Parameters for undertaking a placement of shares to a bidder during an M&A transaction

In brief

• In New World Resources Limited 02, the Takeovers Panel expressed concerns regarding a proposed placement of shares by a target company to a bidder. 
• The Panel’s decision reiterates the need for target companies to take a considered and cautious approach in fundraising during the implementation period for a scheme or takeover bid or where a control transaction is imminent. This is especially relevant for targets involved in mining exploration and development projects, given that these pre-production companies are typically not cash generative and often require ongoing funding (both for budgeted expenditure and to meet unplanned or urgent funding requirements).
• It serves as a useful reminder as to the circumstances where a target facing an urgent funding requirement may undertake a permissible placement of shares to the bidder, and where a target may need to consider alternative funding sources (such as a pro rata issue of shares or debt funding) to meet a funding requirement during the course of a scheme or takeover bid.

Background

We previously published an article on the Panel’s decision in New World Resources Ltd 02 in relation to on-market acquisitions by a bidder at prices above the announced bid price (link here).  

This article revisits a related aspect of the Panel’s decision regarding when it may be permissible for a target to undertake a placement of shares to a bidder during the course of a scheme or takeover bid. 

The relevant facts before the Panel were:

• On 21 May 2025, Central Asia Metals Limited (CAML) (an AIM-listed base metals producer with operations in Europe and Central Asia) agreed to acquire all of the shares in New World Resources Limited (New World) (an ASX-listed mineral exploration and development company with projects in North America) by way of a scheme of arrangement at $0.05 per share. 
• Kinterra (a Toronto-based private equity firm) was considering a potential takeover bid for New World and announced on 17 June 2025 (by lodging a substantial holding notice) that it had acquired an 11.99% stake via on-market purchases and special crossings. 
• On 19 June 2025, New World entered a voluntary suspension pending a potential increase in the CAML scheme consideration and a $10 million placement of shares to CAML, with funds raised to enable New World to meet regulatory bonding requirements on its mining permits, with such requirements driven by a faster than expected permitting timeline. At this stage, Kinterra had not made a formal takeover proposal to New World, but its 11.99% stake had been disclosed to the market via the 17 June 2025 substantial holding notice. Kinterra’s legal advisers had also written to New World on 19 June 2025 confirming that Kinterra was actively considering a takeover bid for New World and that the placement would frustrate Kinterra’s intentions in this regard. 
• On 19 June 2025, Kinterra sought interim orders from the Panel preventing New World from making the placement prior to Kinterra’s formal application being heard by the Panel. The Panel did not make any interim order, noting that the placement was conditional on New World not receiving, during the 14 days following the placement agreement, a competing proposal from a third party which the New World board determines is or may reasonably be expected to become a superior proposal. 
• On 20 June 2025, New World announced that (amongst other matters) the CAML scheme consideration had been increased to $0.053 per share and CAML had agreed to provide funding to New World via a $10 million placement at $0.053 per share. 
• On 23 June 2025, Kinterra lodged a substantial holding notice disclosing that its voting power in New World had increased from 11.99% and 19.16%. New World also announced, in response to media speculation, that Kinterra had submitted a non-binding indicative proposal to acquire all of the shares in New World that it did not already own by way of a takeover bid at $0.057 per share. 
• Kinterra then announced a takeover bid for New World on 26 June 2025 and subsequently sought a declaration of unacceptable circumstances by the Panel, relevantly arguing that New World and CAML had sought to frustrate the auction for control for New World (including by entering into the placement agreement, despite knowing Kinterra’s objections, that Kinterra was actively considering a takeover bid for New World and despite there being no immediate need for the funding). 

Parameters for assessing a permissible placement

The Panel raised a number of preliminary concerns in relation to the placement. However, New World and CAML ultimately agreed to terminate the placement agreement and CAML instead agreed to provide a $6.5 million unsecured loan facility (which the Panel considered adequately dealt with its concerns regarding the placement). 

Although the termination of the placement agreement means we do not have the benefit of the Panel’s detailed reasons for its concerns regarding the placement, the preliminary concerns noted by the Panel provide a useful reminder as to the circumstances where a target may undertake a placement of shares to a bidder. 

The key questions for a target to consider are:

• Does ASX Listing Rule 7.9 apply? 

  ASX Listing Rule 7.9 restricts an entity from issuing or agreeing to issue equity securities for 3 months after it is told in writing that a person is making, or proposes to make, a takeover bid for the entity’s securities (unless the entity obtains shareholder approval or an exception applies, such as an issue of shares under a takeover bid or scheme or a pro rata issue of shares). For example, in this case, if New World had been told in writing of Kinterra’s proposed takeover bid before agreeing to enter into the placement agreement with CAML, then ASX Listing Rule 7.9 would have prevented the placement from proceeding. 

• Why is the target undertaking the placement?

  It is a long-held position of the Panel that a placement of shares to address an urgent funding need during the course of a scheme or takeover bid is not necessarily impermissible.[1] The key question is whether there is a legitimate commercial reason for undertaking a placement at that time. The Panel queried the timing of the placement of shares to CAML and the proposed raising of capital by this method, noting that a placement had recently been conducted by New World in the months leading up to the CAML scheme being announced. Given that the placement agreement was terminated, the Panel did not need to consider whether New World was facing a genuine urgent funding need in relation to its mining permits. 

• Can funds be raised by another means and from parties other than the bidder?

  The Panel queried why New World could not have raised funds by another means (such as a pro rata rights issue or through debt funding) and why the placement was only made available to CAML. A placement in these circumstances is more likely to give the impression of a “defensive placement” designed to impede a competing bid (and it is therefore important for a target to be able to demonstrate the steps that it has taken to assess the availability of alternative funding that would have less of a control impact). 

• Does the placement constitute frustrating action under Guidance Note 12?

  The Panel’s Guidance Note 12: Frustrating Action expressly notes that a significant issuing of shares may constitute a frustrating action (assuming it breaches a bid condition or allows a bid to be withdrawn) and that, in considering whether a frustrating action gives rise to unacceptable circumstances, the Panel will have regard to factors such as how long the bid has been open and its likelihood of success, whether there is already a competing proposal and whether the action was undertaken by the target in the ordinary course of its business. 

  In this case, the Panel queried whether the placement was a frustrating action under the Panel’s frustrating action policy (seemingly in the context of Kinterra’s competing bid, although at the time of entering into the placement agreement there was no formal Kinterra takeover bid on the table with a condition that would have been breached as a result of the placement). 

A useful reminder

The New World decision reiterates the need for target companies to take a considered and cautious approach in fundraising during the implementation period for a scheme or takeover bid or where a control transaction is imminent. This is especially relevant for targets involved in mining exploration and development projects, given that these pre-production companies are typically not cash generative and often require ongoing funding (both for budgeted expenditure and to meet unplanned or urgent funding requirements).

It serves as a useful reminder as to the circumstances where a target facing an urgent funding requirement may undertake a permissible placement of shares to the bidder, and where a target may need to consider alternative funding sources (such as a pro rata issue of shares or debt funding) to meet a funding requirement during the course of a scheme or takeover bid. 

[1] Taipain Resources NL 04 [2000] ATP 16 at [35].