Why Our Home Grown ASX Success Stories Are Doomed To Be Given Away on the Cheap, And What Could Be Done

There are plenty of ASX Success Stories that can be categorised as such because they were bought out by a major player. Shareholders who rode things out over the journey will walk away satisfied without thought that they could be getting more. If the board (and perhaps a substantial shareholder or two) backs the bid, why should we question it?

Yet at the same time, the question has been thrown out for years on whether or not local market undervalues innovation or even does at all given the CGT changes. But we think the deeper question that needs to be asked whether the regulatory architecture itself is designed to hand our companies to offshore bidders at prices that would never clear in the United States.

What many investors may not appreciate is that the US system is built to give boards time, leverage and bargaining power. The Australian system is built to give shareholders immediate access to a bidder. The result is predictable. US companies extract higher takeover premiums. Australian companies are taken out earlier, more cheaply and with far less negotiation.

Australia lacks the takeover defence architecture the US does

The US has a takeover defence architecture that empowers boards to protect long‑term value. Australia has a regime that prevents boards from frustrating a bid. The question for investors and directors is whether this asymmetry is still fit for purpose in a world where capital is global, innovation is mobile and offshore bidders are increasingly active in Australian sectors that rely on long‑duration R&D. The life sciences sector is the clearest example, but the pattern extends across technology, resources, industrials and even consumer brands. The structural imbalance is real, and the consequences are material.

The starting point is the poison pill. In the US, a board can adopt a shareholder rights plan within hours of receiving a hostile bid. The mechanism is simple. If a bidder crosses a threshold, the company issues new shares to everyone except the bidder. The result is that the bidder is diluted and the bid becomes uneconomic. This is standard practice in Delaware, where most US biotechs are incorporated. Even pre‑revenue companies with small market caps routinely adopt poison pills to block opportunistic bids and force bidders to negotiate. The poison pill is the single most powerful defence tool in the US system.

On the flip side, Australia prohibits such a practice. The Takeovers Panel will declare any dilutionary action during a bid period as unacceptable. Boards cannot issue shares, restructure capital or take any action that could impede a bidder. The rationale is shareholder primacy. The effect is that Australian companies have no ability to block a hostile bid. A bidder can go straight to shareholders, and the board has no structural defence. This is the first and most important reason Australian companies are vulnerable.

Board staggering and the supermajority requirement are influential too

There are two other differences and the first of these is the staggered board. In the US, many companies have boards where only a third of directors are up for election each year. A hostile bidder cannot replace the board in one meeting. It can take two or three years to gain control. This gives the target company time to run a competitive process, negotiate a higher price, litigate if necessary and wait for the bidder’s financing or interest to weaken. In Australia, staggered boards are effectively prohibited. All directors can be removed at a single meeting with a simple majority. A bidder can replace the board in one step. The board cannot slow the process. The bidder knows this. The market knows this. The imbalance is structural.

The other key difference is the supermajority requirement. In the US, many companies require 66, 75 or even 80% shareholder approval for a takeover. A bidder cannot succeed with 50% plus one. A single insider or specialist fund with a 10 or 15% stake can block a deal. This is particularly relevant in biotech, where registers are concentrated among long‑term specialist investors. In Australia, supermajority thresholds are not permitted for takeovers. A bidder only needs 50% plus one. Even if a large minority opposes the deal, the bidder can still succeed. This is why US companies extract higher premiums. The bidder must win overwhelming support. In Australia, the bidder only needs a simple majority.

These three differences (the poison pill, board staggering and the supermajority requirement) alone explain much of the divergence in takeover outcomes. But the gap widens when you add dual‑class voting structures, litigation strategy and state‑level anti‑takeover statutes.

Dual‑class structures allow US founders to retain voting control even with minority economic ownership. Litigation is a standard defence tool in the US, where courts are accustomed to takeover disputes and often side with boards. State‑level statutes in Delaware and other jurisdictions impose additional hurdles on hostile bidders. Australia has none of these protections. The Corporations Act is national, uniform and designed to facilitate takeovers, not obstruct them.

So what? All this means that US companies can resist, delay and negotiate. Australian companies cannot. This is not an abstract legal distinction. It plays out in real transactions, with real consequences for valuation.

