The defining characteristic of a reverse takeover bid is when the bidder is smaller than the target. Simple enough in principle. The Gloucester Coal (Gloucester) bidding process also began in a relatively straightforward manner in February 2009, with a merger proposed between Gloucester and Whitehaven Coal (Whitehaven).

Gloucester's bid meant that shareholders in Whitehaven, the larger company in the reverse takeover, would be left holding up to 70 per cent of Gloucester after the deal. Noble Group (Noble) faced being diluted from a 21 per cent shareholding to about 7 per cent.

The subsequent takeover bid by Noble started a much more complex bidding process, bringing a reverse takeover dispute before the Takeovers Panel for the first time.

After two panel sittings and a High Court appeal, Noble interceded with a revised bid to end the saga. The Gloucester board has now put its weight behind the revised Noble bid for the Australian coal company. Noble has already begun buying shares in the company on market, taking its ownership to 62 per cent at the time of publication.

The deal is all but done and dusted, but its unique characteristics have sparked a difference of opinion between the opposing legal councils on shareholder rights, as well as opening up an area of uncertainty regarding the use of lockout clauses in future takeover bids.

Freehills advised Gloucester on the transaction, and lead partner Tony Damian described the deal as "one of the most contested deals of recent times".

Partners John Elliott and Karen Evans-Cullen headed the Clayton Utz team advising Noble, and took the unusual step of applying to the Takeovers Panel for orders that the Gloucester-Whitehaven bid was unacceptable. They argued that a reverse takeover involving a change in control of the bidder must be subject to shareholder approval and that the Gloucester board did not have the right to withdraw should a better offer come along.

When Noble announced its own bid for Gloucester one week after Whitehaven, it was conditional on the success in the Takeovers Panel. According to Elliott and Evans-Cullen, a bid with this type of conditional offer has not been seen in the market before.

"[The conditional bid] was one of the unique things about this deal, and the key strategic step in ultimately opening up a way for Noble to be able to make a bid," Elliott explains.

"The only way that we could gain control and stop the other deal from going ahead was to apply to the takeovers panel for orders that the Gloucester-Whitehaven bid was unacceptable," Elliott adds.

The initial panel decision determined that Gloucester shareholders should be able to have access to the Noble bid. The review panel ordered the Gloucester bid to be made, subject to the condition that the Gloucester board could terminate the Whitehaven bid if it considered that there was a superior proposal. The review panel did not order a shareholder vote. Noble then sought judicial review of the review panel's decision in the High Court.

The weighing of shareholders' interests against board control is a timely issue, in the context of a growing number of shareholder class actions and the financial fallout of the GFC for mum and dad investors. However, in the interim, Noble put in a revised cash offer bid of $7 per share - a 44 per cent increase to Noble's original bid for Gloucester - delivering the positive outcome for Gloucester's shareholders without having to jump through the remaining legal hoops of a High Court appeal. So where does that leave shareholders and boards in future takeover bids?

Damian says the market is likely to prefer the review panel's decision.

"I think what that means is the market looks at that [decision] and says 'Actually, what the review panel did here was pretty good', because leaving the boards aside, a lot of people would say that a board should never get in the way of an offer going to shareholders," he says.

"Whereas what this showed was the decision of the panel to say to Gloucester's board - [that] if you like this deal better, you can go with that."

Damian doesn't believe all future reverse takeovers will automatically give all boards the ability to pick and choose their preferred offer. He says lead advisors will need to think outside the square on future transactions, not just focussing on the ability of the bidder to take a better offer, but also the relative sizes of the bidder and target, the number of shareholders in the bidder and other related factors.

However, the Clayton Utz team maintains that the review panel's decision was the wrong one.

"We felt very confident with our court proceedings, and we believe we would have won, and the court would have said to the review panel, 'No, you've got this wrong. You've got to go back and consider the right things and do it again'," Elliott says.

"We also know from discussions our client was having with a number of institutional shareholders that they were very unhappy with the panel's decision, because being shareholders they all believe that they should be the ones that get to determine whether these transactions proceed or not, and not the directors," Evans-Cullen adds.

Both sides of the table agree that the panels' deliberations leave significant areas of uncertainty with regards to shareholder rights and the status of competing bid offers.

Damian points to the fact that the review panel's decision leaves the way open for certain ordinary takeovers where it would be appropriate to include a "no superior proposal" condition, or lockout clause.

Elliott agrees that the status of such "superior proposal" conditions is also unsettled and may breach provisions of the Corporations Act 2001.

"A bidder next time can't just include that condition, because you can't have a condition that's subject to the opinion of the directors," he says.

"The panel can order it, because the panel can order something that is otherwise in breach of the Corporations Act, but a company can't just go and put it in ... so that alone is a very large, open issue, putting aside the fact that the review panel that imposed that condition had a different opinion."

As it stands, lawyers, the panel and even the ASX appear to remain split on the issue. Reverse takeovers are relatively uncommon, and it could be years before the panel has to look at this issue again. In the meantime, both the Freehills and Clayton Utz lead advisors welcomed a guidance note from the panel, although, as Elliott and Evans-Cullen point out, that could be a very difficult document to draft given the split in opinion between the two sets of panels members.

"Quite clearly the panel has created - [although] they might not realise yet - they've created a bit of a mess for future deals, and there's not even any consistency of principle coming out of the panel," Elliott says.

- Laura MacIntyre