Acquisition takes place when one company acquires a shareholding in or the assets of another company. The two main mechanisms available for acquiring commercial and industrial properties are:
Off-Market Takeovers: In this case, a potential acquirer makes an offer to all the shareholders of the target company, to acquire their shares.
Scheme of Arrangement: In a scheme of arrangement, the shareholders of a company vote to merge with another company.
The regulators involved in approving and determining the way in which an acquisition may be implemented are:
Australian Securities and Investment Commission (ASIC): ASIC is the main regulatory body with respect to acquisitions in Australia.
Takeovers Panel: Takeovers panel is the main forum regulating corporate control transactions by providing efficient and speedy resolution of takeover disputes.
Australian Competition and Consumer Commission (ACCC): The role of ACCC is to focus on any anti-competitive result with respect to acquisitions. According to Section 50 of the Competition and Consumer Act 2010, a Corporation must not directly or indirectly acquire shares in the capital of a body corporate or corporation or acquire any asset of a corporation or a person, if such acquisition is likely to substantially lessen competition in a market.
Australian Securities Exchange (ASX): ASX is the primary securities exchange and is responsible for ensuring companies listed on ASX, comply with the ASX Listing Rules. This includes but is not limited to monitoring compliance of Listing Rules by listed entities, particularly continuous and periodic disclosure requirements, reviewing proposals of re-organisations and restructuring, monitoring compliance and investigating breach of market rules, clearing and settlement rules by market participants and so on.
Foreign Investment Review Board (FIRB): FIRB examines proposals by foreign interests to undertake direct investment in Australia and recommends the Government, as regards the suitability of the proposals for approval under Government policy. It also monitors and ensures compliance with foreign investment policy.
Divestment of Commercial and Industrial Properties
Acquisition also includes divestment of major assets or part of a body corporate. An employer’s decision to divest assets may be diverse such as bankruptcy, loss of profits, obtaining fund, investing in other business opportunities and inability to attain synergy. However an employer requires to consider certain key issues in order to administer a successful divestment and these are:
Firstly the basis for the employer’s decision to divest needs to be understood. The employer should invest sufficient time and effort to understand as to why the business needs to be divested, what are the risks and rewards associated with such divestment, what are the options available and accordingly develop a detailed divestment strategy.
Secondly, accurate valuation of the business should be done prior to negotiation with prospective buyers. Value assessment can be done either by financial statement valuation or by comparing the business with other public companies or similar acquisitions.
Thirdly, Information Memorandum should be prepared providing detailed summary of the business proposed to be divested. This includes information including history of the company and its operations, key management personnel, financial reports and divestment reasons.
Fourthly, potential buyer and their ability to steer difficult issues, their forthrightness to creative structures and ideas and potentiality to freeze a deal should be evaluated. Potential buyers may include corporate buyers, private equity buyers and foreign buyers.
Fifthly, meticulous preparation should be made for divestment process to reduce transaction friction with regard to detailing what is being sold, exploring complex areas like branding, IP licenses, obtaining relevant agreements, protocols for sharing information, maintaining confidentiality and engaging target management. Preparation also includes identifying key value preservation issues like employee retention and transition planning, considering tax and accounting implications.
Lastly, the deal should be closed by way of meeting with the interested buyer, negotiating the amount of sale, providing a letter of offer and entering into an agreement.
Tax Implications on Acquisition and Divestment of Commercial and Industrial Property
Divestment of commercial and industrial properties attracts Goods and Service Tax (GST) on the income.
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