CHAIR—Welcome. Mr Morris, have you given evidence before parliamentary committees before?

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Mr Morris—I have.

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CHAIR—I therefore do not need to go through the normal commentary about parliamentary privilege et cetera. Do you have an opening statement you wish to make?

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Mr Morris—Yes. The Takeovers Panel has published a guidance note numbered 19 on insider participation in control transactions. The genesis of that document was that, at the start of 2006, the panel looked at the issue of private equity and saw that it was an increasing phenomenon in Australia. We felt we probably ought to have a look at it to see whether there were any implications for takeovers in Australia, or at least the takeovers process in Australia.

The panel formed a subcommittee and invited some outsiders to make sure we had a range of views. Fairly quickly the subcommittee came to the view that the issues in relation to takeovers that private equity raised were in fact issues that are seen in a lot of other buyer types, and the panel decided that there was not a lot, in particular in relation to private equity, that it wanted to say. It considered that there were a number of aspects of takeovers that private equity threw up into somewhat higher relief and that it was sensible and appropriate to give the market some guidance on the sorts of issues that were probably a bit more common in private equity but which in fact can arise in takeover bids from almost any bidder type. So we submitted the guidance note to this committee as, in essence, the primary submission we had to make.

Senator JOYCE—Mr Morris, if I were able to convince somebody overseas to lend me $11 billion, even though I did not have a feather to fly with, and I decided that I would buy Qantas, would that concern you at all?

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CHAIR—Senator, that is a very large and broad brush.

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Senator JOYCE—I am trying to paint a picture for Hansard so that the people watching this do not fall asleep.

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Senator WONG—Are you suggesting I am putting everyone to sleep?

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Senator JOYCE—No. I am suggesting you are putting some of them to sleep, not all of them.

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Senator WONG—Outrageous!

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Senator JOYCE—Is the level of debt ever taken into consideration by the Takeovers Panel? Is it considered that you can have excessive debt that puts unnecessary strain on the business structure and that, therefore, if the deal falls over, you are putting at risk a vital component of the nation’s infrastructure?

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Mr Morris—Is the panel’s concern about vital infrastructure? No. That is just not our role and responsibility. We would be concerned about making sure that in fact you did have the $11 billion so that if shareholders accepted your offer they would get paid. The panel’s second concern would be that, if some of those shareholders were going to remain in the company when you were running it, they had adequate disclosure of the sort of leverage that you had taken on and the risks for them in staying as shareholders if you became a controller of their company. The panel’s concern is the takeovers process. Our concern is an efficient, competitive and informed market. Our concern is information to target shareholders. Our concerns would be that the people who accepted were going to get paid and that the people who did not accept or were thinking of not accepting were aware of the level of gearing and what the consequences for them as future shareholders might be.

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Senator JOYCE—So leverage is not the issue. The issue is: if you have a reliable term of credit then that is all that really matters and it goes on from there.

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Mr Morris—In terms of payment and gearing, shareholders who stay in need to understand what the level of gearing is and what the risks are.

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Senator JOYCE—I am going to go through two things that you have just brought up: adequate disclosure and an efficient, competitive and informed market. Do you believe at a period of takeover that people who hold the position of director inherently have a greater access to disclosure and have a far more informed position on the market than the shareholder and therefore have a conflict of interest if they are a participant in the process because of the ultimate superiority of their knowledge of what is going on?

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Mr Morris—Clearly, the target directors will have better information on the company than their shareholders; they are privy to all sorts of non-public information which, for various reasons, is not made public. You would have to assume that that is in compliance with their continuous disclosure obligations. When it comes to takeover, there is an obligation on the target directors to put into the target statement all material information. The problem with a target statement is that, if you publish a 1,000-page target statement, who is going to read it? The problem for directors in those circumstances is always what they leave out while still making it informative for their shareholders.

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Senator JOYCE—Do you think that inherently there is always a suspicion when someone says, ‘This is a great offer for you to take, but I’m staying in’?

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Mr Morris—I would always wonder why someone was staying in and recommending that I get out. It would be appropriate for the directors to explain why they were staying in.

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Senator JOYCE—With the Takeovers Panel work, is there a comparative analysis with your colleagues who do similar work in New Zealand or the US? Do you ever cross-reference with them and find out the issues they take into account, the issues we take into account and whether there is uniformity of culture—that we are not missing anything or maybe they are not missing anything?

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Mr Morris—New Zealand is a good case. A member of the New Zealand Takeovers Panel, who is a member of our panel, was in Sydney on Monday at one of our roundtable conferences between panel members. The SEC in the US is a difficult comparison. They have such a different regime. We talk with the SEC. In Melbourne in 2002 we started off the first conference of takeover regulators that had ever been run. The SEC attended that. We talk to the SEC on a regular basis. We talk to the London panel on a regular basis. London’s regime, in many ways, is probably closer to our regime. Australia has a unique regime; nobody else runs quite the same thing. Nobody else quite runs the front-line regulator ASIC as well as the Takeovers Panel. We talk with the US, London and New Zealand. Hong Kong talks to us from time to time.

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Senator JOYCE—Do any of those countries take into account the level of debt in a takeover or do they just take into account whether your debt is valid? You say that in Australia we say: ‘We don’t care how much debt you have got, as long as it is bona fide. The business is yours.’ Is it the case that other countries say: ‘We do take into account how much debt you have. If you are overgeared we have serious concerns about whether this will work in the long term’?

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Mr Morris—If you are talking about takeovers regulators, I think that we are consistent with the rest of the world. There will be other parts of government in all of those different jurisdictions who have exactly the concern and thinking that you are talking abou