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BEFORE THE TAKEOVERS PANEL
IN THE MATTER OF
the Takeovers Act 1993 and
IN THE MATTER OF a meeting held under section 32 of the Act to determine whether one or more of the following shareholders of TrustPower Limited would be increasing their control percentages in TrustPower Limited otherwise than in compliance with rule 6 of the Code:
by intending, in reliance on a resolution of shareholders to be considered at a meeting of TrustPower Limited to be carried out under clause 4 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001, to retain any increase in their control percentage in TrustPower Limited that would result from a buyback of shares undertaken by TrustPower Limited in March 2003 and April 2003.
14 April 2003 at Auckland
D O Jones (Acting Chairperson)
C J Allan, J Windmeyer, and M Hill appearing for TrustPower Limited
H M Titter and K Tempest representing TrustPower Limited
16 April 2003
 TrustPower Limited ("TrustPower") is a New Zealand electricity generating and retail company based in Tauranga. TrustPower is listed on the New Zealand Stock Exchange ("NZSE") and is therefore a code company for the purposes of the Takeovers Code ("the Code"). Its major shareholders, with their voting control at 31 March 2003, are:
(a) Infratil Limited ("Infratil")
(b) Alliant International New Zealand Limited ("Alliant")
(c) Tauranga Energy Consumer Trust ("TECT")
(d) The Australian Gas Light Company ("AGL")
Public shareholders hold some 10.07% of total voting rights.
Through direct shareholding being greater than 20% or by association, each of the major shareholders is constrained by the fundamental rule 6(1)(b). They may not "become the holder or controller of an increased percentage of the voting rights" in TrustPower unless following defined procedures.
 On 20 March 2003 TrustPower announced to the NZSE that it was undertaking a buyback of its own shares. On 26 March 2003 TrustPower distributed an offer document to its shareholders offering $3.70 per share. (The market price of TrustPower shares at the time was around $4.05.) The principal terms of the offer are:
(a) The offer is a pro-rata offer for 2 of every 7 TrustPower shares held. Shareholders can accept the offer is respect of part or all of their shareholding. Shareholders also have the right to elect to accept the offer in respect of additional shares, up to 100% of their holdings, in the event that TrustPower did not receive sufficient acceptances to reach its minimum acceptance condition of 50 million shares. If too many shareholders indicate that they wish to sell all their shares into the buyback, the excess shares would be scaled down on a pro-rateable basis;
(b) The offer is conditional on approval by TrustPower shareholders for the purposes of clause 4 of the Takeovers Code (Class Exemptions) Notice (No. 2) 2001 ("the clause 4 class exemption") at a meeting of the company to be held before the end of June 2003;
(c) The offer is also conditional on TrustPower receiving a notice from the holder of 1,000 convertible notes (AGL NZ Limited) that it would convert these notes into shares in TrustPower;
(d) TrustPower is able by the terms of the offer to waive the conditions relating to the minimum acceptance level and the conversion of the convertible notes but not the condition relating to the need for approval by shareholders under the clause 4 class exemption. On 4 April 2003 TrustPower reduced the 50 million minimum acceptance to 40 million;
(e) Acceptances by shareholders are irrevocable and acceptors are not entitled to withdraw their acceptance of the offer; and
(f) The offer has to become unconditional by 20 June 2003 or it will lapse.
 In a letter dated 26 March 2003 from Mr H M Titter, Chairman of TrustPower, that accompanied the offer document, the purpose of the buyback was explained as:
The Board believes that it is appropriate to have an efficient gearing ratio and, accordingly, wishes to ensure that the company is not over capitalised. It is anticipated that the return of capital will give TrustPower a more efficient capital structure and therefore should enhance the return earned on shareholders' funds. Further, the buyback allows TrustPower to return the excess capital to shareholders in a tax efficient manner and, while each shareholder is given the ability to participate in the buyback, no shareholder is compelled to do so.
