Cash Settled Equity Swaps in Takeovers

While the use of cash settled equity swaps is an established part of the Australian securities market, their use in recent high profile takeovers in Australia has attracted much attention. In particular, this attention has focused on the use of swaps by bidders or potential bidders in target companies without disclosure.

Examples of cash settled equity swaps in recent takeovers include:

• BHP Billiton in its successful takeover of WMC Resources. BHP held cash settled equity swaps over 4.3 per cent of WMC. These were disclosed by BHP in its bidder’s statement at the outset of its bid.

• The recent takeover bid by Cleveland-Cliffs for Portman Mining, where Seneca (a US hedge fund) was reported to at one stage have held over nine per cent of Portman Mining (for practical purposes enough to block compulsory acquisition).