CLAW3206 - Regulation of Mergers and Acquisitions Takeover Report

This report analyzes the proposed takeover of Aussie Fuel Service Stations Limited by Omega Petroleum Limited, focusing on the legal and regulatory implications under Australian commercial law. It examines the roles of the Corporations Act 2001 (Cth), the Takeovers Panel, and the Australian Competition and Consumer Commission (ACCC). The report addresses key issues such as anti-competitive behavior, stakeholder compensation, and adherence to relevant guidelines, including the Merger Guidelines 2008. It considers the perspectives of both Omega Petroleum and Aussie Fuel, highlighting the need for compliance with regulations regarding share acquisition, voting rights, and consumer protection. The analysis also touches upon the implications of the Competition and Consumer Act 2010 (Cth) and the potential for a vertical merger, emphasizing the importance of establishing a non-hostile takeover and ensuring fair market practices. The report concludes with a comprehensive overview of the legal considerations crucial for a successful takeover bid.

Running head: COMMERCIAL LAW
COMMERCIAL LAW
Name of the Student
Name of the University
Author Note

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Introduction
Corporations are separate legal entities and are financed through the ownership which is
represented though shareholding. Thus the capital of the company originates from the
shareholders who purchase equity in exchange for ownership and voting rights in the venture.
The higher the shareholding of an individual or entity the more voting capacities are held by
them in the venture. Corporate finance is dependent on this structure1. The phenomenon of an
entity purchasing majority voting rights in a venture and thus acquiring its majority ownership is
known as a takeover and this form of corporate financing is similar to that of mergers and
acquisitions which are also modes through which entities are taken over and financed by other
commercial entities. The Australian Commonwealth has various key legislations and judge-made
laws which define and regulate the interactions of entities which engage in such modes of
corporate financing2. This report will seek to identify, analyze and recommend resolutions to
issues which could arise during a takeover bid of the entity Aussie Fuel Service Stations Limited
by the entity Omega Petroleum Limited. The report will also glance upon the various statutory
and legislative implications of such a takeover bid and its ultimate viability.
Company backgrounds
Omega Petroleum Limited is a corporation engaged in the business of refining and
distributing petroleum products. It was incorporated within the jurisdiction of the Australian
Commonwealth and carries on business activities within the same. Aussie Fuel Service Stations
Limited on the other hand also deals with the distribution of petroleum products however it deals
1 Cartwright, Sue, and Cary L. Cooper. Mergers and acquisitions: The human factor. Butterworth-Heinemann, 2014.
2 Zahid, Nauman, and Asif Mujtaba Shah. "Mergers and Acquisitions in International Business." European Scientific
Journal, ESJ 22 (2014).

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in the retail sector. Aussie Fuel Service Stations Limited was also registered and incorporated in
Australia and carries on business transactions in the same jurisdiction. Thus the takeover would
be in primarily the same industry in a vertical format similar to vertical mergers. Aussie Fuel
Service Stations Limited also has considerable shareholdings in other entities like Onsite Retail
& Logistics Ltd of which the company owns 41% shares.
Primary Legislation
In the territorial jurisdiction of the Australian Commonwealth the primary legislation
dealing with companies is the Corporations Act, 2001 (Cth). The Corporations Act, 2001 (Cth)
defines and regulates corporations within the jurisdiction of the Australian Commonwealth and
furthermore governs takeovers3. It applies to corporations incorporated within Australia as well
as companies formed outside and carrying on business activities within the same4. Omega
Petroleum Limited and Aussie Fuel Service Stations Limited are incorporated within the
jurisdiction of the Australian commonwealth and thus would be subject to the provisions of the
Corporations Act, 2001 (Cth).
Regulatory Authorities
The primary regulatory Authority to consider when dealing with takeovers is the
Takeovers Panel which is established by virtue of the provisions prescribed under Part 10 at
Section 172ff of the Australian Securities and Investments Commission Act, 2001 (Cth) which is
also known as the ASIC Act5. The powers conferred to this Panel however, which encompass a
majority of the compliance procedures in the process of takeovers, is defined under Part 6.10
3 Corporations Act, 2001 (Cth).
4 Akhtar, Farida. "The probability of a firm making a takeover bid: an empirical analysis of Australian
firms." Australian Journal of Management 41.1 (2016): 27-54.
5 Australian Securities and Investments Commission Act, 2001 (Cth).