 On 26 March 2003 Infratil provided a substantial security holder notice to the NZSE. That notice had annexed to it a letter dated 25 March 2003 from Alliant to Infratil referring to the buyback and to the "Amended and Restated Investment Agreement" dated 29 June 2001 that had been entered into between Infratil and Alliant. The letter included the following:
TrustPower is currently proposing to buyback some of its shares. We note that it is the intention of the parties that acceptances of Alliant International New Zealand and Infratil will be in such amounts as will ensure that following the completion of the buy back, the proportionate shareholdings of Alliant International New Zealand and Infratil will remain the same as at the date of this letter. Accordingly we have each undertaken to each other that our acceptances will be in the following terms:
(a) Infratil will accept the buyback offer for such amount of shares which is the lesser of 4,180,798 and 1.2322 times the number of shares in respect of which TECT accepts the buyback offer; and
(b) Alliant International New Zealand will accept the buyback offer for such amount of shares which is the lesser of 2,824,591 and 0.8325 times the number of shares in respect of which TECT accepts the buyback offer.
Our undertakings in the paragraph above are conditional upon the buyback offer being made in substantially and materially the form announced by TrustPower on 20 March 2003.
The successful completion of the proposed buyback will result in Alliant International New Zealand and Infratil together controlling in excess of 50% of the Voting Securities in TrustPower. …
 On 31 March 2003 the Panel received a letter from Minter Ellison Rudd Watts ("Minter Ellison"), legal advisers to TrustPower, outlining the buyback transaction and indicating TrustPower's support for the appointment of Ferrier Hodgson, Chartered Accountants of Auckland, as independent advisers for the purposes of the clause 4 class exemption. The Panel received Ferrier Hodgson's application on 2 April 2003.
 During the course of considering the approval of the appointment of Ferrier Hodgson as the independent adviser, the Panel noted the structure of the procedure being followed by TrustPower, namely:
(a) The buyback offer was made to all shareholders on 26 March 2003, with a closing date of 11 April 2003 (extendable to 24 April 2003);
(b) Sometime after the offer had closed TrustPower would call a meeting of the company with the notice of meeting being prepared in compliance with the requirements of the clause 4 class exemption and accompanied by an independent adviser's report prepared by an adviser approved by the Panel;
(c) Provided the resolutions put to that meeting for the purposes of the clause 4 exemption notice are approved by shareholders the buyback would be completed.
 The Panel considered this structure may not have complied with the requirements of the clause 4 class exemption. In particular, the Panel was concerned that shareholders were being asked to accept the buyback offer without the benefit of an independent adviser's report on the merits of the offer and without the benefit of the cornerstone provisions of the Code. In particular all shareholders were being asked to accept the offer irrevocably without having any idea of the changes to the control of TrustPower that would occur.
 The Panel expressed its concerns to Minter Ellison by letter on April 8. On the morning of 10 April 2003 the Panel executive and counsel assisting the Panel, Mr P D McKenzie QC, met with representatives of TrustPower and Infratil to discuss the matter1. That meeting was the Panel's initial response to Minter Ellison's request for an urgent meeting with the Panel. The Panel met later on Thursday 10 April 2003 to consider the material before it and the outcome of the earlier meeting between the Panel executive, TrustPower and Infratil. TrustPower had proposed an interim solution to the issues raised by the Panel that involved:
(a) TrustPower making a statement to the market providing its best current estimate of the matters that would ordinarily be covered in a notice of meeting;
(b) a further communication being addressed to each of the shareholders who had accepted the offer prior to this disclosure, giving those shareholders the opportunity to withdraw their acceptances after reconsidering their position in light of the information conveyed;
(c) TrustPower extending the offer to 24 April 2003; and
(d) TrustPower applying, on a without-prejudice basis, for an exemption.
 This solution was not acceptable to the Panel because:
(a) the offer to withdraw was to be made only to those shareholders who had accepted the offer and did not allow other shareholders to subsequently accept;
(b) all shareholders were still being required to make decisions without the benefit of the information that would be contained in the independent adviser's report;
(c) in considering the alternatives available for responding to TrustPower the Panel was mindful of its obligations to ensure the market was properly informed given the short duration of the offer and considered that the matter would be most appropriately considered in the context of a section 32 meeting as the Panel had incomplete information about the intentions of the parties in relation to the buyback.
 At its meeting on 10 April 2003, the Panel passed the following resolution:
On or about 26 March 2003 TrustPower sent an offer to shareholders in respect of a proposed acquisition of its own shares pursuant to a buyback in reliance on clause 4 of the class exemption notice. The offer was conditional on shareholder approval of the buyback under the class exemption notice. It was scheduled to close on 11 April 2003 but has been extended to 17 April 2003. The offer document anticipated that a meeting of shareholders to approve the buyback would be held before the end of June 2003. Shareholders would be provided with an independent adviser's report in advance of that meeting.
