gtlaw.com.au
Australian perspectives 2012
PAGE 1
Introduction The last 18 months have seen significant change in the Australian legal market. A range of foreign firms have arrived in Sydney and Perth through acquisitions and alliances of various types and scale. This has created a more competitive Australian legal market, and also a different environment for our friends in law firms around the world who do not have an Australian presence but have clients with commercial interests in Australia.
In common with many jurisdictions, Australia’s regulators are also becoming much more proactive, and as a result our market-leading competition + regulation practice is in peak demand. That practice, along with our communications + technology group, has also been instrumental in the progression of the A$40+ billion National Broadband Network project, which is touted as the single largest nation-building infrastructure project in the country’s history.
From our perspective, the increased competition is good for clients and good for us. In this environment, our share of leading mergers and acquisitions transactions in Australia has grown, which enhances our reputation as the go-to independent firm in Australia. We have also benefited from consolidating relationships with the many great law firms around the world who do not compete in Australia.
In this booklet, each of our practice groups has laid out its perspective on the Australian market at this point of 2012. We think there will be something of interest inside for clients and friends both in Australia and around the world. As with previous editions, we also hope you get a sense of what we are building at Gilbert + Tobin and what makes us different: that we are ambitious – both for our clients and for the success of our firm; that we believe the most difficult matters require not only excellence and market-leading expertise but also courage, commerciality and creativity; and that we apply ourselves to the responsibility of strengthening civil society and helping the disadvantaged in Australia with the same conviction as our largest corporate work.
In the last quarter of 2012, we are seeing some of the weakness and uncertainty in other economies affect sentiment in Australia more than ever before. As a consequence, the cautious optimism that has prevailed among investors in Australia is being reduced simply to caution. We are fortunate in all of this to have remained very busy. Our finance team has just helped refinance one of our largest iron ore producers and finance Australia’s largest, recent public private partnership. In M&A, we have worked on the majority of high-profile public transactions in Australia this year. Our litigators are commencing Australia’s most recent class action and our restructuring team is currently leading Nine Entertainment Co.’s restructure – the largest in Australia’s history.
In all of this we aim to be not just an independent alternative to our competitors, but to be Australia’s leading corporate law firm.
Danny Gilbert AM Managing Partner GTLAW.COM.AU
PAGE 1
Mergers + Acquisitions Similar to the state of mergers and acquisitions worldwide, the M&A landscape in Australia remains challenging. Market volatility in China, Europe and the United States has affected investor sentiment, and as a result, M&A deal flow across the globe is down. Against this background, Australia is negotiating the challenges of a two-speed economy – while the mining and energy sectors continue to underpin the national economy, manufacturing and retail face many uncertainties and challenges. However, there is still life in the Australian M&A market and deals are getting done, albeit not with the speed or certainty they were before the global financial crisis (GFC). Some key features of our M&A market are as follows. Energy and resources are still key The energy and resources sector represents a large part of the M&A market. In 2011, energy and resources M&A represented 53% by number and 59% by transaction value of total Australian public M&A deals. Asian bidder interest in this sector also remains strong. While energy and resources deals are commonly centred on coal, iron ore and gold assets, deals relating to liquefied natural gas (LNG) and coal seam gas have also been significant. Apart from pure resources M&A, the mining services industry has also been in
Julie Athanasoff Partner T +61 8 9413 8406 E jathanasoff@gtlaw.com.au PAGE 2
Tony Bancroft Partner T +61 2 9263 4025 E tbancroft@gtlaw.com.au
focus with recent high-profile deals including FLSmidth’s takeover of Ludowici, and Orica’s joint venture with Yara International and Apache to build an ammonium nitrate plant on the Burrup Peninsula in Western Australia. Whether the energy and resources sector will continue as strongly remains to be seen, with some industry and other commentators claiming the resources boom is over. Certainly, prices for some commodities are down and, accordingly, share prices for many resources stocks have been under pressure. Infrastructure opportunities abound The infrastructure sector has also seen significant M&A activity over the past 12 months. As a result of the resources boom, there is a need to develop mining infrastructure, particularly rail and port connections in Queensland and Western Australia. This should result in significant activity in Australia’s infrastructure sector for some years to come. The relatively safe long-term returns from regulated infrastructure investments – such as gas and electricity transmission lines, toll roads and other similar investments – are attractive to investment funds, particularly superannuation and pension funds with their long-term investment horizon. The willingness of super funds to invest directly in infrastructure assets could result in an increase in M&A competition and liquidity in this asset class.
Rachael Bassil Partner T +61 2 9263 4733 E rbassil@gtlaw.com.au
Charles Bogle Partner T +61 2 9263 4367 E cbogle@gtlaw.com.au
Joint bids are increasingly prevalent A key trend to emerge over the last 18 months has been the announcement and execution of a number of joint bids. Given the current market difficulties in completing deals, and the Australian Competition and Consumer Commission’s (ACCC’s) approach to mergers in certain sectors, the joint-bid structure is proving advantageous, since it spreads acquisition costs and lowers regulatory risk. Moreover, teaming up with an existing shareholder in the target can be an excellent technique for unlocking a difficult target share register. Recent examples of joint bid transactions include a consortium led by Noble Group and Posco on their proposed takeover of Arrium Limited, the takeover by Peabody Energy and ArcelorMittal of Macarthur Coal, and the bid by FOXTEL (a joint venture between Telstra, News Corporation and Consolidated Media Holdings) for AUSTAR. Foreign bidders remain very important Despite the high Australian dollar, Australia remains an attractive destination for foreign investors. In 2011, there was a record A$65 billion in inbound foreign investment into Australia. We expect direct foreign investment to continue to strengthen as foreign bidders, particularly those from Asia and North America, continue to be attracted to Australian resources and agribusiness companies, and Australia’s standing as a stable, developed economy with mostly transparent regulation and low political risk.
Andrew Bullock Partner T +61 2 9263 4126 E abullock@gtlaw.com.au
Marcello Cardaci Partner T +61 8 9413 8403 E mcardaci@gtlaw.com.au
David Clee Partner T +61 2 9263 4368 E dclee@gtlaw.com.au
Peter Cook Partner T +61 2 9263 4774 E pcook@gtlaw.com.au
Andrew Crook Partner T +61 2 9263 4209 E ajcrook@gtlaw.com.au
Pacific Equity Partners
DuluxGroup
Acquisition of Spotless Group by
Hostile takeover offer for
scheme of arrangement
Alesco Corp
A$1.1 billion
A$200 million
Silver Lake Resources Acquisition of Integra Mining A$426 million Chris Flynn Partner T +61 2 9263 4321 E cflynn@gtlaw.com.au
Deborah Johns Partner T +61 2 9263 4120 E djohns@gtlaw.com.au
Rachel Launders Partner T +61 2 9263 4143 E rlaunders@gtlaw.com.au
Graincorp Defence against a takeover from Archer Daniel Midlands A$3 billion
Adam Laura Partner T +61 2 9263 4144 E alaura@gtlaw.com.au
Ben Macdonald Partner T +61 3 8656 3351 E bmacdonald@gtlaw.com.au
Hiroshi Narushima Partner T +61 2 9263 4188 E hnarushima@gtlaw.com.au
Graincorp Aquisition of Gardner Smith Group A$302 million
Neil Pathak Partner T +61 3 8656 3344 E npathak@gtlaw.com.au
Bryan Pointon Partner T +61 2 9263 4286 E bpointon@gtlaw.com.au
Bill Spain Partner T +61 2 9263 4009 E bspain@gtlaw.com.au
Country Road Acquisition of Witchery Group A$192 million
Orica Pilbara ammonium nitrate joint Sarah Turner Partner T +61 8 9413 8433 E sturner@gtlaw.com.au
John Williamson-Noble Partner T +61 2 9263 4030 E jwilliamson-noble@gtlaw.com.au
venture with Yara A$800 million
Steelmakers Australia consortium Proposed takeover of Arrium A$3.2 billion
Exxaro Resources Takeover of African Iron A$388 million
Telstra As 50% partner in FOXTEL on FOXTEL’s aquisition of AUSTAR A$1.9 billion
Telstra Sale of TelstraClear to Vodafone in New Zealand A$750 million
Champ Private equity Aquisition of Gerard Lighting A$277 million
GTLAW.COM.AU
PAGE 3
Foreign Investment Despite positive developments, Australia’s foreign investment approval process can still be opaque and influenced by political sentiment. There are three issues currently dominating Australia’s foreign investment horizon from a regulatory perspective: • the concept of ‘national interest’ • investments by foreign government–related entities (particularly as this affects private equity funds) • investments by foreign entities in agricultural land. Australia’s foreign investment approval regime continues to comprise a mix of legislation and policy. The foreign investment policy (which has no legislative force, but with which prospective investors are expected to comply) was designed to plug significant gaps in the legislation but is itself often unclear. Much of the uncertainty in recent years stems from the lack of transparency in how the Foreign Investment Review Board (FIRB) applies both the law and the policy to evolving transaction structures. In general, the Treasurer (acting on advice from the FIRB) has the power to stop or unwind certain transactions that are deemed to be contrary to the national interest. The Treasurer ceases to have this power in respect of a covered transaction if the transaction is notified to the FIRB and a statement of no objection is obtained.
