Date Approved: August 11th, 2021
This policy document outlines both the current NZSA position related to the current regulatory environment, as well as the advocacy position to be adopted by NZSA.
1.0 NZSA Policy Position
1.1 This policy is predicated on the current regulations associated with takeovers in New Zealand.
1.2 NZSA will continue to advocate for changes to regulations to ensure a ‘level playing field’ between takeovers implemented via the Takeovers Code (2000) or a Scheme of Arrangement (see section 4.0).
1.3 NZSA prefers to see full or partial takeover offers made under the regulations associated with the Takeovers Code (2000).
1.4 NZSA accepts that under current Takeover Code (2000) regulations, a takeover made under a court-approved Scheme of Arrangement may provide more certainty for investors under some circumstances, including:
a) Where Overseas Investment Office or other regulatory agency approvals are required on behalf of the Offeror, that may extend past the 90 day deadline associated with offers under the Takeovers Code
b) Where proposed payment mechanisms to Target Company shareholders extend beyond “cash and share” arrangements (see example in section 2.7a).
1.5 Regardless of the approach used to facilitate takeovers, NZSA expects that an independent report will be prepared for Independent Directors of the Target Company on behalf of shareholders to assess valuations implied in any takeover situation (note that this is line with current practice).
1.6 For takeovers implemented via a Scheme of Arrangement, NZSA supports any initiative taken by Target Company Independent Directors to improve their capacity and capability to review offers without duress. Factors that support this may include:
a) Access to both the independent report and the appraiser are controlled by Independent Directors of the Target Company. In the context of a Scheme of Arrangement, the Offeror should not be able to access the organisation undertaking the independent appraisal or have any opportunity to influence outcomes.
b) More broadly, the appraiser should not be able to be unduly influenced by anyone who has an interest in the outcome of the transaction (whether from Target, Offeror or other stakeholders).
c) Directors of the Target Company have not extended due diligence rights to any Offeror, until such time as a firm offer has been received (ie, similar to the rights of an Offeror under the Takeovers Code). No Offeror should expect due diligence ‘as of right’.
d) Costs associated by the Target Company, including additional director time, are reimbursed by the Offeror.
e) Offerors are bound by confidentiality that prevents a direct approach to media to promote their offer, without the support of the Target Company.
1.7 In line with NZX listing rules, NZSA expects that any takeover interest expressed to the Board that is on terms expected by a ‘reasonable person’ and have some degree of certainty of proceeding should be disclosed to investors, as per the requirements of section 3.1 of the NZX Listing Rules relating to material information.
1.8 NZSA will not support offers that utilise lock-up agreements or ‘break fees’ where they disadvantage retail shareholders. This requires assessment on a case-by-case basis, with a clear relationship to the duties of directors in relation to shareholder interest.
See section 2 in attached guidance notes
See section 3 in attached guidance notes
4.0 Further Advocacy
4.1 The policy statements in Section 1 are predicated on the current regulatory requirements. The following advocacy positions represent proposed solutions to redress the imbalance that has developed between takeovers under the Takeovers Code compared with a Scheme of Arrangement.
4.2 In general, NZSA will advocate for solutions that ‘level the playing field’ between Takeover offers made under the Takeover Code or via a Scheme of Arrangement.
4.3 Takeovers Code: NZSA will advocate for the following in relation to the Takeovers Code:
a) NZSA believes that Offerors should be incentivised to utilise the Takeovers Code as this has been specifically designed to ensure equitable relationships between all shareholders, Offerors and Target companies.
b) Specifically, NZSA advocacy may include:
i. A move towards alignment of threshold levels for takeovers under the Takeovers Code or SoA’s. This may include advocacy for a higher thresholds for takeovers implemented via a Scheme of Arrangement as a primary position (see section 4.4) or alternatively, a lower ‘general’ threshold level under the Takeovers Code.
ii. A requirement/formula allowing for determination of ‘company-specific’ threshold levels under the Takeovers Code (to account for the presence of index or passive funds).
c) NZSA will advocate for revisions to the Takeovers Code that preserve the interests of retail shareholders while allowing for more practical processes – including timeline - (to account for the determinations of other regulatory agencies) and payment mechanisms to support the interests of offerors.
d) NZSA will advocate for regulatory agencies (such as the Overseas Investment Office) to respond within a timeframe to support the timing provisions within the Takeovers Code.
e) NZSA notes that the current 90% compulsory acquisition threshold within the Takeovers Code is the same as other major jurisdictions – but that in itself is not a reason to maintain the status quo.
f) NZSA notes the current ‘creep’ provisions allowed for in the Takeovers Code. We believe that these provisions could act as an incentive for Offerors to effectively structure a Code takeover.
4.4 Schemes of Arrangement: NZSA believes that consideration should be given by the NZ Government to simplify and increase the threshold limits for a takeover made by a Scheme of Arrangement.
a) Specifically, NZSA advocates for a 75% threshold of total shares within a shareholding class for approval of an SoA transaction (rather than 75% of votes cast and a minimum 50% threshold of total shares).
b) This would ‘level the playing field’ as compared to an offer under the Takeovers Code and align the threshold requirement with other major transaction resolutions that are put before shareholders from time to time.
c) NZSA also believes that consideration should be given to new rules applying to ‘expulsion schemes’, applicable where a majority shareholder is implementing a SoA to purchase the interests of minority shareholders.
4.5 Proxy solicitation and other direct contact with Target Company shareholders: As per section 3.7, NZSA believes that all relevant information should be provided to shareholders. Any additional information provided by proxy solicitors should be treated as an offense and subject to an enforcement regime.