Rights issue - when is more control too much control?

When looking to raise capital, ASX listed companies will often consider undertaking a capital raising from their shareholders through a rights issue. One of the key issues for companies to consider is where as a result of the rights issue a major shareholder either gains or increases its control of the company.

In this Alert, Senior Associate Lea Fua briefly looks at two recent Takeovers Panel (Panel) applications involving the affairs of:

• Yancoal Australia Limited – the Panel declared there were unacceptable circumstances involving a rights issue where the major shareholder could increase its shareholding from 78 percent to 98.8 percent constitute; and
• Wollongong Coal Limited – the Panel declined to conduct proceedings in respect of a rights issue that could result in a major shareholder increasing its shareholding from 74.39 percent to 84.99 percent.