Rachael Bassil Partner T +61 2 9263 4733 E rbassil@gtlaw.com.au PAGE 4
Andrew Bullock Partner T +61 2 9263 4126 E abullock@gtlaw.com.au
The concept of ‘national interest’ The term ‘national interest’ is deliberately not defined in the legislation or the policy, to ensure that the Treasurer has the flexibility to assess each transaction according to its circumstances. However, due to the lack of transparency surrounding the assessment process, there have been calls for increased rigour around the national interest test to assure all stakeholders that relevant criteria have been considered. Despite this, we do not expect any significant changes to the national interest test. Investments by foreign government–related entities The second issue we are encountering with increasing frequency involves the application of Australia’s foreign investment regime to foreign government–related entities. Most transactions involving foreign government–related entities must be notified under this regime. While recent iterations of the policy have clarified what constitutes a foreign government–related entity, there can still be some surprises around how it is applied. This is particularly the case where sovereign wealth funds and pension funds for foreign public sector employees are large investors in pooled investment funds. Investments by foreign entities in agricultural land Another issue that has arisen recently relates to the acquisition of agricultural land in Australia. Historically, there have been relatively tight restrictions on acquiring urban land (which is any land that is not exclusively involved in agriculture), but acquisitions of agricultural land have been less regulated. In light of recent acquisitions and a heightened awareness of issues such as food and water security, the Government has recently announced that a new register of agricultural land will be established to help track foreign ownership of such land. Further initiatives, such as reduced thresholds for acquisitions of urban land may follow. Visit www.gtlaw.com.au/publications/doing-business-in-australia/ to download a copy of our guide, Doing Business in Australia.
Peter Cook Partner T +61 2 9263 4774 E pcook@gtlaw.com.au
Deborah Johns Partner T +61 2 9263 4120 E djohns@gtlaw.com.au
Neil Pathak Partner T +61 3 8656 3344 E npathak@gtlaw.com.au
Capital Markets After several years of subdued market activity, many hoped 2012 would herald the ‘reopening’ of Australian capital markets, particularly for initial public offerings (IPOs). In fact, 2012 has witnessed one of the weakest markets in Australian equity in the past decade. However, despite the difficult market and low volumes, Gilbert + Tobin was delighted to be involved in many of Australia’s leading transactions. Initial public offerings and listings In 2010–12, a pipeline of potential IPOs came and went, with insufficient demand at the desired multiple. With a few notable exceptions, the IPOs that have come to market have been very disappointing for the institutional investors that supported them, leaving market sentiment and investor confidence at an all-time low. In the absence of a strong equity market, private equity has been forced to look for other exit opportunities and to hold assets longer than expected. When the market does open up again, we expect that the days of a full private equity exit by IPO are behind us and that private equity owners will, more likely than not, need to retain a significant holding.
Acquisition-related raisings For companies that are already listed and looking to tap existing shareholders to raise capital, the story has been more positive. 2012 equity capital markets activity has been dominated by acquisition-related raisings which shows that equity is available for companies with a strong earnings history or a good growth story. Australian Securities Exchange (ASX) listing rule amendments should assist secondary raisings. These amendments allow entities that have a market capitalisation of A$300 million or less and that are not in the S&P/ASX 300 market index to seek shareholder approval to expand their placement capacity from 15% to 25%. Hybrids and debt instruments Over the last 12 months we’ve seen the re-emergence of hybrid offerings, with a number of significant hybrid and debt security raisings, predominantly by blue-chip corporations and big banks. ‘Low doc’ continues to rule The low-doc regime, which allows companies to raise capital through a pro-rata offer to existing shareholders without lodging a prospectus, continues to provide companies with a quick and relatively easy way to raise money.
As companies look to balance their desires to raise funds from institutions quickly and to minimise the dilutive or value-depleting impact on retail shareholders, two new structures have emerged. The first is the PAITREO, which allows settlement of the institutional component to be accelerated but gives retail holders the ability to realise value for their rights early, through the addition of rights trading to the normal structure. The second is the combination of an accelerated low-doc entitlement offer, institutional placements and a prospectus, which gives retail shareholders an opportunity to top-up their take-up to avoid dilution caused by the institutional placements. GrainCorp Underwritten placement and accelerated entitlement offer A$170 million
Country Road Renounceable entitlement offer A$192 million
M2 Telecommunications Group A$83 million underwritten accelerated entitlement offer A$192.4 million
Calibre Group Advising UBS and Goldman Sachs on the underwritten Rachael Bassil Partner T +61 2 9263 4733 E rbassil@gtlaw.com.au
Tony Bancroft Partner T +61 2 9263 4025 E tbancroft@gtlaw.com.au
Marcello Cardaci Partner T +61 8 9413 8403 E mcardaci@gtlaw.com.au
Peter Cook Partner T +61 2 9263 4774 E pcook@gtlaw.com.au
Adam Laura Partner T +61 2 9263 4144 E alaura@gtlaw.com.au
Neil Pathak Partner T +61 3 8656 3344 E npathak@gtlaw.com.au
Janine Ryan Partner T +61 2 9263 4051 E jryan@gtlaw.com.au
Sarah Turner Partner T +61 8 9413 8433 E sturner@gtlaw.com.au
IPO and ASX listing of Calibre Group A$75 million
John Williamson-Noble Partner T +61 2 9263 4030 E jwilliamson-noble@gtlaw.com.au GTLAW.COM.AU
PAGE 5
Private Equity Some of the most significant public market M&A deals in the last 12 months were led by financial sponsors who continue to provide liquidity and tension for most sale processes in the Australian market.
• Debt markets are supporting schemes of arrangement with timetables and levels of debt that have allowed transactions to close smoothly.
Key features of the Australian market in 2012 from our perspective are set out below.
Venture and expansion capital is attracting renewed interest The general view in Australia is that venture capital has not provided the same quality of returns to investors as private equity. As a result, it is difficult to access institutional investment in venture capital funds in Australia, meaning that new funds have been raised primarily with high net worth support and that early-stage companies have often had to look offshore for expansion capital.
Public-to-private transactions In Australia’s private equity industry, public-toprivate (P2P) transactions have historically been more difficult to execute than private acquisitions. However, the last 12 months saw CHAMP Private Equity acquire two public companies through schemes of arrangement; Crescent Capital launch a hostile bid; and Pacific Equity Partners acquire Spotless Group after a very public tussle with its board. We are fortunate to have worked on all of these transactions. While all are different, we believe their successful completion reflects the following developments in the P2P space: • Key domestic sponsors have lost their coyness regarding public deals and are now happy to take an aggressive and even hostile approach to public M&A . • This approach has been encouraged by better relationships with value-based institutional shareholders who, in turn, are becoming more activist and willing to support whole-ofCompany transactions.
Through a combination of changes in market opportunities and in outlook for both internetbased business models and life science–focused businesses, we are now seeing renewed interest in the venture space. We hope this trend will develop strongly and that domestic institutional LPs can be attracted back to this asset class. Distressed funds are increasingly active and are changing the outcomes for over-leveraged companies Oaktree, Apollo and Sankaty are not names universally recognised among Australia’s investment community. However, we have no doubt they soon will be. As players in all of Australia’s key distressed debt situations, these companies are changing the way over-leveraged businesses are restructured;
buying debt on a ‘loan-to-own’ basis and avoiding receivership in favour of schemes of arrangement. To date, Nine Entertainment Co. is the largest of these loan-to-own opportunities, which is set to play out over the next few months.