The theory is borne out in reality

A case study illustrates the point. Consider a mid‑cap US biotech, anonymised here as BioNova. It may sound like we’re making this story up just because of the anonymised name but this has been borne out with companies like Depomed, Aimmune and Alder that have used poison pills and litigation to block hostile bids.

BioNova received an unsolicited takeover offer from a large pharmaceutical group at a 40% premium. The board believed the offer undervalued its late‑stage oncology pipeline. Within 24 hours, the board adopted a poison pill. The bidder launched a hostile tender offer anyway. BioNova sued in Delaware Chancery Court, alleging coercive tactics and disclosure deficiencies. The litigation delayed the tender timeline. The company ran a parallel process with other potential buyers. After six months of stalemate, the bidder withdrew the hostile offer and returned with a higher, board‑approved price. Shareholders received a 70% premium, not the original 40%. The board had the tools to defend the company, the legal framework gave it leverage, and the outcome reflected that leverage.

Now consider an ASX‑listed biotech, anonymised as AustBio.  Real life companies that have seen this have included Viralytics and ResApp. AustBio received a takeover bid from a multinational pharma at a modest premium. The board believed the offer undervalued the company’s lead asset, but the company was twelve months from needing capital. The board could not adopt a poison pill. It could not issue shares. It could not restructure capital.

It could not enter major new contracts that might frustrate the bid. The bidder accumulated a 19.9% pre‑bid stake and secured support from two institutional holders. With 30 to 35% effectively locked up, the outcome was inevitable. The board recommended the offer despite believing it undervalued the company. Shareholders accepted. The bidder gained control with 50% plus one. The premium was modest. The board had no structural defence. The legal framework gave it none.

So is the balance right?

Do you see the point we’re trying to make here? The US system is designed to give boards leverage. The Australian system is designed to give bidders access. Because Australia’s takeover regime was built on the principle that shareholders should decide. Now, we think this principle may make sense in a market dominated by industrials, banks and resources. But it is less clear in sectors where value is created through long‑duration R&D, where companies are pre‑revenue for years and where offshore bidders have both capital and strategic incentives to acquire early.

The life sciences sector is the clearest example. Australian biotechs often trade at discounts to global peers. They rely on capital markets to fund development. They have limited negotiating leverage when cash is low. Offshore bidders know this. The result is a steady stream of takeovers at prices that would not clear in the US.

The technology sector faces similar dynamics. Australian software companies often have concentrated registers, limited defensive tools and valuations that are sensitive to capital cycles. Offshore bidders can accumulate pre‑bid stakes, launch offers and secure control with minimal resistance. The board’s only real power is to recommend or not recommend. The bidder can go directly to shareholders regardless. The imbalance is structural.

The broader question is whether Australia’s frameworks are inadvertently designed to give away our companies on the cheap. The evidence suggests they are. The US system is built on board primacy. The Australian system is built on shareholder primacy. The US system assumes boards should protect long‑term value. The Australian system assumes boards should not interfere with a bidder’s access to shareholders. The US system gives boards tools. The Australian system removes them.

So should we adopt poison pills or staggered boards to prevent ASX success stories being bought out too soon?

Not necessarily. We think there’s room for debate on what specific solutions should be adopted, but as long as companies structurally easier to acquire, they will be acquired earlier and more cheaply. If Australian boards have no ability to negotiate, they will accept offers they believe undervalue the company. If Australian frameworks prevent defensive action, bidders will exploit that. The question is whether this is the outcome we want.

Investors should care because the difference in frameworks affects valuation. US companies trade at higher multiples in part because they are harder to acquire cheaply. Australian companies trade at lower multiples in part because they are easier to acquire. The discount is structural. The consequences are long‑term.

Boards should care because their ability to negotiate is constrained. They cannot defend the company. They cannot slow a bidder. They cannot run a competitive process if a bidder has already accumulated a blocking stake. Their only real power is persuasion. In a market where capital is global, persuasion is not always enough.

Founders should care because the frameworks affect their ability to control their own companies. In the US, founders can retain voting control through dual‑class structures. In Australia, they cannot. In the US, founders can block bids. In Australia, they cannot. The difference affects incentives, investment and long‑term strategy.

The consequences are visible in every takeover premium, every early acquisition and every offshore bidder that knows the path to control is easier here than almost anywhere else. The question remains: are our frameworks designed to give away our companies on the cheap. The evidence suggests they are. The next question is whether we are willing to do something or are we content with the status quo?