FIRB becomes a new defence in hostile takeovers


John Kehoe

The federal government’s tighter screening of foreign investment is being used by takeover targets as a regulatory shield to defend against hostile acquisitions and is deterring activist investors.

One recent example was the under-siege Cromwell Property Group filing concerns with the Foreign Investment Review Board about Singapore’s ARA Asset Management and the wealthy Tang family increasing their stakes in the Brisbane-based property fund manager, market sources said.

Trying to stop ARA from appointing board directors, Cromwell took the unusual step of proactively contacting the FIRB several times to claim that the Tang family had close connections with China and reminded the regulator that ARA needed renewed FIRB approval.

It also privately argued that ARA and the Tangs could be a national security consideration for the FIRB, because Cromwell was the landlord of sensitive buildings in Canberra leased to federal government agencies, including Defence, the Bureau of Meteorology, the Therapeutic Goods Administration and the Department of Social Services.

Ultimately the FIRB did not block ARA from increasing its stake by 3 per cent to more than 27 per cent and the Tang Group from raising its shareholding by 3 per cent to 16.6 per cent, which enabled the major shareholders to appoint Gary Weiss and Joe Gersh to the Cromwell board.

Under temporary COVID-19 changes introduced by Treasurer Josh Frydenberg in March, all mergers and acquisitions, equity capital raisings and commercial property leases beyond five years with a foreign investor require approval from the FIRB and the Treasurer.

Previously, the general threshold for FIRB scrutiny was $275 million, or $1.2 billion for free-trade agreement partner countries in non-sensitive businesses.

FIRB’s processing deadline for deals has blown out from 30 days to up to six months.

King & Wood Malleson’s local head of public mergers & acquisitions, David Friedlander, said that in a hostile deal, a target would always look to regulatory approvals to create leverage or a complete defence.

Above the thresholds

“The reduction in FIRB dollar thresholds does not impact offshore bidders significantly because most offshore deals were already above the thresholds,” he said.

“The impact lies in the ability to build a pre-bid stake and in the time periods that have blown out.

“In a bid that is demonstrably accretive, the market won’t let a board block based on FIRB issues. But the time period changes do give a board leverage.”

More broadly, merger and acquisition advisers say the crackdown and screening delays are deterring some hostile takeover offers in Australia, particularly from private equity funds, which usually require full access to a company’s books to conduct due diligence.

The new FIRB requirements and delays were also making it more challenging for activist investors and existing shareholders seeking to increase their stakes and push for change, corporate advisers said.

“This current environment has had a big impact on major shareholders seeking to increase their stake where they require FIRB approval, as this impedes their ability to move quickly,” a dealmaker said.

Before the COVID-19-related FIRB changes, an offshore private investor that was not a foreign government could generally acquire up to 20 per cent of a company without FIRB approval.

Over the years, boards defending hostile takeovers have occasionally tried to use regulatory hurdles, including the Australian Competition and Consumer Commission, such as when Queensland Gas Company was defending a bid from Santos.

A corporate M&A adviser said takeover targets generally did not have much say in the FIRB process.

“I expect that in the current politicised environment, a target could have some influence if it wanted to, particularly if it operated in a sensitive market.

“But inviting the regulator into a defence is a double-edged sword, because once they are in, it is hard to get them out again … and what happens if what started out as a hostile deal ends up as a regulated deal because the price was increased?”

In August, China Mengniu Dairy Co walked away from its proposed $600 million acquisition of Lion Dairy & Drinks after Mr Frydenberg told the China-backed bidder the foreign investment would be “contrary to the national interest”.

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John Kehoe writes on economics, politics and business from the Canberra press gallery. He is a former Washington correspondent. Connect with John on Twitter. Email John at

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