It was reported in the AFR on 4 November 2019 that, “[i]n the world of cartel cases, market volatility, pumped-up industry funds and new share purchase plan structures,” the preferred method for raising funds at the big end of town is now via an institutional placement and a share purchase plan (SPP) structure (IP/SPP Structure). The pro-rata accelerated institutional tradeable retail renounceable entitlement offer (PAITREO) is dead. This is because, it is said, the IP/SPP Structure is “quick and easy for issuers, less risky for underwriters and offers a chance for the country’s cashed up industry funds to put big licks of capital to work”.
The article referred to the recent increase by ASIC of the subscription limit for retail investors under an SPP without prospectus disclosure from $15,000 to $30,000. It was argued that in most cases a $30,000 limit would allow retail investors to satisfactorily top up their investment in a company, provided that there is no scaling back of applications.
So for its $2.5 billion capital raising, Westpac proposed an Institutional Placement to raise $2.0 billion, with an extra $500 million to be raised via an SPP for retail shareholders with a subscription limit of $30,000 per shareholder 1.
However, on the face of it, this type of structure does not of itself solve the problem of potential cartel conduct amongst underwriters in a capital raising.
Back in 2015 when the four banks sought to raise funds (a total of $17.00 billion was raised by the four banks), CBA, NAB and Westpac used the PAITREO structure but ANZ used the IP/SPP Structure. ANZ received much criticism in the market for not looking after its retail shareholders in using this structure.
After the close of the Institutional Placement, the ANZ underwriters found themselves holding $800 million worth of ANZ shares which they then had to dispose of. ACCC accused the underwriters of cartel conduct in breach of the Competition and Consumer Act 2010 (CCA), in their efforts to sell the shortfall into the market.
We wrote in the July 2018 edition of Addisons’ ECM Bulletin about the exception to the cartel conduct provisions available to joint ventures and suggested that this exception could be used by underwriters to overcome the concerns raised by ACCC in the ANZ cartel case.
The Full Court of the Federal Court2 recently considered the joint venture exception to the prohibition against exclusionary provisions in the CCA.3 Without going into the facts of the case in detail, the Court was asked to determine whether the joint venture exception would clear tenderers of alleged cartel conduct in their bid for coal exploration licences in the Bylong Valley in NSW. The Court determined that the joint venture exemption did apply and made the following observations about the characteristics of a joint venture for the purposes of the exemption in the CCA:
- for a joint venture there needs to be a “pooling of assets” by the parties to the joint venture. “The fact that one party to a joint venture contributes ideas, assets or skills that are ultimately not used does not change the nature of the arrangement”4;
- the parties regarded themselves to be in a joint venture. However, “[t]he status and characterisation of the relevant association must be objectively assessed particularly given that it must fall within the statutory meaning for the defence to be available”5;
- there must be joint activity, but the general law does not require that the physical activity to be undertaken by the parties together;
- it does not matter that the proposed joint venture was not established and instead was superseded by a fresh agreement. There is no requirement to show that the relevant provision is for the purpose of an existing joint venture:
“A provision entered into “for the purposes of a joint venture” does not cease to answer that statutory description at the time of the alleged contravention merely because, at a later time and by reason of subsequent events, the contemplated joint venture does not come to pass”6; and
- the fact that the contribution by one party was minimal is immaterial. Some partners can be silent and passive.
The above observations will assist underwriters to understand how to create a joint venture that fits within the joint venture exception so that they can protect themselves against an allegation of joint conduct in acting on a fundraising mandate.
It is interesting to note that in the recent sell down of shares in Ramsay Health Care by the Paul Ramsay Foundation, the seller and the joint lead managers, J P Morgan and UBS, sought to create a joint venture presumably to protect themselves against an allegation of cartel conduct. Their Block Trade Agreement included the following joint venture clause:
3.6 Joint activities to implement the Sale
Holdings and the Joint Lead Managers have agreed to come together to implement the Sale. In order to give effect to their intention, they have severally agreed to obligations on the terms of this agreement. In particular, without limiting the above, Holdings and the Joint Lead Managers acknowledge that their activities under this agreement are undertaken jointly and are for the purpose of and are reasonably necessary to implement the Sale (including the Sale pricing, structure, marketing, the Bookbuild process, the allocation process and the restrictions of offer or solicitation of Sale Shares to persons and to places outside of the Sale jurisdictions).
1. Peter Warnes in Morningstar’s Your Money Weekly Issue 43, 7 November 2019, certainly is not a fan of the IP/SPP Structure adopted by Westpac. He said:
“Westpac’s 2019 Annual Report reveals as at 3 October, 654 shareholders held over 100,001 shares. They could be classified as institutional shareholders and represent 58.9% of the issued capital of the bank. Holdings of up to 100,000 shares, loosely classified as retail shareholders, comprise 41.1%.
Despite this distribution, which hasn’t changed for years, sophisticated and institutional shareholders have been allocated 80%, or $2bn of an announced $2.5bn capital raising at $25.32 per share. The loyal retail, presumably unsophisticated shareholders, are thrown 20%, half their representation on the register, and can apply for up to $30,000 or 1,185 new shares in a share purchase plan (SPP). Excuses around the timing of the institutional placement are frivolous.”
2. ACCC v Cascade Coal Pty Ltd  FCAFC 154 (Cascade Case).
3. This exception is substantially the same as the exception available to cartel conduct.
4. Cascade Case, .
5. Cascade Case, .
6. Cascade Case, .
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