The Panel considers that the exemption notice may require shareholders eligible to vote to be advised independently of the merits of an offer, including the control positions that may emerge as a result of the offer being accepted or rejected by various major shareholders, before they are required to make a decision whether to accept the offer as well as before they are able to vote to approve the buyback. That is not the case with the TrustPower buyback. The Panel is therefore of the view that the TrustPower transaction in its present form may not comply with clause 4 of the exemption notice.
As a result of the possible non-compliance with clause 4 of the exemption notice, those shareholders seeking to, or likely to, or who may increase their control of voting rights in TrustPower in reliance on that class exemption notice may not comply with rule 6 of the Code.
As a consequence the Panel considers that Infratil, Alliant, AGL and TECT may not have acted or may not be acting or may intend not to act in compliance with the Code to the extent that their control of voting rights in TrustPower may be increased as a consequence of the buyback.
 Conscious of the short duration of the buyback offer and of TrustPower's earlier request for an urgent meeting with the Panel, the section 32 meeting was called for Monday 14 April 2003. Under the provisions of section 32(1) of the Takeovers Act 1993 ("Act") the Panel could have held its meeting as late as Thursday 17 April 2003.
 The Panel issued summonses as provided for by section 31N of the Act to each of the major shareholders and to TrustPower requiring their attendance at the Panel's meeting on 14 April 2003 and also requiring them to bring with them all documents and information in their possession or control relating to the matter. A covering letter from the Panel executive to each of the four major shareholders and TrustPower asked that the information to be provided to the Panel should include (with minor variations depending on the particular party):
(a) Copies of any board minutes and board papers relating to the buyback;
(b) Copies of any correspondence including emails with TrustPower, advisers and shareholders in relation to the buyback;
(c) File notes of any discussions about the buyback, either internal or with external parties;
(d) Other relevant material.
 The parties were also asked to provide submissions to the Panel, preferably by 5.00 p.m. on Friday 11 April 2003.
 Some 270 pages of documents were provided to the Panel on Friday evening 11 April 2003 by TECT. None of the other parties provided documents to the Panel in response to the summons either prior to or at the meeting. Each of these parties submitted that the scope of the Panel's meeting related solely to the clause 4 class exemption and that there were no documents addressing this issue. The Panel did not accept this submission. The purpose of the Panel's meeting was to determine whether any party had intended to breach the Code by relying on the clause 4 class exemption to increase voting control in TrustPower in a way contrary to that which was anticipated by that exemption. The Panel is taking legal advice in relation to the failure of the four parties to provide the Panel with the documents subject to the summons.
 The Panel received oral evidence, on oath, from representatives of the four major shareholders. The Panel was able to establish from this evidence the state of the parties' intentions in relation to their shareholdings in TrustPower.
The matter for determination by the Panel was whether any or all of AGL, Infratil, Alliant or TECT intended to increase their control percentage in TrustPower through acceptance or non-acceptance of TrustPower's buyback offer in a manner that would not comply with the Code, in particular by relying on the procedure set out in the clause 4 class exemption.
The relevant provisions of the Code and Takeover Code (Class Exemptions) Notice (No. 2) 2001
 Rule 6(1) of the Code (the fundamental rule) states:
(1) Except as provided in rule 7, a person who holds or controls-
(a) No voting rights, or less than 20% of the voting rights, in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company unless, after that event, that person and that person's associates hold or control in total not more than 20% of the voting rights in the code company:
(b) 20% or more of the voting rights in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company.
(2) For the purposes of subclause (1), if-
(a) a person and any other person or persons acting jointly or in concert together become the holders or controllers of voting rights, that person is deemed to have become the holder or controller of those voting rights:
(b) a person or persons together hold or control voting rights and another person joins that person or all or any of those persons in the holding or controlling of those voting rights as associates, the other person is deemed to have become the holder or controller of those voting rights:
(c) voting rights are held or controlled by a person together with associates, any increase in the extent to which that person shares in the holding or controlling of those voting rights with associates is deemed to be an increase in the percentage of the voting rights held or controlled by that person.
