Pitfalls with unexpected offers to buy your shares - Australian Securities and Investments Commission

Unexpected offers to buy your shares

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Have you received an unexpected letter offering to buy some of your shares? You should be aware of some pitfalls you may face when considering such an offer.

Although it is not illegal to make an unsolicited offer to buy someone’s shares, it is against the law to mislead or deceive shareholders into accepting an offer. Also, the offer must comply with strict legal requirements, including the prohibition against misleading or deceptive or unconscionable conduct.

The Government introduced regulations from 8 April 2003 governing these types of off-market offers that give you more protection. Under the regulations a person who makes an unsolicited offer to buy your shares off market for a certain price must give you:

a written statement setting out the market value of those shares on the day the offer is made; and
a minimum of one month in which to accept the offer.

A failure to disclose the market price attracts a fine of $22,000 or two years' jail for each breach for individuals and a maximum fine of $110,000 for companies.

We've received complaints that some Australian companies have offered to buy shares from small shareholders in public companies by issuing hundreds, and sometimes thousands, of unsolicited offers by mass mail-out.

Often these unsolicited offers came at a price below the current market price. Under the regulations, these offers have to tell you the current market value of your shares. This means that you will be able to judge the value of the offer for yourself.

We have found that inexperienced or elderly shareholders, or those under immediate financial pressure, are most at risk of signing away their shares without carefully reading the offer and taking the time to make a few important safety checks

Seven safety checks to protect yourself

1. Who is making the offer?
Read the offer carefully to see exactly who is making it. Some offers have used official looking letterhead, or names that sound like your company or a stock exchange, and may be sent at the same time as a company’s own letters to shareholders. If you’re not sure, phone your company’s investor relations department to double check. You can also check the company's details through our National Names Index

2. Why is the offer being made?
Naturally, the company or person offering to buy wants to make money. Perhaps there is public information about something that is expected to happen to your shares that you may not know about. For shares traded on the Australian Stock Exchange (ASX), check company announcements on the ASX website www.asx.com.au, or talk to a stockbroker in case you have lost touch with important news that's been released to the market.

3. Do you really need to sell?
Unless you really need the money now, you may do better by holding on. Consider what the shares are worth now, what they may be worth in the future, what dividends they may pay you, and so on. If you do need the money, consider all of your options. The Corporations Act sets time periods in which an offer once made, cannot be withdrawn – use this time wisely.

4. What's the market price for your shares?
Get an up to date market price for your shares and compare it with the price being offered. Market prices can change daily, so check the most recent price for your shares on exchange websites, daily newspapers or a quick phone call to a stockbroker. While any offer you receive must quote the current market value it may be out of date.

If you hold shares that are not sold on the ASX or any other exchange (known as unquoted shares), the offerer needs to state the fair market value in the offer document. You will then need to make a personal judgment about what they are really worth. As a shareholder, you are entitled to talk to the company you own the shares in about its plans, including possible listing on an exchange. Maybe other shareholders in your company would like to buy directly from you?

5. How much is the offer really worth?
Watch out for two types of ‘low-ball’ offers. The first type offers significantly less than the share’s market value. The second type offers to pay you by instalments spread over many years. With this offer, even if the total offer price is higher than the present market value, the many years you may have to wait for all your instalments means you usually get far less than selling on the market.

6. Compare the cost of selling on the market
Even if you hold only a very few shares, you can still sell through a stockbroker. Non-advisory brokers will sell the shares for about $55-65 over the phone, or about $30-45 over the Internet. You will need to open an account, although this is pretty straightforward. The ASX will give you their names.

Read the offer to see if you must pay any fees or charges. Work out in dollars what you would get after deducting all fees and charges, and compare that figure with selling on market.

When could a 'below market' offer make sense?
There are really only a few situations, for example:

You have compared all costs carefully and you will end up with more cash if you accept the offer.
You need to sell now, and your quoted shares have been suspended from trading or you hold unquoted shares that no other shareholders want to buy.

7. Be careful – consider getting advice
Anyone making an unsolicited offer to purchase your shares cannot possibly know your financial circumstances, and therefore cannot give you financial advice. Further, you may face immediate taxation consequences if you accept an offer payable in instalments over time. Consider getting independent advice from a licensed financial adviser or stockbroker before agreeing to sell your shares. Once you accept an offer and enter into a binding contract to sell shares, you may not be able to change your mind later.

To report an unsolicited offer which you believe is misleading or deceptive, or is otherwise against the law, you may lodge a complaint via our website at www.fido.gov.au or by writing to any of our capital city offices across Australia:

Manager
National Assessment & Action
ASIC
GPO Box 9827
IN YOUR CAPITAL CITY

More information

ASX website www.asx.com.au

FIDO Website: Printed 08/21/2008

1.	Who is making the offer? Read the offer carefully to see exactly who is making it. Some offers have used official looking letterhead, or names that sound like your company or a stock exchange, and may be sent at the same time as a company’s own letters to shareholders. If you’re not sure, phone your company’s investor relations department to double check. You can also check the company's details through our National Names Index
2.	Why is the offer being made? Naturally, the company or person offering to buy wants to make money. Perhaps there is public information about something that is expected to happen to your shares that you may not know about. For shares traded on the Australian Stock Exchange (ASX), check company announcements on the ASX website www.asx.com.au, or talk to a stockbroker in case you have lost touch with important news that's been released to the market.
3.	Do you really need to sell? Unless you really need the money now, you may do better by holding on. Consider what the shares are worth now, what they may be worth in the future, what dividends they may pay you, and so on. If you do need the money, consider all of your options. The Corporations Act sets time periods in which an offer once made, cannot be withdrawn – use this time wisely.
4.	What's the market price for your shares? Get an up to date market price for your shares and compare it with the price being offered. Market prices can change daily, so check the most recent price for your shares on exchange websites, daily newspapers or a quick phone call to a stockbroker. While any offer you receive must quote the current market value it may be out of date. If you hold shares that are not sold on the ASX or any other exchange (known as unquoted shares), the offerer needs to state the fair market value in the offer document. You will then need to make a personal judgment about what they are really worth. As a shareholder, you are entitled to talk to the company you own the shares in about its plans, including possible listing on an exchange. Maybe other shareholders in your company would like to buy directly from you?
5.	How much is the offer really worth? Watch out for two types of ‘low-ball’ offers. The first type offers significantly less than the share’s market value. The second type offers to pay you by instalments spread over many years. With this offer, even if the total offer price is higher than the present market value, the many years you may have to wait for all your instalments means you usually get far less than selling on the market.
6.	Compare the cost of selling on the market Even if you hold only a very few shares, you can still sell through a stockbroker. Non-advisory brokers will sell the shares for about $55-65 over the phone, or about $30-45 over the Internet. You will need to open an account, although this is pretty straightforward. The ASX will give you their names. Read the offer to see if you must pay any fees or charges. Work out in dollars what you would get after deducting all fees and charges, and compare that figure with selling on market. When could a 'below market' offer make sense? There are really only a few situations, for example: You have compared all costs carefully and you will end up with more cash if you accept the offer. You need to sell now, and your quoted shares have been suspended from trading or you hold unquoted shares that no other shareholders want to buy.
7.	Be careful – consider getting advice Anyone making an unsolicited offer to purchase your shares cannot possibly know your financial circumstances, and therefore cannot give you financial advice. Further, you may face immediate taxation consequences if you accept an offer payable in instalments over time. Consider getting independent advice from a licensed financial adviser or stockbroker before agreeing to sell your shares. Once you accept an offer and enter into a binding contract to sell shares, you may not be able to change your mind later.