The issue is one of control. In a rights issue, shareholders normally hold the same proportion of shares after the issue as before. Not so in a private placement. New or existing institutional investors may privately acquire enough shares to reduce the control of other existing shareholders and therefore increase their own control. It appears from the article that CP2 was more interested in being part of a private placement with Canadian pension funds so that its influence over Transurban would rise, rather than being part of a rights issue where its influence would remain at approximately 15%.
In the article, CP2 submitted that, prior to announcing the acquisition and rights issue, Transurban was aware of the potential offer from the consortium. It submitted that Transurban knew that the consortium would be unlikely to proceed with the proposal if the acquisition funding structure involved an equity rising. CP2 submitted that this constituted a frustrating action because, among other things, the consortium was now unable to undertake the proposed control transaction as the rights issue will significantly expand Transurban’s issued capital and require more consideration.
In The Panel’s guidance on frustrating action applies to a ‘potential bid’, which is defined as “a genuine potential bid communicated to target directors publicly or privately which is not yet a formal bid under Chapter 6”. The consortium’s proposals were for the acquisition of Transurban by way of scheme of arrangement. These were subject to a number of conditions, including Transurban board support and (on the second proposal) financing. Both proposals were rejected. The proposals did not constitute potential bids because they were proposed schemes and they were rejected.
In the article, CP2 submitted that this was misleading because the consortium had indicated to Transurban that it ‘would actually’ submit a proposal and it incorrectly...