 The clause 4 class exemption states:
4. Exemption for buyback approved by shareholders
(1) Every person who increases voting control as a result of the acquisition by a code company of its own voting securities is exempted from rule 6(1) of the Code in respect of that increase in voting control.
(2) The exemption is subject to the condition that-
(a) the acquisition is approved by an ordinary resolution of the shareholders of the code company; and
(b) either the person nor any person who is or was at the time an associate of the person voted in favour of the resolution; and
(c) the notice of meeting containing the proposed resolution contained, or was accompanied by,-
(i) the identity of the person; and
(ii) particulars of the voting securities that may be acquired by the code company, including-
(A) the maximum number of voting securities that may be acquired; and
(B) the percentage of all voting securities of the code company that the maximum number of voting securities represents; and
(C) the potential maximum aggregate of the percentages of all voting securities in the code company that the person and the person's associates would hold or control if the maximum number of voting securities were acquired; and
(iii) the consideration for the acquisition or the manner in which the consideration would be determined and when the consideration would be payable; and
(iv) the reasons for the acquisition; and
(v) a statement to the effect that the increase in the person's voting control that would result only from the acquisition by the code company of its own voting securities, if approved, would be permitted as an exception to rule 6 of the Code; and
(vi) a report (or summary of a report) from an independent adviser in relation to the acquisition that complies with rule 18 of the Code (as if the references in that rule to acquisition under rule 7(c) of the Code and notice of meeting referred to in rule 15 of the Code were references to the acquisition and the notice, respectively); and
(vii) a statement by the directors of the code company in relation to the acquisition that complies with rule 19 of the Code (as if the reference in that rule to acquisition under rule 7(c) of the Code was a reference to the acquisition); and
(d) rules 18 and 19 of the Code are complied with in relation to the proposed acquisition (as if the references in those rules to acquisition under rule 7(c) of the Code and notice of meeting referred to in rule 15 of the Code were references to the acquisition and the notice, respectively).
 There are a number of ways in which parties can increase their voting control in a code company. These include full or partial takeovers, the purchase of a block of shares from another company, or an allotment of shares by the code company. All these means of increasing control are governed by prescribed "exceptions" to the fundamental rule of the Code.
 A further method by which parties can increase their percentage of voting control is through a buyback of its own shares by the code company. If a company decides to repurchase its own shares on a pro-rata basis it is possible for existing shareholders to increase their control percentage by not accepting the offer, or accepting it only in part. Provided sufficient of the other shareholders accept the offer in full, those shareholders who do not accept the offer, or accept only in part, will attain an increased percentage of voting control.
 The Panel recognised that buybacks were a normal commercial transaction where the outcome can be a change of voting control of the subject company. The Panel accordingly promulgated two class exemptions, the clause 4 class exemption already discussed, and an exemption under clause 5 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001.
 In general terms, the clause 4 class exemption allows a shareholder who would otherwise breach the fundamental rule, to retain any increase in voting control achieved through a buyback provided that buyback was approved by the "eligible shareholders", being all the shareholders of the company other than those seeking to rely on that exemption and their associates. In contrast, the clause 5 class exemption requires that a shareholder increasing its voting control through a buyback other than in compliance with the fundamental rule sell down its "excess" holdings within six months and not vote those shares prior to the sale.
 In each of the exceptions to the fundamental rule described in rule 7 such as an allotment, partial offer or by acquisition from another, the principles of the Code prescribe the procedure to be followed by the person or persons who may become the holder or controller of an increased percentage of the voting rights:
(a) Identify the person or persons who will be breaching the fundamental rule;
(b) Explain the person's or persons' intentions under the proposed transaction;
(c) Obtain an independent adviser's report on the merits of the transaction;
(d) Permit the other shareholders to vote on the transaction in an ordinary meeting with the benefit of the knowledge gained from steps (a) to (c).
 The TrustPower buyback is a pro-rata offer of 2 shares for every 7 held. The offer also allows any shareholder to accept the offer for up to 100% of its holding. If there is a shortfall in the general level of acceptances TrustPower can process additional acceptances (on a pro-rateable basis) up to the maximum acceptance level of 56.65 million shares.2 As four shareholders hold approximately 90% of the shares in TrustPower, this offer structure provides scope for one or more of the major shareholders to increase their level of voting control (by accepting the offer in part or not at all). At the same time one or more of the major shareholders could significantly reduce, or quit altogether, their shareholding.
