With any transaction, tough negotiations are to be expected. It’s part of the process; nobody wants to lose out. However, as shown in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, inflating the asking price by artificially driving competitive tension could be a step too far.
Justice Elliot in the Victorian Supreme Court found that the sellers here provided misleading representations to the buyers, in breach of the prohibition against misleading and deceptive conduct in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law):
Towards the end of negotiations, representatives from Glencore International AG (Glencore) (the ultimate holding company of the seller, Viterra Malt Pty Ltd (Viterra)) confirmed with the buyer’s (Cargill Australia Ltd (Cargill)) Risk Management Officer that a deal would close if the bid were increased by $15 million to $420 million.
When questioned why the increase was required, the Glencore and Viterra representatives asserted that other buyers had shown interest at that price. They then requested a call-back “within 2 hours to confirm the deal is done at $420 million”. Within 90 minutes, the Cargill’s bid was increased to $420 million, with an outline of conditions under the increased offer.
Through proceedings, the Court found that the claim by the representatives that it was necessary to increase the bid was false. The next closest bid to Cargill’s original offer of $405 million was $335 million, with another at $320 million. Justice Elliot awarded $15 million in damages in favour of Cargill Australia.
Takeaways
Sweeping statements that are difficult to verify shouldn’t affect a buyer’s decision-making process. In this instance, a seller can’t substantiate claims, but you may want to discuss a specific information warranty that we talk about on our last blog.
If discovered after the fact, acts where a seller has intentionally created a sense of urgency or artificially driven competitive tension may violate the Australian Consumer Law’s provisions against misleading and deceptive conduct. So, you do have some recourse.