Pacific Equity Partners Acquisition of Spotless Group A$1.1 billion
CHAMP Private Equity Acquisition of a 33.2% stake in Miclyn Express Offshore A$199 million Acquisition of Gerard Lighting Group A$277 million
Quadrant Private Equity Acquisition of Macquarie Group’s and Tom Meyers’ stakes in CQMS A$140 million
IronBridge Capital Acquisition of Southern Cross Dental Laboratories A$95 million
Rachael Bassil Partner T +61 2 9263 4733 E rbassil@gtlaw.com.au
Charles Bogle Partner T +61 2 9263 4367 E cbogle@gtlaw.com.au
Andrew Bullock Partner T +61 2 9263 4126 E abullock@gtlaw.com.au
Peter Cook Partner T +61 2 9263 4774 E pcook@gtlaw.com.au
Andrew Crook Partner T +61 2 9263 4209 E ajcrook@gtlaw.com.au
Deborah Johns Partner T +61 2 9263 4120 E djohns@gtlaw.com.au
Adam Laura Partner T +61 2 9263 4144 E alaura@gtlaw.com.au
Hiroshi Narushima Partner T +61 2 9263 4188 E hnarushima@gtlaw.com.au
Bryan Pointon Partner T +61 2 9263 4286 E bpointon@gtlaw.com.au
John Williamson-Noble Partner T +61 2 9263 4030 E jwilliamson-noble@gtlaw.com.au
PAGE 6
Investment Funds Two issues have continued to dominate Australian investment fund raising in the past year: allocation issues and uncertainty with regard to tax. Allocation issues The so-called ‘denominator effect’ has affected fund managers globally, exacerbated by the fact that Australian superannuation funds (a major source of investment for Australian investment funds) generally have smaller allocations to alternative assets than their overseas counterparts. While this allocation issue appears to be easing, there is speculation that Australian superannuation funds may be looking to diversify their alternative assets geographically by investing in offshore funds rather than Australian funds. In the absence of available funds from traditional investors, Australian fund managers are creating smaller funds and, for the first time, targeting high net worth individuals in a significant way. Another source of funds is the Australian Government’s Innovation Investment Fund program, under which the Government invests A$20 million in funds managed by licensed fund managers. The fund must raise matching capital for investment in early-stage Australian businesses, with the aim of commercialising Australian research and development.
in the way of substantive immediate reform. These include: • the increase, effective 1 July 2012, to the rate of MIT withholding from 7.5% to 15% (in what is a negative development for property fund managers and their foreign investors) • the deferral until 1 July 2014 (originally proposed to be 1 July 2013) of the rewrite of the trust taxation provisions of the tax law • the deferral until 1 July 2014 of the tax provisions for the proposed MIT regime (together with associated amendments to other parts of the tax law) • the release of a discussion paper on ‘fixed trusts’. Fixed trust status is important for many collective investment vehicles. Among other things, it allows imputation credits to flow through to investors, exemption of capital gains in certain circumstances, and the carry forward of tax losses in the trust and investee companies held by the trust
Changes and uncertainty in taxation 2012 has been punctuated by a number of announcements and publications relating to the taxation of collective investment vehicles, but little
• the enactment of a number of elements of the new ‘investment manager regime’. Among other features, this regime excludes from Australian taxation certain foreign funds where (subject to meeting certain requirements) such taxation is a result of having a permanent establishment in Australia, solely from the use of an Australiabased agent, manager or service provider.
Andrew Bullock Partner T +61 2 9263 4126 E abullock@gtlaw.com.au
Deborah Johns Partner T +61 2 9263 4120 E djohns@gtlaw.com.au
Peter Feros Partner T +61 2 9263 4163 E pferos@gtlaw.com.au
Adam Laura Partner T +61 2 9263 4144 E alaura@gtlaw.com.au
Fund managers and sponsors eagerly await clarity on these developments so they can provide certainty to their investors.
Crescent Capital Partners Establishment of Crescent Fund IV
Industry Funds Management Investment in Archer Capital Fund 5
Macquarie Bank Secondary sale of client interests in domestic private equity funds to offshore buyers
Janine Ryan Partner T +61 2 9263 4051 E jryan@gtlaw.com.au
John Williamson-Noble Partner T +61 2 9263 4030 E jwilliamson-noble@gtlaw.com.au GTLAW.COM.AU
PAGE 7
Restructuring + Insolvency Despite Australia emerging from the post-Lehman collapse in better shape than most countries, the market has recently been susceptible to growing pressures at both the domestic and international levels. On the international level, this is illustrated by
• the common focus of banks on the need to
Changing of the guard
factors such as China’s decreased demand and
recycle unproductive capital quickly, in light of
A large number of the traditional foreign banks
consumption, and the changes required by the
capital allocation and opportunity costs.
with exposures in Australia (predominantly from
third installment of the Basel Accords.
This increased willingness to trade has seen a
Domestically, the push to deleverage at both a
number of international players enter the market,
commercial and personal level has affected
commonly in the form of hedge funds and private
attitudes in the market, and the retail and
equity funds. These funds can have very different
property sectors continue to underperform.
goals, timeframes and strategies to the previous
Within this landscape, the secondary debt
local players. These circumstances in combination
trading market has flourished, leading to a
have also given rise to an increase in the pursuit of
growth in consensual restructurings particularly
‘debt for equity’ restructures. Given that the
as borrowers find it difficult to refinance.
ultimate goal of this strategy can be ownership of
Opportunities abound The relative stability of the Australian banking sector, robust prudential regulations and the
the business, hedge fund participants are more conscious of enterprise value destruction and there has been a reluctance to proceed to formal
the United States, United Kingdom and continental Europe) continue to take active steps to reduce their current exposure. Foreign banks’ share of Australian bank assets (including commercial loans and securities) was approximately 22% in 2007 compared to 12% at the end of 2011. This decline is due largely to the pressure on foreign banks to retract foreign exposures as a result of problems at home, and is also a reflection of the opportunities in the current Australian market for banks to relieve themselves of ‘bad’ debt. This decline has seen a parallel (albeit not equal) rise in Asian bank
willingness of par lenders to exit their positions
insolvency in these circumstances (particularly at
has promoted increased activity in the secondary
the higher end of the market). As a result, schemes
debt trading market since 2009.
of arrangement are becoming increasingly
market participants and new participants
common to employ these strategies, although the
entering the market, particularly out of China.
This increase has also been driven by factors including:
threat of insolvency is still used as a bargaining tool.
exposure in Australia. This has been by way of both an increase in exposure for pre-existing
Vulnerability
Almost every large Australian restructure of the
Despite the commentary around a booming
last two years has involved the complexities of
Australian economy, there are areas of increased
debt trading on some level. Centro Properties
vulnerability in the marketplace, particularly as
Group, Alinta Energy, Colorado Group and
the resources boom slows. Corporate collapses
more recently Nine Entertainment Co. have all
are occurring throughout Australia, due largely
had a large number of hedge fund participants.
to slackening demand, cash-flow concerns and
Managing expectations through this process can
ongoing inability to refinance. Sectors that have
buyout (LBO) debt coming through the system
be challenging, as traditional dynamics between
been hit particularly hard in recent times include
for refinancing
stakeholders have evolved. The change of
property, retail and the construction sector,
dynamics is highlighted within lender groups with
which has been a victim of cash-flow problems as
hedge funds more willing than traditional banks
government stimulus moneys are exhausted and
to take equity positions.
industrial action escalates.
• the large number of underperforming loan portfolios in the market • large numbers of over-leveraged project finance deals • the stressed export market conditions for Australian producers and manufacturers • an ongoing supply of 2007 – 08 leveraged
• the expiry of temporary measures put in place by distressed businesses post-GFC • a shrinking pool of participants willing to refinance PAGE 8
Informed boards The increased activity on the secondary debt market, vulnerabilities for specific industry sectors and new financiers in the market have meant directors must be well advised of their duties and options as they navigate through the restructure steps, knowing the alternative is insolvency. Despite the onerous laws that govern directors’ duties and insolvent trading in Australia, stakeholders involved in distressed situations are currently more willing to work collaboratively to achieve an outcome. This often involves providing comfort to directors on a personal level. Future developments There will be a continued willingness on the part of both Australian institutional banks and traditional foreign banks to trade debt as a means of complying with Basel III capital requirements and exiting distressed scenarios with some value. We anticipate that large-scale restructures will continue to occur outside formal insolvency procedures. This ensures preservation, as far as possible, of enterprise value. The pursuit of debt for equity strategies will continue at the instigation
Tim Castle Partner T +61 2 9263 4062 E tcastle@gtlaw.com.au
Dominic Emmett Partner T +61 2 9263 4328 E demmett@gtlaw.com.au
of hedge funds willing to be more involved in a company (including by taking on management roles). This debt for equity play is likely to extend to bilateral arrangements over time if required. The number of formal insolvency appointments at the small- to mid-cap level of business will increase towards the end of the financial year as companies continue to struggle with liquidity problems and waning demand. Nine Entertainment Co. Advising Nine Entertainment Co. on its restructure by scheme of arrangement (current) A$2.2 billion Reliance Rail Refinancing of Australia’s largest PPP A$3.6 billion
Top Ryde Shopping Centre Advising lending syndicate, receivers and managers A$600 million RiverCity Motorway Group Advising the receivers of RiverCity Motorway Group on operations and maintenance and related issues A$1+ billion
Colleen Platford Partner T +61 2 9263 4026 E cplatford@gtlaw.com.au
John Schembri Partner T +61 2 9263 4752 E jschembri@gtlaw.com.au GTLAW.COM.AU
PAGE 9
Banking + Finance The Australian bank syndication market remained very active in 2011 and the first half of 2012, despite challenging global economic conditions. Domestic and international banks continued to support corporate, M&A and project finance lending at close to 2006 levels. The appetite was particularly strong for resources and infrastructure deals. Debt capital markets continued to gain strength, while corporate and financial institutions managed their capital and balance sheet exposure by tapping markets for funding. While the effects of the GFC are still felt in certain terms (for example, upfront fees and margins have continued to be higher than pre-2008 levels), strong sponsors, particularly in the infrastructure and resources space, have been able to negotiate good terms. The market is still seeing more club than underwritten deals, although the syndication market is picking up from 2009 and 2010 levels. While new money deal volumes (new loans or new corporate debt issuances) remained high, 2011 saw a strong focus on refinancing existing corporate debt. With many borrowers facing maturity profiles in 2012 and 2013, refinancing will continue to play a big role in the market in 2013. Banks in Australia continue to provide funding certainty on a more regular basis. The bankability of transactions, particularly in a multi-bid context, remains one of the key considerations at the very outset of a transaction. Leveraged finance Activity in Australia’s leveraged finance market remained strong throughout 2011. While there was more activity at mid-market level, the first half of 2012 saw some significant private equity transactions. Domestic and international banks showed a healthy appetite for market share by supporting businesses with good opportunities.