 As noted earlier (see paragraph 4), Infratil and Alliant filed substantial security holder notices on 26 March 2003 with the NZSE stating their intentions in relation to the TrustPower buyback on the same day as TrustPower announced the buyback offer. At no stage have shareholders been informed of some of the likely non-proportional changes in shareholding that have clearly been contemplated in this transaction.
 The eligible shareholders of TrustPower are involved in the buyback in two ways. First, they are the recipients of the buyback offer and need to decide whether to accept that offer in whole or in part, or to reject it. Secondly, they have to decide how (or whether) to vote on the resolution that is required to approve the buyback. An added element to this mix is that the "public" eligible shareholders can, by their decisions on acceptance or otherwise of the offer, influence the actual level of control that may be attained by the increasing shareholder(s). The more that public shareholders retain their shares, the lesser will be the increase in control percentage of those shareholders expecting to increase their control percentage.
 There are several steps required in a buyback that is to be approved for the purposes of the clause 4 class exemption. These include (in no particular order):
(a) Shareholders will receive an offer for some or all of their shares which they can either accept or reject;
(b) Shareholders who may vote will be given an independent adviser's report on the merits of the buyback from the point of view of the interests of those shareholders;
(c) Shareholders will be provided with a notice of meeting setting out certain prescribed information relating to the buyback;
(d) The company will hold a meeting of shareholders at which the resolution or resolutions approving the buyback for Code purposes will be either approved or rejected by voting shareholders.
 The key issue for determination in relation to the matter before the Panel was the order in which these events should occur in order for the transaction to comply with the terms of the clause 4 class exemption.
 In the case of the TrustPower buyback the order being followed is:
(a) The offer was made to all shareholders on 26 March 2003, with a closing date (as extended on 14 April 2003) of 24 April 2003;
(b) Following the closing of the offer, the acceptances by the four shareholders with control interests and the public shareholders would be determined;
(c) An independent adviser's report on the merits of the buyback will be prepared by an adviser approved by the Panel;
(d) A notice of meeting, containing certain prescribed information, along with the independent adviser's report, will be provided to shareholders; and
(e) A meeting of the shareholders of the company will be held at which the resolutions to approve or reject the acquisition will be considered.
 A possible alternative sequence of events is that:
(a) The shareholders are provided with a notice of meeting and independent adviser's report in respect of those parties who may breach the fundamental rule and have told the company that they wish to retain any increased level of voting control they may achieve through the buyback;
(b) The company holds a meeting of shareholders to consider and vote on the resolution or resolutions relating to those persons who may be increasing voting control through the buyback;
(c) Following the approval of shareholders, the buyback offer is made to all shareholders.
 A further alternative is that:
(a) The notice of meeting, independent adviser's report, and offer document are all despatched to shareholders at the same time. The offer would possibly be conditional on the buyback being approved for the purposes of the Code;
(b) The offer would close before the meeting is held;
(c) At the meeting of shareholders the resolution(s) for Code purposes would be considered and voted on by shareholders. If approved, the buyback would go ahead.
 It is necessary for the Panel, for the purposes of the section 32 meeting, to come to a view on the way in which the clause 4 class exemption should be applied.
 There are two issues for consideration:
(a) Does the clause 4 class exemption contemplate and require that the notice of meeting containing the proposed resolution be provided to all shareholders before the time at which each shareholders will make their decision whether or not to accept the buy-back offer? Alternatively, consistent with the provisions of clause 4, is it permissible for the buyback offer to be made conditional on the approval of shareholders of the buyback by ordinary resolution, with that resolution being put to shareholders after the shareholders have made their decision whether or not to accept the offer, the offer has closed, and acceptances have become irrevocable?
(b) If the buyback offer is made in a manner which does not comply with the requirements of the clause 4 class exemption, does that non-compliance mean that there has been a failure to comply with the Code itself, in particular a failure to comply with the fundamental rule in rule 6 of the Code?