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Division 2 of the Corporations Act, 2001 (Cth). These powers allow it to review, accept or reject
applications for takeovers. The primary provision of the Corporations Act, 2001 (Cth) which
deals with the appropriate circumstances for a takeover is defined under Section 602 of the act. It
states that for a bid to be valid it must be in an efficient, competitive, informed market and that
the holders of voting rights or shares that confer such a power must be well informed and well-
versed with the identity and implications of the same6. It has also been prescribed that the Panel
would be able to deliberate over disputes arising from takeovers and thus it has the right to assess
policy and legal issues relating to the same as stated in Section 675A of the Corporations Act,
2001 (Cth). Thus the takeover Panel is not only tasked with scrutinizing applications for takeover
bids but also acts as an adjudicating and mediating body in cases of disputes arising from such
takeover bids. It has also been clarified that the Takeover Panel can decided when unfavorable
circumstances for such a takeover has arisen as reiterated in the land mark case law Attorney-
General of the Commonwealth v Alinta Limited & Ors7. In this case the High Court of Australia
which is a federal judicial authority laid down that such a power is conferred to the panel under
the provisions of Section 657D of the Corporations Act, 2001 (Cth). Moreover the Panel is also
able to review its own decisions on its own motion or suo moto. This power is conferred under
Section 657EA of the Corporations Act, 2001 (Cth). Thus, the first step that would have to be
taken by Omega Petroleum Limited in placing a takeover bid is to file an application for the
same before the takeover Panel8. It is also clarified that Omega Petroleum Limited already
possesses ownership of 9% of the current shareholding of Aussie Fuel Service Stations Limited
and thus already has voting rights in the company. Further other entities possessing 10% and 8%
6 Ratcliffe, Chris, and Bill Dimovski. "An investigation into the drivers of Australian REIT merger and acquisition
announcements." Journal of Property Investment & Finance31.5 (2013): 441-461.
7 [2008] FCA 2.
8 Payne, Jennifer. "The use of schemes of arrangement to effect takeovers: a comparative analysis." (2014).

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respectively of Aussie Fuel Service Stations Limited’s current shareholding have agreed to sell
their ownership in the same once the bid has been approved and executed.
Issues to be focused on by Omega Petroleum Limited
Omega Petroleum Limited primary concern would be to establish that the takeover is not
anti-competitive. Anti-competitive takeovers and mergers are those transactions that cause
detriment to market competition. This can be seen as activities aimed at obtaining a monopolistic
position or being anti-competitive by acting as a price setter in the market9. It has also been
considered that such a transaction would be grossly unethical and illegal as it would be against
the Competition and Consumer Act, 2010 (Cth) which deals with the regulation of market
competition. This act ensures that all activities such as mergers are regulated in a way that
endorses and amplifies the free market system as opposed to causing detriment to it. The
Australian Competition and Consumer Commission (ACCC) is the regulatory authority which
regulates market competition and provides for statutory prohibitions on anti-competitive
activities. Moreover, the Australian Competition and Consumer Commission (ACCC) is also
tasked with resolving disputes relating to market competition within the jurisdiction of the
Australian Commonwealth. Since this is a takeover happening in the same industry Omega
Petroleum Limited would ideally gain a higher market share than before as it would now be
transacting in the distribution networks as well as the retail sector in the petroleum industry.
Thus it would have to establish that such a takeover would not adversely affect market
competition10. Omega Petroleum Limited also already own shares in Aussie Fuel Service
Stations Limited and after acquiring 100% of its share capital it would also own 41% of Onsite
9 Soo, Say-Kit. "Truth in Takeovers: A Discussion on the Policy and its Application in Australia." (2013).
10 Competition and Consumer Act, 2010 (Cth).

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Retail & Logistics Ltd (which is currently owned by Aussie Fuel Service Stations Limited). Thus
in order to ensure that this is not anti-competitive it would have to establish that it is not adopting
a monopolistic approach to its market standing. The Competition and Consumer Act, 2010 (Cth)
encompasses all parties involved within market transactions and thus it also covers consumer
protection11. It needs to be ensured that the when executing such a form of corporate financing
the consumers in the market must not be adversely effected. This happens when an entity acts as
the price setter and then sets the market price of commodities at exorbitant rates. Thus, the
Competition and Consumer Act, 2010 (Cth) would have to be adhered to when bidding and
applying for such a takeover. As envisaged in Section 50 of the Competition and Consumer Act,
2010 (Cth) a merger that has a significant detrimental effect on market competition is prohibited.
In case of a breach of a federal statutory obligation 39B (1A)(c) of the Judiciary Act 1903 would
confer jurisdiction on civil courts to take cognizance of and adjudicate on such matters12. The
Australian Competition Tribunal which is an authority which reviews decisions can be applied to
in case of a party is aggrieved by a decision.
The second legislative provision which would have to be adhered to by Omega Petroleum
Limited is the Merger Guidelines, 200813. These guidelines provide a comprehensive look at the
rights of parties and the duties of the entities entering into such a merging of entities. Takeovers
would also have to adhere to these guidelines as it embodies a process through which two entities
merge. It can also be considered that this takeover would effectively be a vertical merger.
11 Seltzer, Andrew J. "Implicit contracts and acquisitions: An econometric case study of the 19th century Australian
banking industry." German Journal of Human Resource Management31.2 (2017): 185-208.
12 Judiciary Act 1903.
13 Reddy, Kotapati Srinivasa. "Determinants of cross-border mergers and acquisitions: A comprehensive review and
future direction." (2015).