PAGE 10
Current trends in the Australian leveraged finance market include: • average starting leverage levels of around 4.0x EBITDA, with sponsor equity contributions of between 40–50% of value. Financial covenant headroom has remained between 20% and 25%, and amortising A tranches continue to be popular with banks • the return of dedicated acquisition and capital growth facilities (albeit with stringent conditions for use) • a focus on assignment and debt transfer provisions, in light of a more favourable syndication environment with particular negotiations around transfer consent rights for borrowers • variance in upfront and structuring fees being based on bank commitment levels, rather than on a flat percentage. Project finance Project and infrastructure financing has remained an active area of the Australian market, notwithstanding the challenging market conditions post-GFC. Ageing infrastructure assets coupled with the continuing resources boom in Australia has kept a healthy flow of project and infrastructure transactions in the pipeline, although falling commodity prices have recently impacted the market. Current project finance trends include: • The number of PPP projects being brought to market in Australia remains robust. Queensland and Western Australia continue to be strong in this area, with renewed activity in New South Wales.
• A number of state governments are looking at ways of developing the PPP funding model to better identify, address and allocate risks – for example, patronage risk, which has impacted on the success of a number of toll road PPPs in Australia. This indicates a continued interest by state governments in accessing private funding. • There is increasing participation by export credit agencies (ECAs) (both domestic and offshore) in financing Australian infrastructure and projects. Borrowers are looking to ECA funding to obtain competitive margins, long debt tenor and certainty of funds. • State governments are selling or privatising existing assets to fund new infrastructure projects. Recent examples include the privatisation of the Sydney Desalination Plant, the Port of Brisbane and the NSW electricity networks; and the proposed privatisation of Port Botany and Port Kembla in NSW. • Offshore pension funds have become active in financing Australian infrastructure. The longer debt tenor and stable cash flows associated with infrastructure projects are attractive to pension funds, which are often based on a long-term defined benefit model. There is also discussion in the market around potential Australian superannuation fund investment in infrastructure projects as a new funding source.
Debt capital markets
• a renewed interest in private transactions, with
Debt capital markets continue to gain strength, with
financial institutions considering and entering
a number of significant transactions already
into private trades, repo structures and
completed this year and further transactions coming
collateralised debt obligations (CDO) structures
to market. The ongoing impact of Basel III, ever-increasing foreign regulation (such as Dodd-Frank, Foreign Account Tax Compliance Act (FATCA) and over-the-counter (OTC) clearing) and forthcoming revisions to securitisation prudential standards, are also keeping market participants busy.
• increased whole portfolio transactions
project and aquisition finance A$2.3 billion
(mortgage loans, credit cards and other receivables), and trade receivables financing. What these transactions have in common is the aim
Fortescue Metals Group
of corporate and financial institutions to efficiently
Advising senior financiers on the restructure of
manage their capital and balance sheet exposure.
secured debt facilities
With the impact of Basel III, we would expect these
Recent trends in the market include:
trends to continue and for more corporate issuers
• a surge in new retail debt and hybrid issuance
to look to debt capital markets for alternative
from corporate and financial institutions
Sydney Desalination Plant Advising the successful consortium’s financiers on
A$5 billion
sources of funding. Pacific Equity Partners Financing of Spotless Group acquisition A$1.1 billion
Industrial and Commercial Bank of China Establishment of, and amendments to, its debt instrument program Alexander Danne Partner T +61 3 8656 3373 E adanne@gtlaw.com.au
Dominic Emmett Partner T +61 2 9263 4328 E demmett@gtlaw.com.au
Nicholas Grambas Partner T +61 3 8656 3388 E ngrambas@gtlaw.com.au
James Lewis Partner T +61 2 9263 4084 E jlewis@gtlaw.com.au
US$4 billion
PPPs Advising finance consortia on the following PPPs: Sydney International Convention, Exhibition and Entertainment Precinct, Sunshine Coast University Hospital, Eastern Goldfields Regional Prison, Wiri Robert McDonnell Partner T +61 2 9263 4021 E rmcdonnell@gtlaw.com.au
Duncan McGrath Partner T +61 2 9263 4340 E dmcgrath@gtlaw.com.au
Ros O’Mally Partner T +61 2 9263 4743 E ro’mally@gtlaw.com.au
John Schembri Partner T +61 2 9263 4752 E jschembri@gtlaw.com.au
Prison (New Zealand), Royal Adelaide Hospital and the QEII Medical Centre Car Park
GTLAW.COM.AU
PAGE 11
Technology Just as some cities never sleep, the information technology industry never stands still. As the world takes up new technology such as cloud
outsourcing arrangements are focusing on flexibility
to re-invent the physical point of sale (POS)
computing and smart devices, it is not only
and transparency.
experience for staff and customers.
Vendors’ ability to deploy services through a
However, as with many new technologies the
mixture of onshore and offshore resources has
widespread adoption of NFC is faced with a number
Up in the cloud
enabled the development of economies of scale. In
of challenges, from the modernisation of merchant
‘Cloud computing’ is a broad term that describes a
addition to efficiency and productivity gains, these
POS networks, to device upgrades and, perhaps
range of different technologies – from web-based
economies of scale provide compelling business-
most critically, the development of global
services such as Google Docs and hosted enterprise
case advantages when compared to current
technology standards.
applications like Salesforce.com, through to bare
in-house delivery.
Towards a more mobile workforce
The outsourcing of business functions is becoming
An increasing number of employees want to use
more established, especially in Southeast Asia. For
personal devices at work and to access corporate
We are still seeing a gap between the hype and
many corporations this sourcing activity is
networks from remote locations. But before this
reality. Large customers have been slow to embrace
considered just another way to do business.
new, flexible workplace can be realised, businesses
Vendor management
security requirements are met.
traditional business models that change, but the way we conduct our everyday lives.
server capacity provided in dedicated, private virtual environments.
cloud offerings, particularly in regulated industries such as banking. This is not helped by vendors whose contractual commitments regarding
The traditional focus of the corporate customer has
performance, confidentiality and security often fail
been on vendor micro-management. This was
to meet customer expectations.
focused on monitoring and managing vendors’
There is no doubt that cloud computing is here to stay for the foreseeable future. However, the
day-to-day delivery, and measuring performance against prescriptive requirements and hard metrics.
need policies to ensure software compatibility and
Many Asian countries are characterised by their adoption of mobile technologies over fixed platforms. A recent survey found that the Asia Pacific region leads the world in mobile usage and
technologies and delivery models are still evolving,
Businesses are star ting to realise the impor tance
penetration, surpassing even the US market.1 For businesses, mobile devices increasingly act as
and care needs to be taken with the associated
of ‘soft skills’ in vendor relationship management
an extended workbench as they strive to ensure their
contractual risks.
to achieve optimum outcomes and extract the
processes are as efficient as possible. For individuals,
best service.
mobile handsets are more than a mere phone, but
Changing face of outsourcing
often act as the user’s primary internet access device
We are witnessing the fragmentation of ‘whole-of-
Near field communication
business’ service arrangements, with organisations
With digital goods payments tipped to account for
preferring best-of-breed vendors that provide the
nearly 40% of the market by 2015, near field
This emphasis on mobility has seen Asia lead the
optimum fit for particular services. Newer
communication (NFC) technology, has the potential
world in mobile-related projects. As an example,
Michael Caplan Partner T +61 3 8656 3333 E mcaplan@gtlaw.com.au PAGE 12
Tim Gole Partner T +61 2 9263 4077 E tgole@gtlaw.com.au
Bernadette Jew Partner T +61 2 9263 4032 E bjew@gtlaw.com.au
Peter Jones Partner T +61 2 9263 4125 E pjones@gtlaw.com.au
and are used to access value-added services.