 The clause 4 class exemption provides an exemption for the benefit of a person who increases voting control as a result of the acquisition by a Code company of its own voting securities (what is commonly called a "buyback"). This exemption is subject to certain stated conditions including:
(a) the condition in subclause (2)(a) that the acquisition is approved by an ordinary resolution of the shareholders of the Code company; and
(b) the condition in subclause (2)(c) that the notice of meeting containing the proposed resolution contains or is accompanied by a number of particulars, including:
(i) particulars of the extent of voting control (expressed as potential maximum aggregates) of the persons claiming the benefit of the exemption;
(ii) a report from an independent adviser which complies with rule 18 of the Code; and
(iii) a statement of the directors of the code company which complies with rule 19 of the Code and includes a recommendation in relation to the proposed acquisition.
 The terms of clause 4 are set out above (see paragraph 17).
 There is no express requirement in the clause 4 class exemption specifying the time by which the notice of meeting referred to in clause 4(2)(c) must be provided to shareholders.
 In the absence of an express provision, it is necessary for the Panel to determine from the wording of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 itself, and its context and purpose in relation to both the Code and the objectives of the Code as set out in the Act, the time at which the notice of meeting is required to be provided to shareholders.
 It was strongly urged on the Panel in submissions presented on behalf of TrustPower, AGL, Infratil, Alliant and TECT that the policy of the clause 4 class exemption and the Code of fairly and fully informing shareholders in making their decision whether or not to approve the buyback would best be advanced by interpreting clause 4 as permitting and enabling a code company to provide the notice of meeting to shareholders after the offer has closed (as well as before it is made), at which point the company will know the number of acceptances which have been received, and the control pattern which has emerged. It was submitted that the notice of meeting and independent adviser's report could then inform shareholders, as it ought to have done, about a known set of circumstances, and this would better equip shareholders to make the decision which is required by the exemption notice, namely, whether or not to approve the acquisition. The various options before shareholders can be more clearly expressed because the control pattern in relation to various substantial shareholders would be known.
 The Panel's provisional view, which it had reached before calling the section 32 meeting, had discerned a different and wider policy. This is the policy set out in the underlying objectives of the Code in section 20(1) of the Act. In particular, objectives (c) and (e) which provide as follows:
(c) Assisting and ensuring that the holders of securities in a takeover are treated fairly
(e) Recognising that the holders of securities must ultimately decide for themselves the merits of a takeover offer.
 These objectives are expressed in the provisions of the Code which require adequate provision to shareholders of information which is needed by shareholders in order to make a properly informed decision on whether or not to accept a takeover offer. Included in that policy are the provisions requiring a report from an independent adviser approved by the Panel where the Code requires an acquisition to have the approval of an ordinary resolution of the code company under rules 7(c) and (d).
 Without being prescriptive about "merits", the Panel has gone to considerable lengths to educate and encourage market participants to deliver independent adviser reports of such scope and content that they cover all material issues relevant to potential changes of control.
 In this circumstance, the independent adviser is likely to examine a number of control implication issues such as;
(a) The intentions of the likely new controlling shareholders in respect of direction of future investment policy, dividend policy, Board construct and Board representation;
(b) Any other changes to the company's activity proposed by the new controlling shareholders;
(c) The possible impact on share value of these changes;
(d) Implications of any change arising from the exit of a major shareholder;
(e) The ability and consequences of the new controlling shareholders to subsequently exercise creep provisions;
(f) The possible impact on the value and liquidity of minority shareholder shares;
(g) The possible implications of the minority shareholders in aggregate holding less than 10% of he company's shares;
 The above views are illustrative of a path of inquiry which may be within the ambit of the independent adviser's inquiry. The Panel does not suggest the above represents a complete coverage of the issues. Rather it is seeking to illustrate the fundamental importance of the adviser's report in these circumstances, and the role of the company in any subsequent interpretation of this advice and in informing its shareholders and providing recommendations to its shareholders in relation to the buyback offer.
 The Panel has observed that the exemption provided for in the clause 4 class exemption requires the relevant notice of meeting to be accompanied by a report from an independent adviser in relation to the buyback (the acquisition). The purpose of that report is to discuss the merits of the buyback having regard to the interests of those shareholders who may vote. This is comparable to the independent adviser's report prepared for the purposes of rules 7(c) and (d) as set out in rule 18, except that in the case of a buyback the shareholder is also a participant in the transaction. Rule 18(1) provides for:
A report from an independent adviser on the merits of any proposed acquisition under Rule 7(c) or allotment under Rule 7(d) having regard to the interests of those persons who may vote to approve the acquisition or allotment.
