Emerging trends and developments of country-specific defense strategies against hostile takeovers


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Where an investment is held on revenue account, the investor is subject to tax on any excess in proceeds received over the cost of acquiring the relevant interest.

Emerging Trends and Developments of Country-Specific Defense Strategies Against Hostile Takeovers

Investments held on revenue account do not enable the investor access the CGT discount, nor is CGT rollover relief available. If acquired for the holding over the medium to long term as a 'passive' investment, an investment will generally be considered to be held on capital account, and subject to CGT rules, in which case:. Generally, unitholders who are individuals, trusts or complying superannuation funds, can offset capital losses against current or future year capital gains. This is also the case for companies, if specific loss recoupment rules are satisfied. Australia-resident individuals, superannuation funds and trusts that have held an investment for more than 12 months, are entitled to reduce their CGT gain by a CGT discount.

Resident individuals and trusts are entitled to a 50 per cent discount on CGT and complying superannuation entities a The CGT discount is not available to non-residents. However, non-resident security holders are only subject to CGT on the disposal of units or shares if, broadly:. As REITs generally hold interests in Australian real property, only the first test above would be relevant to non-resident securityholders. In some circumstances, companies stapled to REITs do not meet the 50 per cent real estate threshold for example, companies in stapled groups might undertake development activity on land owned by others, and such rights under a development contract are not interests in real estate , and so both tests can be relevant in working out if any gain on the sale of shares in that company is subject to CGT.

Defenses Against Hostile Takeover | Takeover | Mergers And Acquisitions

Scrip for scrip rollover relief from CGT may be available where units or shares are disposed in exchange for units or shares. The key requirements that must be satisfied to access scrip for scrip rollover relief are as follows. Shares must be exchanged for shares, and units for units. In many cases, an offshore acquirer or target will only be a trust or a company. If the target or acquirer is not the same type of entity, or is a stapled group consisting of a trust and a company, this requirement cannot be met or may be only partially met e. The acquiring entity must become owner of 80 per cent or more of the target entity.

Often the threshold for a scrip-based takeover bid to become unconditional is lower. In such cases, if the 80 per cent threshold is not met, target security holders who accept the offer do not receive rollover relief. Where the transaction is a unit for unit transaction, each trust must be a 'fixed trust'. As the law as to what constitutes a fixed trust is unclear, the Commissioner of Taxation's discretion to treat trusts as 'fixed trusts' has almost always been sought.

However, under recent changes to the MIT rules, trusts that are MITs may be automatically deemed to be a 'fixed trust' if certain requirements including the making of an irrevocable election to be an 'attribution MIT' are met. The offer must be on substantially the same terms to all security holders in the target.

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Significant security holders cannot be treated differently to others. For foreign-resident security holders, the replacement interest must also be 'taxable Australian property'. Where a larger entity acquires a smaller entity, a foreign resident's interest in the target may exceed the 10 per cent threshold and thus be taxable Australian property subject to CGT but the interest in the larger entity may be below the 10 per cent threshold and thus not taxable Australian property , meaning the rollover does not apply to that security holder.

Australia has a general anti-avoidance rule, which provides that where a transaction is structured for the sole or dominant purpose of reducing Australian income or withholding tax, the Commissioner of Taxation has the power to assess tax on the basis of a reasonable counterfactual that is, what the structure or transaction would have been without the tax avoidance purpose. Accordingly, it is important that there be robust commercial reasons for using an investment structure and for transaction steps. Acquisitions of Australian real estate assets may attract state or territory stamp duty.

Duty in relation to acquisitions of commercial land other than in South Australia, where duty on commercial land has been abolished from 1 July generally ranges from 4.

Defenses Against Hostile Takeover

Duty applies not only to acquisitions of direct interests in land, but also acquisitions of interests usually above a certain threshold in land-holding trusts and companies. Higher duty rates apply to acquisitions of residential property in certain circumstances. All Australian states excluding the territories have imposed surcharges ranging up to 8 per cent on foreign acquirers of interests in residential real estate and primary production land in Tasmania.

State and territory annual land taxes may also be payable, subject to the availability of certain concessions. The top marginal land tax rates range between 1. In addition, for foreign owners a 2 per cent surcharge applies to residential land in New South Wales, a 0. This legislation was substantially rewritten in , and, following completion of a regulatory review, has been the subject of a number of amendments intended to clarify its operation. Since 1 July , the classes of sensitive land have been narrowed so that the lower threshold does not apply to many types of land previously caught by the lower threshold.

The legislation provides a day period, from the date lodgement fees are paid, within which a decision whether or not to approve the acquisition is made. However, particularly for sensitive or complex transactions, this period is often extended. Acquisitions are reviewed on national interest grounds, with FIRB receiving input in relation to proposed acquisitions from a range of government agencies, including the Australian Taxation Office, the Critical Infrastructure Centre where applicable and national security agencies before providing its advice to the Treasurer.

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Approval is required before the acquisition can complete. Investment income paid to foreign investors in Australian land-owning vehicles is generally subject to Australian withholding tax generally 10 per cent for interest, 30 per cent for unfranked dividends and up to 47 per cent for trust income distributions. Lower withholding rates may apply in certain circumstances pursuant to double-tax agreements.

