Increase in market activity
With July 1 2001 fast approaching as the date the New Zealand Takeovers Code comes into force, there has been a marked increase in takeover activity among listed companies as shareholders seek to secure better positions (or exit, as the case may be) before such activity would be caught by the Code.
As previously reported (IFLR, November 2000), the Takeovers Code applies to listed companies and companies with 50 or more shareholders and NZ$20 million ($8.4 million) or more in assets. It ensures that no one may acquire over 20% of such a company unless an offer is made to all shareholders on the same terms. This can be a bid for 100% of the shares or a lesser amount as long as it results in the offeror holding over 50%. If a shareholder owns over 50% of a company, they may increase their ownership by making a partial offer (again on a pro rata basis to all shareholders) or by creeping acquisitions of not more than 5% in 12 months. If a shareholder owns 90% of a company they may also compulsorily acquire the balance. The Code also provides extensive disclosure requirements and notice provisions.
Advantages in dealing now
It is clear that in recent weeks there has been increased takeover activity as shareholders owning between 20% and 50% of a company seek to increase their ownership through one-off purchases of other single shareholder's stakes (ie without the need to make an equal offer to all other shareholders). Those shareholders selling their stake before July 1 have the advantage that they can dispose of their entire interest without competing for sale with all other shareholders on a pro rata basis. The opportunity to secure any premium for a large 'block' of shares will also be lost from July 1 (as differential offers are not permitted under the Code).
Even after July 1, there may be further market activity that escapes the protection of the Code. Transitional provisions in the Takeovers Act 1993 exclude acquisitions of shares after the Code has come into force which are effected pursuant to contractual obligations incurred or rights which were acquired prior to July 1. This may, for example, extend to well-drafted pre-emptive rights under pre-existing shareholder agreements.
Fine tuning of legislation
While the enactment of the Takeovers Code is less than two months away, the government continues to fine tune the legislation. The Takeovers Amendment Act was passed in early May, and while its main purpose was to give the Takeovers Panel (who administer the Code) wider powers, two other amendments are significant.
Section 49 of the amendment Act repeals the Companies Amendment Act 1963 (the existing legislation that deals with written takeover offers to more than six shareholders) from July 1, except in relation to situations where notice of a takeover scheme has already been served under that Act. However, it is not clear whether the Takeovers Code also applies to such takeover schemes. This could mean that in certain cases acquisitions may be subject to both the old and new takeovers regimes.
The second major change brought about by the Takeovers Amendment Act is the removal of the exemption for takeover offers made under the Takeovers Code from the Securities Act 1978. This will mean that takeover offers that include shares as consideration must also comply with Securities Act requirements which include the preparation of a prospectus and a short-form investment statement.
James Aitken and Hamish Dixon