 The Panel's provisional view was that for an independent adviser's report to be effective it should be provided to shareholders at the time they are considering the buyback offer that is, when they are making their decision whether or not to accept the offer. To send the independent adviser's report to shareholders after they have been required to decide whether to accept the offer effectively negates one of the two main purposes of the document.
The wording of the clause 4 class exemption
 The Panel recognises that the clause 4 class exemption does not expressly state when the notice of meeting is to be provided to shareholders. However, it considers that the language of clause 4(2), when read as a whole and in the context of the provisions of rule 7 in particular, provides support for the view that the notice of meeting required under clause 4(2)(c) must be provided to shareholders at the time when shareholders not affected by control increases are making their decision whether or not to accept the offer, at which time the final control pattern may need to be projected and will not have been finally determined. The following particular features in the wording of clause 4 are referred to -
(a) The "acquisition" referred to in clause 4 can only refer to the acquisition by the code company of its own securities. It is not limited to the increase in control, but covers the process of offer and acceptance whereby the company acquires shares from all shareholders who sell under the buyback. This is clear from the wording of clause 4(1) -
Every person who increases control as a result of the acquisition by a code company of its own voting securities …
The "merits of the acquisition" in rule 18(1) and the report from an independent adviser under subclause (2)(c)(vi) of clause 4 "in relation to the acquisition" are concerned with the offer under the buyback. Similarly the statement of the directors under subclause (2)(c)(vii) "in relation to the acquisition" is also concerned with the offer under the buyback.
(b) Clause 4(2)(a) states that the condition to which the exemption is subject is that "the acquisition is approved by an ordinary resolution". Counsel for TrustPower argued that these words make it clear that the approval by shareholders can follow the acquisition. In the Panel's view, however, the use of the continuous tense is equivocal. This particular clause neither requires the construction that the approval may take place after the point of acceptance or that it must take place before the point of acceptance. Clause 4(2)(a) is equivocal on whether the approval is prospective or may follow the acquisition.
(c) Clause 4(2)(c)(ii)(A) includes among the particulars that the notice provide details as to "the maximum number of voting securities that may be acquired" [emphasis added]. This wording is consistent with there not being at that point in time an acquisition of the voting securities because there is not at that time an offer that has been accepted. This provision is deprived of its general effect if the view put forward by TrustPower and the major shareholders was accepted.
(d) Clause 4(2)(c)(ii)(C) includes among the particulars to be provided, "the potential maximum aggregate of the percentages of all voting securities in the code company that the person and person's associates would hold or control if the maximum number of voting securities were acquired". The use of the word "potential" indicates that the maximum aggregate percentages would not be known at the relevant time. Similarly, the words "would hold" anticipate a future action and similarly the use of the conditional "if …were" again anticipates future action.
This wording suggests that the notice of meeting is to be prospective, in that it looks forward to the point of time at which the control patterns will have finally emerged, but these patterns will not be certain at the time the notice is distributed to shareholders. Again these words would be deprived of their general effect if the submissions put forward by the TrustPower and the major shareholders were accepted.
(e) Clause 4(2)(c)(vi) requires that the independent adviser's report complies with rule 18 of the Code (the reference in that rule is to acquisition under rule 7(c) of the Code that meeting referred to in rule 15 of the Code or references to the acquisition and the notice respectively). As noted in paragraph 43 above, the independent adviser's report is required by rule 18 to deal with the merits of the proposed acquisition. Unless this requirement is to be read as directed only to those issues relating to control, shareholders need to be provided with the independent adviser's report before being required to make a decision on whether or not to accept the offer. "Acquisition" cannot properly be given that restricted meaning. The Panel's own "Guidance Note about the role of independent advisers for the purposes of the Takeovers Code", issued in March 2003 states:
53. If the buyback is one for a fixed price over a short period of time, with the offer made to all shareholders, or a selected group of shareholders, off-market, the adviser will need to consider, among other matters:
(a) The merits of the buyback transaction itself from the point of view of the shareholder as a person who will have to consider whether or not to accept the offer;
(b) The merits of the buyback transaction as concerns its impact on the control of the company from the point of view of the shareholder who has to decide whether or not to approve the buyback and thus allow the major shareholder to increase its control percentage.
