THE late Kerry Packer, rather than his son James, was operating in corporate Australia when the creep provisions were built into Australian takeover law back in 1981.
Many of the large institutional shareholders that are today protesting that the rules are enabling takeover by stealth and avoiding the need to offer minority shareholders a premium are not even aware of the rationale behind this slightly counter-intuitive provision.
The new-found obsession with cheap control has found voice in the media and in doing so caught the attention of corporate watchdog the Australian Securities and Investments Commission.
The reality is that there was no real logic to their introduction 30 years ago rather they are the legacy of the corporate politics of the day.
And the Liberal Party that was in power at the time led by Malcolm Fraser probably saw no reason to argue it.
There is little to be found among the Canberra archives of any debate on the 3 per cent creep rules.
Those that have a sufficiently long corporate memory (and there are not too many of them) say that it was not controversial.
It was a concession given to business because the broader overhaul of the takeovers law of which the creep provisions were only a small part was more rigorous and the business community was concerned that the new rules would restrict the purchase of shares.
While the pre-1981 corporate law contained a takeover threshold of only 15 per cent, there were exceptions given for, for example, buying in a market that allowed investors plenty of latitude.
By today's standards the corporate takeover rules before 1981 can be seen as a bit more wild west. It was a time before phrases such as shareholder democracy and corporate governance were probably even coined.
Where today the majority of adult Australians have direct or indirect ownership (through superannuation) in the stockmarket, 30 years ago the listed market was controlled by a smaller elite of companies and high-net-worth individuals overseen by a club of establishment broker partnerships.
Until a few years ago the creep provisions were more regularly used by investors to top up holdings in companies in which they already had control and their use barely raised an eyebrow.
This all changed in 2008 when Perth media entrepreneur Kerry Stokes seized control of West Australian Newspapers. Having run a ferocious campaign against the directors and their performance from his ownership launch pad of 19.4 per cent, he initially failed to cement control.
Six months later, having bought enough shares to nudge his holding to more than 22 per cent, the WAN board capitulated and Stokes took control, seeing off its chairman, chief executive and a couple of other directors.
Until the Stokes action, the creep was referred to in corporate circles as the glacial takeover and it was far from corporate fashion.
The West Australian experience demonstrated clearly that even the threat of buying stock at 3 per cent every six months would be an effective tool to change the control dynamics of the boardroom.
Former New South Wales Supreme Court judge and corporate law guru Bob Austin maintains the creep provisions are a bit of a collateral issue. He maintains that if the board is resolute it can go a long way to retaining control.
To date, Fairfax chairman Roger Corbett has continued to hold the company's stand that its now 15 per cent shareholder Gina Rinehart should not be allowed a board seat unless she adheres to a charter of editorial independence and agrees to deal with a range of other issues.
On the face of it, awarding Rinehart two seats out of 10 on the Fairfax board would not give her control, but if existing directors resign (as they did at West Australian Newspapers), she would easily gain this status by default.
The attempts by James Packer for board representation at Echo Entertainment have only further shone a media spotlight on the prospect of takeover by default.
Gaming licence regulations restrict Packer from taking more than a 10 per cent stake in Echo, but he has applied for (and will ultimately probably receive) approval to take that holding to 25 per cent.
He has already agitated to place his nominee, Jeff Kennett, on the Echo board a move that has been successfully fought by institutional shareholders.
The ruckus surrounding these events has been sufficient to catch the eye of the corporate regulator, whose chairman, Greg Medcraft, said changes were being contemplated.
But this is a far cry from the first stage in the process of giving policy recommendations to the government. And it is another large step in getting the government to act on it. Even if Treasurer Wayne Swan is of a mind to consider the abolition of the creep rule, those in corporate legal circles are wary about how the move could be navigated in the business world that is generally negative about increased regulation.
Having said this, the creep rule has been done away with in other jurisdictions such as the UK. But it will take time, and for some minority shareholders the horse would have long bolted.
Frequently Asked Questions about this Article…
What are the 'creep' provisions (3 per cent creep rule) in Australian takeover law?
The creep provisions, commonly called the 3 per cent creep rule, were written into Australian takeover law in 1981. They allow a substantial shareholder to increase their stake by small amounts (typically 3% every six months, as described in the article) without triggering a formal takeover offer. The rule was introduced as part of a broader takeover-law overhaul and originally emerged as a concession to business.
How can the 3% creep rule enable a 'takeover by stealth'?
Because the rule permits gradual top-ups of a shareholding, a large investor can slowly nudge their stake toward control without launching a visible takeover bid. The article points to the Kerry Stokes takeover of West Australian Newspapers in 2008, where incremental share purchases helped change control dynamics and led to board resignations—showing how small, repeated increases can lead to effective control.
Which real cases have brought attention to creep provisions recently?
The article highlights three high-profile examples: Kerry Stokes seizing control of West Australian Newspapers in 2008 using incremental purchases; Gina Rinehart's push for influence at Fairfax (around a reported 15% stake and requests for board representation and editorial guarantees); and James Packer's attempts to secure board representation at Echo Entertainment while navigating licence limits on his stake. These events focused media and regulator attention on the creep rule.
Can a company board stop a stealth takeover that uses creep provisions?
A resolute board can make it harder for a creeping shareholder to take control, according to former judge Bob Austin quoted in the article. Fairfax’s chairman Roger Corbett, for example, resisted giving Gina Rinehart a board seat without conditions. However, the article also notes that if existing directors resign (as happened at West Australian Newspapers), a creeping shareholder can gain control more easily.
Is the corporate regulator or government considering changes to the creep rule?
Yes. The article says ASIC chairman Greg Medcraft has signalled that changes are being contemplated and that the issue has been put into the policy discussion stage. It also notes that Treasurer Wayne Swan might consider abolition of the creep rule, but any change would take time and face cautious views in corporate legal circles.
What was the takeover threshold before the 1981 changes?
Before the 1981 overhaul, the corporate takeover threshold was 15 per cent, though there were exceptions (for example, for buying in certain markets) that allowed more latitude. The pre‑1981 regime is described in the article as more like a 'wild west' compared with modern takeover rules.
How often were creep provisions used prior to the media spotlight on recent cases?
Until a few years before the article, creep provisions were regularly used by investors to top up holdings in companies where they already had control, and their use largely went unnoticed. The practice attracted substantial attention only after the 2008 West Australian Newspapers episode and later media battles.
What should everyday investors watch for regarding creep provisions and corporate control?
Everyday investors should watch for large shareholders quietly increasing stakes (the 3 per cent creep pattern), board responses to activist or major investors, and high‑profile media or regulator scrutiny—because those signals can precede shifts in board control or corporate strategy. The article also flags that regulators (ASIC) and policymakers are discussing changes, so rule changes could alter how these situations play out in future.
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