Peter Leonard Partner T +61 2 9263 4003 E pleonard@gtlaw.com.au
Sheila McGregor Ken Saurajen Partner Partner T +61 2 9263 4152 T +61 2 9263 4154 E smcgregor@gtlaw.com.au E ksaurajen@gtlaw.com.au
Gilbert + Tobin recently advised Axiata – one of the largest mobile operators in the Asia Pacific region – on a mobile payment hub solution between various Axiata operating companies to allow international remittances and phone recharges through mobile devices. Smartphone Research on Mobile Internet and Market Trends, a joint study conducted by Google and Ipsos, 2011.
The Westpac Group Advising on its IT&T transformation program
1
Qantas Advising on its current and future IT
Focus on the Asia Pacific region In an era of globalisation, we see Australia’s future on an international scale with inextricable links to the future of Asian nations. For many businesses involved in the technology sector, the Asian region is rightly seen as the growth frontier – synonymous with rapid technology adoption and seemingly endless opportunities, and largely unencumbered by legacy systems and processes. To speak of Asia as a homogenous entity is disingenuous – it is a region of great diversity. From a legal perspective, this adds a challenging, yet exciting dimension to cross-border, technology-related transactions. Each transaction must respond to unique internal governance requirements, market and social forces, and regulatory mandates. For more than 20 years Gilbert + Tobin has been a leader in technology law in the Asia Pacific region. We have advised on some of the region’s most complex and first-of-a-kind transactions. We ensure that our teams are capable of working in an integrated manner with client teams. We focus on the importance of cross-cultural sensitivities, adapting our processes and methodologies as necessary to fit with local requirements. Our experience absolutely confirms that one size does not fit all.
sourcing strategy
NSW Government Advising on its procurement of a new, multimodal smartcard ticketing system
Malayan Banking Berhad (Maybank) Advising on a banking technology transformation and systems integration project with IBM
NRMA (motoring) Advising Australia’s largest member-based organisation on its transformation program, including ERP initiatives
TELSTRA Advising on various commercial arrangements to support Telstra’s cloud service offering to customers
GTLAW.COM.AU
PAGE 13
Telecommunications Australia has embarked on a huge, unique experiment in its communications sector – a A$40+ billion bet on the future. NBN Co, wholly owned by the Australian Government, is deploying a fibre-to-the-premises (FTTP) network to 93% of Australian homes and offices – with high-speed wireless and satellite covering the rest of the National Broadband Network (NBN). Telstra has agreed – in return for A$11 billion in compensation and other value – to progressively decommission its copper network within the fibre footprint. This will leave Telstra as a service provider on the NBN just like its competitors (i.e. it will be structurally separated). NBN Co will be the de facto monopoly provider of network infrastructure and basic connectivity
Gilbert + Tobin acted as the lead competition and regulatory adviser to Telstra on the largest and most complex competition law restructure in Australian history. We assisted Telstra in obtaining approval for the Telstra Structural Separation Undertaking, which was required under the Australian Government’s NBN legislation. The complexity of these arrangements rivalled the break-up of AT&T and the British Telecom separation undertakings.
PAGE 14
Ken Saurajen Partner T +61 2 9263 4154 E ksaurajen@gtlaw.com.au
As the NBN is progressively rolled out, retail and wholesale customers will have 18 months to migrate from copper to fibre before their services are mandatorily disconnected. A temporary exception will apply to more complex services until NBN Co creates substitutes for them on the NBN fibre network. Focus on the applications layer With NBN Co as the de facto network monopoly,
We advised Telstra on:
Gilbert + Tobin advises Telstra
Michael Caplan Partner T +61 3 8656 3333 E mcaplan@gtlaw.com.au
services. The NBN project turns on its head the basic model of private sector investment and infrastructure competition on which telecommunications regulation has been based over the last 20 years.
• the legislative changes to the Telecommunications Act 1997 and Competition and Consumer Act 2010 • the universal service obligation regime and the introduction of a new Telecommunications Universal Service Agency to administer the universal service regime • greenfields estate network deployment • the structural separation undertaking to be given by Telstra to the ACCC
Moya Dodd Partner T +61 2 9263 4432 E mdodd@gtlaw.com.au
Peter Leonard Partner T +61 2 9263 4003 E pleonard@gtlaw.com.au
the focus of competition should shift to the applications layer. The advantage of FTTP over other broadband technologies, such as fibre-to-thenode or 4G wireless, is not just its greater bandwidth “but also the ‘fat pipe’ out of and into the home (upchannel)”. Countries with high fibre penetration have as much or more traffic in the up channel as the down channel. In other words, they have shifted from being fairly passive ‘downloaders’ to more active ‘uploaders’. This should encourage a new generation of rich applications with potential massmarket appeal – Australians just need to start inventing them.
• the statutory instruments that will regulate the migration of Telstra copper network customers to the NBN • the regulation of NBN Co more broadly, including through the National Broadband Network Companies Act 2011 • various funding arrangements between Telstra and the Australian Government to facilitate the transition to the NBN, including a A$100 million fund to re-train Telstra staff in fibre-related skills.
Bill Spain Partner T +61 2 9263 4009 E bspain@gtlaw.com.au
Peter Waters Partner T +61 2 9263 4233 E pwaters@gtlaw.com.au
Cameron Whittfield Partner T +61 3 8656 3311 E cwhittfield@gtlaw.com.au
Media, content and data Digital disruption is fundamentally transforming the media and content industries in Australia and the Asia Pacific region. The uptake of smart phones and tablets has created new platforms for content distribution and escalated the value of sport and other time-sensitive content. Repurposing of content across multiple platforms and the use of social media to promote media consumption have transformed traditional print and electronic media, advertising agencies and media-buying intermediaries. The disruption is accentuated by the entry of new players such as Google and FetchTV, data analytics providers such as Experian and Quantium. The integration of technology, data analytics, content distribution platforms, and smart phones and tablets has created new business models and driven novel business alliances, testing traditional concepts of competition policy, media ownership and control regulation, and telecommunications and content classification requirements. There is no doubt that these challenges will continue through waves of technological and business innovation, challenging business, governments and regulators alike. Some key themes which are emerging are listed below. New competition and structures In Australia, we are seeing the restructure of one of the country’s largest free-to-air broadcasters, the Nine Network, as the free-to-air TV industry adapts to increased competition brought about by the digital age. We have also witnessed numerous restructures and commercial alliances in the media and communications industry as
Gina Cass-Gottlieb Partner T +61 2 9263 4006 E gcass-gottlieb@gtlaw.com.au
Moya Dodd Partner T +61 2 9263 4432 E mdodd@gtlaw.com.au
companies seek ways to increase efficiencies and gain a competitive edge. For example, Gilbert + Tobin recently advised Maxis Communications (one of Malaysia’s largest mobile communications services providers) on a partnership with Astro (Malaysia’s largest pay-TV and content provider) to develop and co-market fixed and mobile broadband consumer packages. In this space, we work with specialist complementary firms that supplement our skills – including law, economics and management consultancy firms in Australia and internationally – to provide an integrated service, and practical communication of complex deals to national Asia Pacific regulators, including Australian regulators. This is essential for success in this industry. Convergence Watch your favourite television program or hire a movie, download a song, go shopping, read the paper, ‘check-in’ on social media – all on the same device. Technological convergence, brought about largely by the proliferation of high-speed internet, not only changes the way consumers use content but also how it is regulated. Governments around the world are looking at new ways to regulate the media, focusing particularly on ownership, content classification, content standards (including responsibility for user-generated content on media sites and use of social media associated with media sites) and use of customer data. Privacy and ‘big data’ Privacy is also never far from the headlines. Whether it is high-profile data breaches, consumer concerns about offshoring of personal information,
Kate Harrison Partner T +61 2 9263 4335 E kharrison@gtlaw.com.au
Peter Leonard Partner T +61 2 9263 4003 E pleonard@gtlaw.com.au
recent concerns about ‘big data’ and customer analytics, or moves to increase government surveillance powers, privacy is a legal and policy issue undoubtedly increasing in importance. We advise our clients on data cleansing, enhancement, sharing and management; address inadvertent collection and data breach notification; advise as to ‘good citizen’ compliance practices and procedures, including practical workplace solutions; and advise on privacy policies and statements.
Content deals Advising Home Box Office Inc (including with Apple), Time Warner, Turner Broadcasting, Nine Entertainment Co. and Sony Universal
Hometrack Joint venture with Residex Australia
MAXIS IPTV services and distribution arrangements in Malaysia
Google Content-related issues including copyright issues, privacy and data protection, access by law enforcement agencies, and limiting access to obscene and objectionable content
Sheila McGregor Partner T +61 2 9263 4152 E smcgregor@gtlaw.com.au
Ken Saurajen Partner T +61 2 9263 4154 E ksaurajen@gtlaw.com.au
GTLAW.COM.AU
PAGE 15
Energy + Resources As terms of trade in iron ore and coal return to more modest levels and LNG developments progress, a new range of challenges and opportunities are emerging for energy and resources companies in Australia. Iron ore During the last six months, we have seen a dramatic change in the market perception of the commodities market, with many commentators predicting that commodity prices have peaked as a consequence of falling demand from China. This assessment has been supported by a number of iconic capital projects being either deferred or abandoned.
