Updates to the Guidance Note on Upstream Acquisitions
Published 8 November 2021
The Panel’s Guidance Note on Upstream Acquisitions (the Guidance Note) sets out the Panel’s policy for dealing with the impacts of the Code on upstream acquisitions. If an upstream company holds or controls voting rights in a downstream Code company, then the acquisition of effective control of that upstream company may trigger obligations under the Code.
The Panel will consider applications for exemptions from the Code in relation to upstream acquisitions on a case-by-case basis. The Panel will consider whether acquiring control of the downstream voting rights could reasonably be regarded as a significant purpose of the upstream acquisition (the Purpose Test). As a proxy for the Purpose Test, the Panel may calculate the value of the downstream voting securities (the Downstream Parcel) as a proportion of the upstream target’s enterprise value (the Value Test).
The Panel has amended the Guidance Note to clarify several points:
- The Guidance Note now more clearly articulates how the Panel is likely to calculate the value of the Downstream Parcel. While the starting point for the Panel’s valuation will normally be a suitable VWAP figure, VWAP may not be appropriate in all circumstances (for example, where the Downstream Parcel carries effective control over the Code company).
- The Panel has clarified that whether the upstream target is listed on a “recognised exchange” (the Listing Standard) is effectively a secondary proxy for the broader Purpose Test. If the Purpose Test is met, but the Listing Standard is not met, the Panel may impose conditions (e.g., that the material terms of the upstream acquisition must be disclosed to the shareholders of the downstream Code company).
- The Panel has included commentary on the recent Takeovers Code (Terra Vitae Vineyards Limited) Exemption Notice 2021 (the TVL Exemption). The TVL Exemption illustrates a scenario where the Panel was satisfied that the Purpose Test was met despite the Listing Standard not being met.
In addition, the Panel made a number of other non-substantive clarifications.
Please see the amended Guidance Note for a full description of the Panel’s policy on upstream acquisitions.