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It would also be Omega Petroleum Limited’s duty to establish that the takeover is not
hostile. However as there has been no resistance from the directors of Aussie Fuel Service
Stations Limited it can be inferred that such a takeover is friendly.
Issues to be focused on by Aussie Fuel Service Stations Limited
As the entity being taken over the focus for Aussie Fuel Service Stations Limited would
be to ensure that each and every one of its stakeholders are compensated appropriately. The
prohibitions prescribed under Section 606 of the Corporations Act, 2001 (Cth) must also be
adhered to when acquiring voting rights in the company. Thus Aussie Fuel Service Stations
Limited would have to ensure that the prohibited categories of acquisitions of interest are not
traversed while executing such a takeover14. Omega Petroleum Limited in order to assume total
control over Aussie Fuel Service Stations Limited would have to acquire a minimum of 90%
voting interests in the company with acquisition of 100% being the ideal percentage. Such a
transaction would purely be a transaction in securities and thus would be regulated by the
provisions of Section 64 of the Corporations Act, 2001 (Cth). These securities would have to
constitute equity and would be governed by the provisions of Section 92 (3) of the Corporations
Act, 2001 (Cth). Section 608 defines relevant interests in the securities and thus would govern
the acquisition of voting rights in such an entity. Omega Petroleum Limited and Aussie Fuel
Service Stations Limited would have to ensure that these prescriptions are adhered in order to
successfully execute such a takeover15. Voting power under the Corporations Act, 2001 (Cth) is
defined under Section 606 (1) (c), it lays out the modes through which the takeover would confer
14 Humphery‐Jenner, Mark, Zacharias Sautner, and Jo‐Ann Suchard. "Cross‐border mergers and acquisitions: The
role of private equity firms." Strategic Management Journal 38.8 (2017): 1688-1700.
15 Lee, Ashley. "Warrnambool takeover tests Australian regulations." International Financial Law Review (2014).

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total control over Aussie Fuel Service Stations Limited16. However both parties are indemnified
against failures arising due to the fault of the other party through mutual agreement.
Conclusion
To conclude the takeover of Aussie Fuel Service Stations Limited would be a friendly
takeover due to the absence of resistance from the board of the company. It would be in the same
industry and thus competition laws would have to be closely considered. However, the takeover
would be a prudent step and would benefit all stakeholders of the entity being taken over. Omega
Petroleum Limited being the entity that is taking over the company would stand to gain a larger
market. With the advent of the indemnities provided by both parties it would be a reliable and
prudent step to move forward with the execution of the same.
16 Ramsay, Ian. "Takeover Dispute Resolution in Australia and the United States–Takeovers Panel or Courts?."
(2015).

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Bibliography
Statute
Australian Securities and Investments Commission Act, 2001 (Cth).
Corporations Act, 2001 (Cth).
Competition and Consumer Act, 2010 (Cth).
Judiciary Act 1903.
Case laws
General of the Commonwealth v Alinta Limited & Ors [2008] FCA 2.
Articles
Akhtar, Farida. "The probability of a firm making a takeover bid: an empirical analysis of
Australian firms." Australian Journal of Management 41.1 (2016): 27-54.
Cartwright, Sue, and Cary L. Cooper. Mergers and acquisitions: The human factor. Butterworth-
Heinemann, 2014.
Humphery‐Jenner, Mark, Zacharias Sautner, and Jo‐Ann Suchard. "Cross‐border mergers and
acquisitions: The role of private equity firms." Strategic Management Journal 38.8 (2017):
1688-1700.
Lee, Ashley. "Warrnambool takeover tests Australian regulations." International Financial Law
Review (2014).

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Payne, Jennifer. "The use of schemes of arrangement to effect takeovers: a comparative
analysis." (2014).
Ramsay, Ian. "Takeover Dispute Resolution in Australia and the United States–Takeovers Panel
or Courts?." (2015).
Ratcliffe, Chris, and Bill Dimovski. "An investigation into the drivers of Australian REIT merger
and acquisition announcements." Journal of Property Investment & Finance31.5 (2013): 441-
461.
Reddy, Kotapati Srinivasa. "Determinants of cross-border mergers and acquisitions: A
comprehensive review and future direction." (2015).
Seltzer, Andrew J. "Implicit contracts and acquisitions: An econometric case study of the 19th
century Australian banking industry." German Journal of Human Resource Management31.2
(2017): 185-208.
Soo, Say-Kit. "Truth in Takeovers: A Discussion on the Policy and its Application in Australia."
(2013).
Zahid, Nauman, and Asif Mujtaba Shah. "Mergers and Acquisitions in International
Business." European Scientific Journal, ESJ 22 (2014).

10COMMERCIAL LAW