We have also seen direct intervention by the Chinese National Development and Reform Commission (NDRC) in investments for which its approval is required. For example, the NDRC imposed conditions on its approval of Hanlong’s investment in Sundance Resources, requiring there to be a reasonable price agreed before it would give its approval.
During this period, the price of iron ore has dipped substantially. This has shocked the market not because of the dip itself, but rather the speed at which the dip occurred. At the time of writing in late 2012, the iron ore price has recovered somewhat, and is now at a level which a number of commentators feel is more sustainable than the previous highs.
Platinum Each of the other commodities has its own story; some track iron ore, while others have commodityspecific movements. In the case of platinum, the industry has been in upheaval due to the falling demand in the automotive and other industries, and particular industrial challenges in South Africa.
The story regarding iron ore is really the story of China. Although there is base demand out of Europe and Japan, the real pricing pressure that has driven the iron ore boom has been fuelled by Chinese demand. During the last 12 months, it appears that outbound investment from China has become more selective in its application. The Chinese authorities appear to be imposing more rigour on where money is invested, and as a consequence Chinese investors are undertaking a greater level of due diligence before making an investment and are seeking to have more influence over the investments that they make.
Julie Athanasoff Partner T +61 8 9413 8406 E jathanasoff@gtlaw.com.au PAGE 16
South African mines have suffered a tragic turn of events as a consequence of labour-force issues. The issues are complex and are closely tied to social and political issues and the conflict between two competing unions. As a consequence there has been a dramatic contraction in platinum production in South Africa, which is flowing into the production of other precious metals. Gold Gold has continued to be the mineral of choice, attracting high prices due to both demand and the lack of new production. Gold continues to be regarded as a haven for investors, despite
Michael Blakiston Partner T +61 8 9413 8401 E mblakiston@gtlaw.com.au
Claire Boyd Partner T +61 8 9413 8404 E cboyd@gtlaw.com.au
suggestions by commentators in years gone by that its value as a store of wealth had diminished. In Australia, the minerals industry has been under pressure due to rising labour costs, a very strong Australian dollar, and government action through the introduction of the carbon tax, the Minerals Resource Rent Tax (MRRT) and increased state royalties. The effect of these events was initially masked by high commodity prices, but as prices have fallen and the Australian dollar has strengthened, the impact has magnified. This has resulted in significant lay-offs, some mine closures, and the abandonment and shelving of major capital investments. Margins are being squeezed and Australia is now searching for ways to improve productivity to meet the challenges ahead. Oil and gas Shifts in the global economy and the oil and gas market are reshaping Australia’s petroleum industry. A growing focus on gas (both conventional and unconventional) and LNG, together with new and continuing investment in large integrated assets, reflects those changes. Although the Australian Government has indicated it will be reluctant to approve any new greenfield LNG projects, Australia remains on track to become the single largest exporter of LNG by 2020.
Anthony Burton Partner T +61 8 9413 8402 E aburton@gtlaw.com.au
Marcello Cardaci Partner T +61 8 9413 8403 E mcardaci@gtlaw.com.au
This year has seen a strong focus on upstream companies in the unconventional exploration and development space, particularly in the Cooper Basin, which stretches across South West Queensland and South Australia. LNG projects are feeling the effects of funding pressures, economic challenges resulting from the European debt crisis and, in some cases, resource constraints (particularly those on unconventional gas). New unconventional exploration and development activity is being slowed, or even stopped, by environmental and land-access concerns, particularly due to questions arising out of fracking.
and new producers whose projects have become
As with other parts of the resources sector, oil and gas projects are being constrained by the high cost of labour, materials and operations. These forces are expected to lead to consolidation in the juniorto mid-cap sector of the market, particularly among unconventional exploration and development companies, as well as divestitures by larger companies of some of their interests in existing LNG projects.
models to help solve overall capacity constraint issues,
Projects and infrastructure The commodities boom has had very significant impacts on the infrastructure sector in Australia. Not only has there been a need to significantly expand production infrastructure to support new or extended projects, there has been very considerable strain placed on distribution infrastructure as a result of the growth in production volumes.
efficiently among users.
In particular, port and rail infrastructure has had to cope with greatly increased demand both from existing producers that have expanded their volumes,
engaged in facilitating the development of access
Chris Flynn Partner T +61 2 9263 4321 E cflynn@gtlaw.com.au
viable as a result of the rise in commodity prices. Over the last decade, Australia has seen significant bottlenecks emerge at key export points as a result
Alinta ENERGY On strategic issues relating to its Newman power station facility
of the steep rise in demand from producers. At the Newcastle Port in New South Wales, these issues in the coal supply chain resulted in dramatic vessel queues for some years. Supply-chain bottlenecks required government intervention in some cases, including in Newcastle.
Exxaro Resources Advising on its A$388 million cash takeover bid for African Iron
In other cases, lack of capacity required the development of new ownership and operational and equitable capacity allocation among producers competing for capacity at distribution points.
Oakajee Port and Rail
As a result of government and producer initiatives, we have seen the emergence of sophisticated
Supply chain agreements with three iron ore producers in the mid-west of Western Australia
multiple-user access regimes in port and rail infrastructure. These regimes are designed to create incentives to expand capacity where Pluton Resources
demand exists, and to allocate that capacity
Acquisition of the Cockatoo Island iron ore
More still needs to be done to create efficient multiple-user access regimes in some areas. For
project from Leighton and Cliffs, and subsequent joint venture related to that project
example, access to rail and port capacity for mid-cap iron ore producers in Western Australia remains problematic and is a major barrier to the development of a range of projects.
Sundance Resources Negotiations with the governments of the Republic of Cameroon and the Republic of the Congo, on the
The Australian Government continues to be heavily regimes for new rail and port developments, which
development of a 35 million tonnes per annum iron ore project (includes rail and port facilities to support the mining of iron ore in both countries)
we hope will address these ongoing concerns.
Ben MacDonald Partner T +61 3 8656 3351 E bmacdonald@gtlaw.com.au
David Martino Partner T +61 8 9413 8407 E dmartino@gtlaw.com.au
Neil Pathak Partner T +61 3 8656 3344 E npathak@gtlaw.com.au
Bill Spain Partner T +61 2 9263 4009 E bspain@gtlaw.com.au GTLAW.COM.AU
PAGE 17
Competition + regulation Closer scrutiny of mergers is lengthening deal timetables. While Australia has one of the most robust economies in the developed world, competition is already regarded as concentrated in key sectors of the economy. As a result, negotiating the competition and antitrust clearance process for mergers and acquisitions can be more difficult than expected. Added to this, the Australian Competition and Consumer Commission (ACCC) under the leadership of its new Chairman, Rod Sims, is more closely scrutinising deals for potential competition implications. The average time taken for informal merger clearances has more than doubled since 2009. When formulating the commercial deal timetable, parties need to bear in mind that, although Australia does not have a formal notice regime for mergers and acquisitions, most deals are notified under an informal clearance process. In complex cases involving substantial information requests, the ACCC will generally use its compulsory information-gathering powers. The ACCC will use
these powers to look behind the public explanation of a merger or acquisition to see if whether there are rationales or predictions of outcomes, for example in advisers’ reports – which give rise to competition concerns. Where Statements of Issues are published by the ACCC they appear to be lengthier, cover more issues and are more focused. The ACCC will likely need more time to consider responses to the issues raised but the introduction of pre-assessments also means that some transactions that have a low risk of resulting in a substantial lessening of competition may be cleared without public review. Metcash judgment provides greater predictability of merger decisions The Full Court of the Federal Court of Australia rejected the ACCC’s efforts to block Metcash’s acquisition of another supermarket chain, Franklins. Deal makers will welcome the implications of this decision. The Metcash decision reinforces the
Air cargo cartel Defending Thai Airways and Malaysian Airlines in the ACCC’s air cargo cartel proceedings
ACCC’s accountability in the merger review process. The court also required the ACCC’s analysis to be grounded in commercial realities and not abstract hypothesis of what might happen as a result of the merger. The downside is that this may mean that in more contentious cases, the ACCC will take longer to gather the relevant facts and evidence. ACCC enforcement priorities In mid-2012, ACCC Chairman Rod Sims identified and indicated that the ACCC will focus on the following sectors: telecommunications, energy, retail petrol, supermarkets and liquor, digital and online economy, banking and small retail acquisitions. The ACCC also highlighted its increased cooperation with competition agencies in other jurisdictions (particularly within the Asia Pacific region). This can be expected in closer alignment of enforcement priorities, particularly in relation to cartel activities.
