In Australia, boards of directors that reject takeover bids where their company subsequently collapses face possible lawsuits from investors.
The Australian quotes Slater and Gordon class actions head James Higgins as stating that it is only a matter of time before a target company is sued by dissenting shareholders over a decision to rebuff a takeover bid. “There’s no question that, in a takeover climate, there is all the more pressure on boards to be disclosing appropriately to shareholders. If they haven’t, and their advice is to reject a bid, there’s almost certainly going to be a case for litigation,” Mr Higgins said. “A number of matters involving the rejection of takeovers are under investigation by litigation funders. It’s certainly an area people are interested in.”
Recently, BHP Billiton walked away from its multibillion-dollar hostile takeover bid for Rio Tinto this week, which sent Rio’s shares toppling by more than a third. In addition, Australia’s second largest retailer, Coles Group, found itself in court last year over its decision to reject overtures from a private equity bidder. When the bidder, US-based Kohlberg Kravis Roberts, walked away, Coles shares crashed. That case was reportedly dropped following a new, successful, takeover bid for Coles.
Maurice Blackburn Cashman chairman Bernard Murphy, however, is not expecting a rise in class actions based on failed takeovers. He told The Australian that the Corporations and Trades Practices Act protects the business judgments of company directors, assuming that they exercise proper care and diligence.
