1. Business combination
Business combination is the process that acquirers combine one or more business to one reporting legal entity. Business combinations empowered the reporting entity which acts as an acquirer in the process of combination the rights to manage and control other businesses’ operation. According to AASB (Complied Accounting Standards) 3, principles and requirements are established to improve the relevance, reliability and comparability on how to recognize and measure accounting items such as assets, liabilities and goodwill in its financial statement about a business combination and its effects.
There are many types of business combinations such as acquisition by shares and acquisition of a business operation. The former obtains control right by purchasing shares of Target Company; the later one was about purchasing the assets and liabilities of another party.
There are two main principal methods of implementing a public takeover of a listed company, first one is takeover offer and the second is called scheme of arrangement. 1.1 Takeover Offers
Takeover offers, refer to a notice issued by the company which is the purchaser in acquiring process to remind the other party after acquisition of a listed company before the implementation of acquisition.
Contents of the offer including identifying acquirer, determining the acquisition date or period, the consideration related to the measurement on identifiable assets acquired, the number of acquisitions and other matters specified. Such acquisitions occurred mainly in the target company when its equity is dispersed, and the control of the company and shareholders is separate. Company should make announcements of takeover offers to all shareholders (ASX, 2013). Takeover offer is a special securities and exchange act. It is the most significant acquisition form in securities markets over the world.
Takeover offer method involves the contracts between the acquirer and the individual shareholder of target company, the acquirer is offering to obtain the shares, if acceptance is confirmed, the procedure comes to the end.
Takeover offers are regulated under Corporations Act, which deal with transactions that involves acquisition of the target company has more than 50 members. During takeover procedure, if share holding in hand is less than 5%, the takeover regulatory would not involve. Notice and report could be given by ASX.
If a bid acquires the share of a company form below 20% to over 20% without breaching Corporation Act 606, regulatory supervision is required if over 20% voting shares of Target Company is influenced by the acquisition.
Afterward, if 90% of voting shares of target company was acquired, the acquisition are supervised.
In takeover offer method, Takeover Panel consisting experts are involved in to deal with problems in the takeover process on behalf of target company and its shareholder.
If the takeover bid does not meet Corporate Act 602 and principles in procedures, Takeover Panel would claim the unacceptable circumstances.
1.2 Scheme of Arrangement
Scheme of arrangement is a voluntary agreement, or a compromise between solvent debtors and consenting creditors, or any other class of creditors (the Corporate Act, 2011). It can combine both compromises and offers. This kind of arrangement is usually governed by the law of contract, and it is originally as advantageous alternatives to the company’s’ bankruptcies. The bidder and target company need to set up MIA and a public announcement of a scheme should be stated. Then it is necessary to prepare scheme documents, and after first court hearing, scheme meeting and second court hearing, the final scheme of arrangement takes effect (King & Mallesons, 2012).
1.3 Takeover Offers VS. Scheme of Arrangement
Although Takeover offers and Scheme of Arrangement are commonly used in takeover, the two processes differed in some fundamental perspectives; most notably,