Virgin Australia
TELSTRA As a 50% owner of FOXTEL on the FOXTEL bid for AUSTAR
All strategic joint venture alliances, Virgin’s restructure, and airport regulatory matters
Elizabeth Avery Partner T +61 2 9263 4362 E eavery@gtlaw.com.au
Gina Cass-Gottlieb Partner T +61 2 9263 4006 E gcass-gottlieb@gtlaw.com.au
Catherine Dermody Partner T +61 3 8656 3320 E cdermody@gtlaw.com.au
Moya Dodd Partner T +61 2 9263 4432 E mdodd@gtlaw.com.au
Rani John Partner T +61 2 9263 4348 E rjohn@gtlaw.com.au
Simon Snow Partner T +61 2 9263 4246 E ssnow@gtlaw.com.au
Peter Waters Partner T +61 2 9263 4233 E pwaters@gtlaw.com.au
Luke Woodward Partner T +61 2 9263 4014 E lwoodward@gtlaw.com.au
PAGE 18
Synthes On its merger with Johnson & Johnson US$21.3 billion
Paula Gilardoni Partner T +61 2 9263 4187 E pgilardoni@gtlaw.com.au
Litigation The Australian litigation landscape is changing to embrace more efficient and globally accepted practices. Focus on efficient case management
Securities class action filings have increased steadily,
There is an increased emphasis by Australian courts
with a record number of cases filed. This trend is
on running cases more efficiently in order to avoid
likely to continue as a result of changes which make
the costly mega-litigation seen in the past and
class actions more attractive, both to plaintiff firms
reduce court time. Proposed changes to Federal
and litigation funders.
Court proceedings include a ‘fast-track’ system and compulsory pre-litigation requirements for parties to take reasonable steps to try to resolve their disputes before commencing court action.
Greater powers being given to Australia’s The Australian Securities and Investments Commission (ASIC) has been given greater powers beyond its initial scope of regulating securities, in light
Consistent with many other juristictions, we are
of 11 insider trading convictions since January 2009.
seeing a heightened propensity for the key
ASIC also takes on the enormous role of regulating
regulators of the corporate sector to launch
all forms of consumer credit nationally.
that has had mixed success recently, but the approach is certainly clear.
AdWords sponsored links system
securities regulator
Regulatory action
investigations and court proceedings. It is a strategy
Google Defence of legal action by the ACCC regarding the
Betfair Successful constitutional challenge to Western Australian legislation prohibiting use of betting exchanges
RiverCity Motorway Group Class action by investors in relation to forecast volumes
International large-scale arbitration opportunities
of traffic in respect of the major infrastructure project,
Law reform at the state and federal level has seen an
the CLEM7 tunnel project in Brisbane
increase in the number of international arbitrations
Increase in shareholder class actions
being heard in Australia. Reforms include increased
The emergence of litigation funders is a relatively
powers to arbitrators, and coordination between
new phenomenon in Australia. An increase in
the courts and arbitrators to make the arbitration
BlueScope Steel
funders and plaintiff law firms has given rise to more
process more attractive to litigators. This has given
Coal contracting disputes with Xstrata
aggressive class actions in the wake of several
businesses a cost-effective and efficient alternative
high-profile corporate collapses in Australia.
to litigation that reflects international best practices.
Dianne Banks Partner T +61 2 9263 4041 E dbanks@gtlaw.com.au
Tim Castle Partner T +61 2 9263 4062 E tcastle@gtlaw.com.au
Emanuel Confos Partner T +61 2 9263 4059 E econfos@gtlaw.com.au
Andrew Floro Partner T +61 2 9263 4436 E afloro@gtlaw.com.au
Mark Gerus Partner T +61 8 9413 8405 E mgerus@gtlaw.com.au
Kate Harrison Partner T +61 2 9263 4335 E kharrison@gtlaw.com.au
Rani John Partner T +61 2 9263 4348 E rjohn@gtlaw.com.au
Tim O’Leary Partner T +61 8 9413 8408 E to’leary@gtlaw.com.au
Colleen Platford Partner T +61 2 9263 4026 E cplatford@gtlaw.com.au
Michael Williams Partner T +61 2 9263 4271 E mwilliams@gtlaw.com.au
Steven Glass Partner T +61 2 9263 4010 E sglass@gtlaw.com.au
GTLAW.COM.AU
PAGE 19
Intellectual Property Australia remains a key battle ground in the global protection of intellectual property. Australia continues to be an important market for intellectual property (IP) law. Increasing globalisation has seen a rise in foreign IP owners entering the Australian market, which has resulted in an increase in international companies enforcing their IP rights in Australia. We are seeing the following emerging IP developments. Online Peer-to-Peer (P2P) infringement This law is set to be reviewed following the decision of the High Court of Australia in Roadshow v iiNet. The government is considering whether to amend the copyright legislation in order to address the issue of P2P infringement and to plug the gaps that the decision has left in the copyright regime. Australian Law Reform Commission (ALRC) inquiry The ALRC has initiated an inquiry into copyright exceptions for certain online activities in the first such inquiry into digital copyright issues for a number of years, and is likely to prove to be the most critical investigation of the appropriate limits of copyright in the internet age.
The IP jurisdiction of the Federal Magistrate’s Court will expand from April 2013, to include civil trade mark infringements and design right infringements, together with the added remedy of awarding additional damages for trade mark infringement (previously only available in copyright cases). National Business Name Registration System The National Business Names Registration System commenced on 28 May 2012. Business names will be registered through ASIC and will cover the whole of Australia under a single registration, avoiding the very cumbersome state-by-state regimes that previously had to be navigated. Top-level domain names Businesses can now register for generic top-level domain names covering brands, places or generic words or characters (for example .coke, .sydney, .shop). There have been a number of applications by Australian companies and we are monitoring the registration process.
Raising the Bar Act The Raising the Bar Act will take effect in April 2013, to bring Australia’s patent laws more into line with those of other jurisdictions in one of the most important reforms of Australian patent laws for a decade, including the limits of patentability assessed by reference to international disclosures.
Kate Harrison Partner T +61 2 9263 4335 E kharrison@gtlaw.com.au PAGE 20
Lisa Lennon Partner T +61 2 9263 4190 E llennon@gtlaw.com.au
Samsung v LG On its challenge to the marketing campaign by LG, relating to LG’s 3D TVs in Australia
Roadshow v iiNet Advising the major international film studios in their claim against iiNet over copyright infringement on its network
Energizer v Gillette Advising Energizer in defence of its marketing campaign for the Schick razor brand, in false advertising proceedings in the Federal Court initiated by Gillette
Google In connection with the misuse of Google’s brands by online traders and businesses
Siabon Seet Partner T +61 2 9263 4232 E sseet@gtlaw.com.au
Michael Williams Partner T +61 2 9263 4271 E mwilliams@gtlaw.com.au
Chris Williams Special Counsel T +61 2 9263 4013 E cwilliams@gtlaw.com.au
Real Estate, Projects + environment Opportunities return and emerge. Foreign funds target Australia Australia is currently an attractive destination for foreign institutional and private investors in the property sector, particularly those from America, Europe and Asia. Despite the high Australian dollar, Australian real estate is appealing to offshore investors for various reasons including its commodity-orientated export economy, high level of transparency and long-term lease structures. From an occupier-demand point of view, the market is pointing to a likely upward movement in rents. Indeed, with local investment constrained by cautious banks and high Australian base rates, local buyers have found it difficult to compete with deep-pocketed foreign investors. Most investors are interested in prime office assets rather than retail properties, which have performed poorly in an environment of slowing consumer demand. Foreign demand for rural property has caused the Australian Government to keep foreign ownership restrictions under review. Commercial, industrial and retail property industry The past year has seen a structural shift in commercial, industrial and retail property, brought on by changes within the economy, particularly in the retail sector. Global shopping chains are competing for the chance to enter the Australian market, with up to 10 international retailers opening new stores in the past 18 months. They have been aided by new retail developments such as Westfield Sydney, which have provided the necessary flagship
spaces. There has also been strong interest in prime regional shopping centre assets from institutional investors in Australia and overseas, with demand continuing to exceed supply. Renewable energy projects Environmental regulatory changes are increasing There is an increasing appetite for both State and Federal Government to introduce complex legislation, mechanisms and policies to regulate industry sectors that have the potential to impact the environment. As a result, the environmental risks (as well as opportunities) for businesses looking to operate in Australia is on the rise. We also see a renewed vigour by regulators to investigate and enforce compliance with environmental laws. This has typically been the result of increased public interest, media awareness and political sensitivity associated with environmental issues such as contaminated land, mining impacts and pollution incidents. Greater numbers of clean energy projects are coming to market as a result of regulatory changes and the introduction of the carbon tax and offset schemes in Australia and require debt finance. Other policies such as the carbon farming initiative, together with significant investment by the Australian Government in clean technology programs, provide flexibility for liable entities and clean energy developers to facilitate Australia’s transition to a low-carbon future.
