In April this year the New Zealand government indicated that it intended to implement a takeovers code, under the Takeovers Act 1993, based on the draft Takeovers Code proposed in 1995. Despite opposition from the Stock Exchange, the Business Round Table and others, the Takeovers Code is almost here. The Code will come into force on July 1 2001, once some legislative changes, necessary for the Securities Commission to provide administrative services and support to the Takeovers Panel, which will administer the Takeovers Code, have been completed.
The Takeovers Code is designed to ensure that, on a change of effective control, all shareholders will have the opportunity to participate, and at the same price for the same class of security. It is also intended to prevent strategic pressure (by use of minimum offer periods and notice), to spread the premium for control (by requiring equal pricing within a class), and to enhance control contestability (preliminary notice). There are extensive disclosure requirements to ensure an informed market, and no defensive tactics are permitted whereby the directors of a target company could frustrate the offer, or prevent shareholders from considering it.
All of these things, in the view of the New Zealand government, will improve the lot of small investors.
The Takeovers Code will only apply to takeovers of code companies, which are:
- public issuers (listed on a Stock Exchange at the relevant time or in the previous 12 months); or
- large companies (50 or more shareholders and NZ$20 million ($8.5 million) or more assets).
The fundamental rule of the Takeovers Code is that, without complying with it, no one may:
- acquire more than 20% of a code company's voting rights, either on their own account or with associates; or
- if 20% or more is already held or controlled, acquire further voting rights.
As with existing takeovers rules in New Zealand, the Takeovers Code will not apply to acquiring a shareholding of less than 20%. Although the rule applies to acquisitions of voting rights in a code company, in most cases, the only voting rights will be shares.
The Takeovers Code allows acquisitions:
- through an offer to all shareholders on the same terms for all shares in the target company (a full offer), or for a lesser percentage (a partial offer), as long as the offer is conditional on the offeror acquiring enough shares to take it over 50%;
- if the acquirer already holds more than 50%, and either:
- makes a partial offer; or
- "creeps" no more than 5% in a 12-month period;
- if the acquirer already holds more than 90%;
- with the approval of the majority of the other target shareholders; or
- under an exemption from the Takeovers Panel.
There is no restriction on the price that may be offered in a full or partial offer, except that the same price must be offered to all shareholders.
Accordingly, the Takeovers Code will introduce, among other things, the following notable changes to market rules and practice:
- Offerors will not be able to creep above 20% in a target company until they acquire more than 50%; and
- Offerors required to make a full or partial offer will not be able to offer more to large shareholders than to others; all shareholders must receive the same offer.
The Takeovers Code will alter the way some buyers and sellers of interests in code companies proceed with their transactions.
James Aitken and Hamish Walker