but not all) shareholders. It would also be a breach if the statement did not clearly state who was responsible for it. For these reasons, bidders and individual directors cannot tweet or use other social media platforms during a bid – if you do, you have to include links to full announcements and include responsibility rubrics.
Selective discussions with shareholders are also made difficult by the requirement that, if the bidder wants to meet with a shareholder (in person or by telephone or by video), the meeting must be chaperoned by a financial adviser. The financial adviser must then confirm to the UK Takeover Panel the following business day that a meeting took place and that at the meeting no material new information was passed on (signed by the financial adviser personally). If new material information was passed on, the Panel would require an announcement to the market. There is a further specific rule that any slide deck or other printed materials referred to or made available in a meeting (in person, by phone or by video) between the bidder or target and a shareholder must be put on the website of the bidder or target, straightaway.
Should Australia regulate?
Regulating electronic communications would be consistent with the usual position in a scheme of arrangement, where the courts have criticised parties sending communications to shareholders without prior court approval. That has extended to courts approving scripts for use in telephone call campaigns. This approach stems largely from the structure of the legislation which assumes a formal scheme booklet, approved by the court, is used to inform shareholders.
I am not by any means convinced that we need to change the regulatory settings in takeover bids. The use of email has dramatically increased the speed and reduced the cost of communicating with shareholders. In my view, that is a good thing. It leads to a better and more promptly informed market (though it would be wise for anyone issuing emails or text messages to be careful not to overdo it in case shareholders start tuning out of the messages received).
Therefore, despite the dangers and potential misuses of electronic communications and social media in takeovers, I do not believe that any specific regulation is required and is probably not feasible. As I mentioned before, we already have the prohibition against misleading and deceptive statements during a takeover bid. That enables ASIC (or one of the parties to the bid) to complain about any statements (assuming they become aware of them), potentially bringing proceedings before the Takeovers Panel to have the statements corrected. In an extreme case, a person making a misleading statement may be prosecuted.
There has been a long history of telephone call campaigns for retail shareholders in takeover bids in Australia. They give the bidder or the target valuable information about the attitudes of shareholders to the bid and enable the parties to adjust their position or messages. Just over 20 years ago, due to concerns about shareholders being potentially misled, the law was amended to require that all telephone calls with shareholders during the bid period were recorded so they could be checked subsequently. Not surprisingly, the system did not work and it was dismantled after a few years. It proved to be too difficult and was not regarded as producing a regulatory benefit that was worth the cost and inconvenience of recording all calls. I don’t think we can go back to those days and try to regulate each and every discussion with individual shareholders, whether by telephone or otherwise.
My conclusion is that, provided ASIC and the Takeovers Panel remain willing to deal with emails and other messages which may mislead the recipient, the current regulatory settings affecting electronic communications during a takeover bid are not broken and do not need fixing.
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