Telstra On its exit from a national joint venture with Vodafone Hutchison involving over 2,000 sites
New South Wales Government On the property and environmental aspects to the privatisation of WSN Environmental Solutions
Digital Realty Datafirm On the construction and leasing of data centres
DFO Canberra Advising receivers and managers on the due diligence and proposed sale of DFO Canberra and Homemaker Hub
Top Ryde City Sydney Advising receivers and managers on the due diligence and proposed sale of the Top Ryde City
Pacific Equity Partners On property and environmental issues in connection with the acquisition of Spotless Group
Remondis Amanda Hempel Partner T +61 2 9263 4017 E ahempel@gtlaw.com.au
Diane Skapinker Partner T +61 2 9263 4297 E dskapinker@gtlaw.com.au
Ben Fuller Special Counsel T +61 2 9263 4171 E bfuller@gtlaw.com.au
Environmental aspects of the acquisition of the waste management division of Thiess Services
GTLAW.COM.AU
PAGE 21
Transactional Tax With tax collections in Australia being affected by continuing global economic instability, the Australian Government is seeking to protect and grow its existing revenue base in a number of ways. With effect from 1 July 2012, the Government has introduced its Minerals Resource Rent Tax (MRRT) and extended the scope of the Petroleum Resource Rent Tax (PRRT). However, the expected windfall from these taxes is very much dependent on commodity prices and the actions of state governments in increasing the level of state-based royalties (thereby reducing the Australian Government’s share of the MRRT). A source of uncertainty for tax advisers and taxpayers alike has also been the increasing trend towards retrospective legislation. Examples include: • recent changes to the PRRT legislation effective from 1 July 1990 • changes to transfer pricing legislation backdated to 1 July 2004 • announced changes to the general antiavoidance rules effective from March 2012, even though the specific amendments have not yet been tabled for broad public comment. The increase in the MIT taxation rate from 7.5% to 15% has also been met with concern and frustration by foreign property fund investors, and represents another challenge for property fund managers in an already difficult market.
Hanh Chau Partner T +61 2 9263 4027 E hchau@gtlaw.com.au PAGE 22
Peter Feros Partner T +61 2 9263 4163 E pferos@gtlaw.com.au
Restructuring issues As noted in earlier sections, ‘loan-to-own’ and debt for equity swaps are becoming more prevalent in the Australian market. Paradoxically, in these transactions we are seeing the risk of capital gains or other tax liability arising in the absence of economic gain where the restructure involves material debt forgiveness. Care required! Stamp duty Another tax which should be considered in the structuring phase of a transaction is stamp duty. Each Australian jurisdiction has its own stamp duty legislation and administration despite attempts to harmonise the legislation and administration across the jurisdictions over many years. Since the amount of stamp duty payable on a transaction can be significant, it is important to factor the duty into the cost of the transaction. Over the last few years, the stamp duty revenue authorities have sought to increase their duty revenue by expanding the duty base – for example, in some cases wholesale replacement of the ‘land rich’ duty provisions to increase its attractiveness in respect of share dealings, and an increase of the top marginal transfer duty rates.
Pacific Equity Partners On the income tax consequences of aspects of its bid for Spotless Group
Credit Suisse On tax aspects of the restructor of secured debt facilities A$5 billion
Community
In 2011, Gilbert + Tobin provided over 14,000 hours of pro bono work, an average of around 54 hours per lawyer. This is well in excess of the aspirational target of 35 hours set by the National Pro Bono Resource Centre, the leading consulting body to the Australian legal profession on pro bono services. The value of this work is conservatively estimated at A$6.46 million.
Pro bono We believe that as lawyers, we are in every sense the housekeepers of our legal system. It is our responsibility to ensure that the system is just and equitable, and that everyone in our society has access to justice. Pro bono work is a vital part of what we do and who we are. We were the first Australian law firm to appoint a full-time in-house pro bono lawyer. We now have one partner and three lawyers dedicated entirely to pro bono work and management of our Pro Bono practice. Lawyers and partners across the firm also undertake pro bono work. In 2011 Gilbert + Tobin: • advised on 343 pro bono matters for 102 individuals and 241 community organisations • had 80% of our lawyers and partners provide pro bono advice • provided almost A$6.5 million worth of pro bono services. We are committed to assisting marginalised and disadvantaged people, either individually or through organisations that work to empower or assist them. We have a particular focus on
Indigenous clients, people with disabilities, refugees and human rights issues.
increasing the number of Aboriginal and Torres Strait Islander staff in our firm through targeted programs.
We undertake a broad variety of pro bono work, including test case and public interest litigation, corporate and commercial advice and assistance, submissions, policy work and community legal education. We treat the interests of our pro bono clients in the same innovative, industrious and diligent fashion as our commercial clients.
Sustainability Finally, we have sustainability policies and programs, which set targets to reduce our environmental footprint each year and provide sustainable business and employment practices.
Corporate social responsibility In addition to our lawyers using their specialist skills to serve our pro bono clients, they are encouraged to branch into other areas of law in order to service our clients’ other needs. This includes refugee law, human rights and discrimination law, victims’ compensation and assisting victims of predatory lending schemes. As a firm with sustainable business practices embedded in its DNA, we will remain a firm which empowers employees to make a difference and values contributions at all levels. Over the years our staff have engaged in numerous projects supporting disadvantaged groups. We are currently working on projects with teenagers from refugee backgrounds and people who are homeless or at risk of homelessness. Reconciliation Action Plan Our commitment to corporate social responsibility (CSR) is reflected through our Reconciliation Action Plan (RAP), our community projects and our sustainability programs. Through our RAP, we have consolidated our commitment to not only working with and supporting Aboriginal and Torres Strait Islander people as clients but as suppliers to our business, and
Third Sector Advisory Gilbert + Tobin’s commitment to the disadvantaged and the vulnerable is demonstrated through our long history of supporting the community sector through our corporate social responsibility initiatives and through the provision of pro bono legal services. We have recently launched our Third Sector Advisory Group to provide legal services to charities, not-for-profit and philanthropic organisations. We provide specialist legal advice on charitable fundraising regulation, tax concessions, raffles, charitable trusts and structures, and community gaming. We also serve and advise corporates and their foundations, families and individuals and a cross section of the diverse third sector including organisations committed to community welfare, health, Indigenous Australians, arts and culture, sport, overseas aid, environment, industry, education and religion.
Michelle Hannon Partner T +61 2 9263 4110 E mhannon@gtlaw.com.au GTLAW.COM.AU
PAGE 23
Gilbert + Tobin publications 2012
GILBERT + TOBIN
DOING BUSINESS IN AUSTRALIA SYDNEY
SYDNEY
MELBOURNE
MELBOURNE
P E RT H
P E RT H
Doing Business in Australia Doing business in Australia answers some of the most common questions an overseas investor may ask when establishing a business presence in Australia http://www.gtlaw.com.au/publications/ doing-business-in-australia/
Antitrust Asia This site contains a repository of information about the competition laws of 20 Asia-Pacific jurisdictions http://antitrustasia.com/
M&A Perspectives To register for exclusive M&A updates from Gilbert + Tobin register at http://www.gtlaw.com.au/subscribe/
PAGE 24
Gilbert + Tobin facts About Gilbert + Tobin + Independent, top-tier Australian law firm + Established in 1988 + Employs 500+ people + Offices in Sydney, Melbourne and Perth + Highest proportion of female partners (38%) of any major Australian law firm
2012 Euromoney Legal Media Group Australasia Women in Business Law Awards Gilbert + Tobin won four awards including Best Australasian Firm for Women in Business Law and Most Innovative Law Firm. 2011 International Law Office Client Choice Awards Gilbert + Tobin won Best Australian Law Firm for the second consecutive year.
+ Pioneer in the provision of pro bono services Practice areas + Banking + Finance + Corporate Advisory (Funds, Mergers + Acquisitions, Private Equity, Capital Markets, Tax and Stamp Duty)
Connect with us TWITTER twitter.com/gtlaw
+ Communications + Technology + Competition + Regulation + Energy + Resources
LINKED IN linkedin.com/OXExAo
+ Intellectual Property + Media + Litigation + Dispute Resolution + Real Estate + Projects + Restructuring + Insolvency Industry recognition 2012 Best Lawyers Australia Eighteen Gilbert + Tobin partners were recognised as leaders in their field across 18 areas of law. Chambers Global, 2012 Twenty-eight of our partners were recognised as industry leaders across 20 areas of law including corporate advisory, banking and finance and projects. 2012 ALB Australasian Law Awards Gilbert + Tobin won two awards, including the Innovative Use of Technology Award for the second consecutive year.
YOU TUBE bit.ly/SljMPR
Sydney
Melbourne
Perth
Level 37 2 Park Street Sydney NSW 2000 Australia T +61 2 9263 4000 F +61 2 9263 4111
Level 22 101 Collins Street Melbourne VIC 3000 Australia T +61 3 8656 3300
1202 Hay Street West Perth WA 6005 Australia
F +61 3 8656 3400
T +61 8 9413 8400 F +61 8 9413 8444