Concessional withholding tax applies to income distributions by trusts that satisfy the conditions for being characterised as a 'Managed Investment Trust' for tax purposes: see Section IV. While interest is subject to a maximum 10 per cent withholding tax, thin capitalisation rules generally apply to disallow tax deductions for the entity paying the interest where leverage exceeds 60 per cent of the value of the underlying assets, which increases the overall effective tax rate.

Other transfer pricing rules apply to prevent payment of non-arm's length fees to offshore entities. Separation and spin-off or securitisation of real estate assets by real-estate heavy corporations has, until recently, occurred on a sporadic basis in the Australian market. More typically, balance sheet real estate assets would be realised through sale and leaseback arrangements to already-established specialist property funds.

A variety of separation structures have been used to realise the value inherent in corporate real estate portfolios:. As the current real estate cycle continues to move into the late stage of the cycle, corporate real estate activity including separation and spin-offs is expected to increase as is investor appetite for real estate-backed debt. The authors would also like to thank Timothy Coorey, graduate solicitor, Herbert Smith Freehills and Bianca Doyle, business development adviser, Herbert Smith Freehills for their assistance with background research.

Capital distributions paid on units may be sheltered from tax by way of non-cash tax deductions for example, depreciation on buildings and plant. These are tax-free when received, but reduce the cost base in those units: See Section and of the Income Tax Assessment Act Cth. The monetary are indexed annually.

How to Plan a Hostile Takeover

The thresholds set out here apply as at the date of publication. For example, land under 'prescribed airspace', which previously applied to most land in Australia's capital cities will no longer be subject to the lower threshold. The higher threshold only applies where the investor domiciled in the relevant country acquires the relevant real estate interest directly rather than through an interposed entity. In practice, most investments are conducted through interposed entities.

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Because the Corporate Value Report clearly states that companies should not pay money to unsolicited acquirers as a defensive measure, it is expected that measures that provide for payment to unsolicited acquirers will decrease after annual shareholders' meetings in June This trend has also been supported by the fact that before the issuance of the Corporate Value Report some institutional investors announced their own policy of opposing any defensive measures that stipulate the possibility of making a monetary payoff to unsolicited acquirers.

The Corporate Value Report should be respected for its proposal of a reasonable form of advance warning-type defence plan. However, as the Corporate Value Report is not legally binding in nature and the courts of Japan may therefore have a different view than that propounded by it, and considering the weight of the Supreme Court ruling in the Bull-Dog case, we cannot deny the possibility that cases similar to Bull-Dog will occur in the future. That is, cases in which the target company offers a monetary payoff to the unsolicited acquirer to end a hostile takeover attempt.

Moreover, if the target company can defend against unsolicited acquirers only by first obtaining the approval of a general meeting of shareholders, apprehensive executives would likely be more inclined to pursue cross-shareholding as a takeover-defensive measure. There is little wonder that some executives consider increased cross-shareholding to be preferable to a takeover-defence plan for which legal admissibility is still unclear.

Some practitioners argue that the courts, through their judicial rulings, should establish the efficacy of the advance warning-type defence plans. However, we believe that this approach is not appropriate because it will take a substantial amount of time to develop such a line of legal precedents: in the meantime, the trend of Japanese listed companies pursuing cross-shareholding practices will continue to increase.

Furthermore, the current judicial system may not be the best body to develop rules concerning hostile takeover-defensive measures because it focuses on resolving specific cases and does not necessarily consider factors such as incentives to executives and market affiliates regarding predictability. It could be said that the existence of the threat of hostile takeovers serves the purpose of motivating Japanese executives to increase business efficiency and corporate value, so that Japanese companies can compete in the global market.

The question remains, however, as to what rules should be established to provide these executives with such incentives. The approach so far in Japan has been to adopt a US-style shareholders' rights plan. However, perhaps because of the differences in the social and judicial structure of the two countries, as well as the different ways of thinking between executives in Japan and in the US, the defensive measures adopted in Japan have not developed in a way similar to the US rights plan so far.

In order to make the US rights plan work in Japan, the Japanese social and judicial structures and the way Japanese executives think need to become more similar to those of the U. However, the adoption of such US-type structures and thinking will require a considerable amount of time and such changes may result in the loss of many of the strengths and unique qualities of Japanese companies. It is not easy to find an appropriate solution to this issue, but discussions addressing it must commence in order for Japanese companies to develop with the globalisation of the capital market.

In this way, discussions concerning hostile takeovers in Japan, which started in earnest when Japanese-type rights plans were adopted, have recently entered a new phase. As a part of these discussions, some practitioners have proposed a system that is similar to the takeover panel adopted in the UK, as well as the further amendment of the tender offer rules. On the other hand, the activities of hostile acquirers have taken on a new aspect, which is evidenced by an increase since in proxy fights between management and hostile shareholders especially some activist funds.

Proxy fights have been considered to be a common practice associated with hostile takeovers and tender offers in the US and are expected to increase in Japan in the near future. However, as proxy fights have not been prevalent in Japan so far, there still remains uncertainty and inconsistency regarding regulations and practice.

We hope that the rules and practice regarding proxy fights improve in the near future. Hostile takeovers have become a hotly-debated issue over the last four or five years in Japan, but the rules addressing them are still in their early stages. Because there is no persuasive reason to adhere to the US model of hostile takeover defence plans, it would be prudent to continue to search for rules that would best suit Japanese business culture.


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Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers
Emerging trends and developments of country-specific defense strategies against hostile takeovers Emerging trends and developments of country-specific defense strategies against hostile takeovers

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