Green Markets

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United States’ Global Warming Reduction Act 2007 if passed, would explicitly require disclosure of risks related to climate change

Posted by gmarkets on 3 September, 2007

A Freehills Review revealed that it was expected that climate change would be both affecting and driving M&A activity in Australia well in advance of 2012, in a number of ways; and that disclosure issues were also likely to come to the fore in bid and fundraising documentation. Kerry-Snowe Bill require disclosure of climate change risks: In this respect, it was interesting to note that the United States’ Global Warming Reduction Act 2007 (also known as the Kerry-Snowe Bill), if passed, would explicitly require issuers of securities under the Securities Exchange Act 1934 to disclose risks related to climate change. In Australia, specific legislation was probably not required to achieve that result – when one considers the broad disclosure tests for bid documents and prospectuses under the Corporations Act, meaningful disclosure on climate change impacts was likely to be required if those impacts are material.

Pricing distortions possible in short term: This is an issue which would need to be even more carefully considered now that the Prime Minister’s Task Group has effectively thrown its support behind carbon pricing through an emissions trading regime. What does all this mean for M&A activity in Australia? In the short term, pricing distortions in the capitai markets may be a real possibility, as analysts struggle to modify their valuations to take account of what might be a substantial contingent liability or, potentially, asset, for listed companies.

Opportunity to restructure or refocus: The astute would no doubt see this as an opportunity to either restructure or refocus their own operations, or potentially look to acquire or be acquired by third parties. For example, integration was a frequently mooted possibility: in particular the idea that mining and power companies would diversify into clean energy generation (including nuclear), or acquire forestry or like assets generating carbon credits to offset their carbon deficits.

Waiting for Task Group’s report: Other restructuring may also be warranted to improve transparency and thereby maximise valuations – for example by housing carbon emitting and carbon neutral or credit producing operations in separate stapled holding vehicles. At least for the moment, we are largely in the realm of speculation. But all that may change, and change very quickly, when we see the government’s detailed response to the Task Group’s report.

Reference: Freehills Review, Mergers and Acquisitions, May 2007, Contact: Justin mannolini, Partner, Perth, Tel: +61 8 9211 7616 Email: justin.mannolini@freehills.com, Paul Branston, Solicitor, Perth, Tel: +61 8 9211 7880, Email: paul.branston@freehills.com

Erisk Net, 13/6/2007

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