(f) Clause 4(2)(c)(vii) requires the notice to include a statement by the directors of the code company in relation to the acquisition that complies with rule 19 of the Code (as if the the reference in that rule to acquisition under rule 7(c) of the Code was a reference to the acquisition). Rule 19 requires the directors in this statement to recommend approval or disapproval of any proposed acquisition. The directors' statement would have to be limited to dealing only with matters relating to change in control patterns, if the view put forward by the substantial shareholders were correct. This would, however, again be to artificially restrict the scope of the Rule 19 disclosure.
 In the view of the Panel, the use of prospective wording and the general requirement that the independent adviser's report and directors' statement comply with rules 18 and 19 indicate that the clause 4 class exemption contemplates that where the buyback offer is made to shareholders generally the notice of meeting is to be provided to shareholders in anticipation of the completion of the offer. This will be at a point in time that this would enable eligible shareholders to have the benefit of the independent adviser's report and the directors' statement when making their own decision whether or not to accept the offer. In the Panel's view the wording of the clause is consistent with, and sometimes requires, that effect be given to the policy referred to earlier in paragraph 37 of this determination.
 Where a general offer is made, major shareholders who are likely to be affected by the application of the Code and who wish to retain any increased percentage of voting control arising from the buyback offer without the need to make a full or partial takeover offer have a responsibility to inform the company of their intentions so that the notice of meeting and the independent adviser can properly address their position. The clause 4 class exemption is available for the benefit of those shareholders. It is for them to provide the company with the needed information on their identity, associates and intentions in relation to acceptance of the buyback so that resolutions can be appropriately put to eligible shareholders.
 If there is material non-compliance with the requirements of the clause 4 class exemption, the outcome is that the exemption will not be available to be relied on. This is particularly the case where, as here, the exemption is expressed to be subject to a condition that is not complied with. Failure to comply with a condition of exemption from rule 6 means that the exemption will fall away. The increase in voting control will therefore be subject to the fundamental rule in rule 6 of the Code, in the absence of reliance on another exemption.
 In the case of buybacks the clause 5 class exemption may be available where a party has increased voting control through a buyback not approved by the shareholders of the company pursuant to the clause 4 class exemption. Under the clause 5 class exemption the shareholder who has increased voting control would have to sell down its excess holding within six months, and not vote those shares in the meantime. However, that is not a possibility, nor a stated intention, in respect of the TrustPower buyback because under the terms of the buyback offer itself the offer will lapse if shareholder approval is not obtained under the clause 4 class exemption.
 The parties that appeared before the Panel at the section 32 meeting adopted submissions put forward by Mr C Allan (appearing for TrustPower) and supplemented by Mr S Kos (appearing for AGL). These submissions were:
(a) The issue before the Panel turns on the interpretation of the clause 4 class exemption.
(b) Section 45(3) of the Takeovers Act 1993 requires that:
An exemption shall have effect according to its tenor".
An exemption must be construed in such a manner as will give effect to the language of the exemption itself.
(c) There is nothing in clause 4 to suggest that the meeting may not postdate the period for acceptances.
(d) Clause 4(2)(a) is clear in requiring only that the acquisition be approved by an ordinary resolution of the shareholders of the code company. It does not require that the notice of meeting or the meeting must precede the offer.
(e) Clause 4(2)(b) is important. It requires that the person increasing control and any associate of that person to be ascertained so that the code company can know who can vote at the meeting. This is not possible until after the offer has closed.
(f) Similarly, rule 18(1) of the Code requires the independent adviser's report to “have regard to the interests of those persons who may vote to approve the [acquisition]". Such persons will not be ascertained until the offer has closed.
(g) Clause 4(2)(c) requires the notice of meeting to state - "the identity of the person", that is the person who increases voting control. The company is unable to identify such persons until the offer has been accepted.
(h) Other provisions in clause 4(2)(c)(ii) which the Panel had suggested might be prospective are neutral in character. They may apply where the notice of meeting precedes the close of the offer but do not require this in every case. There may be some limited cases where identity and associates of the persons increasing control will be known from the outset and the meeting can then be called before the offer closes.
(i) The requirement that the independent adviser must report on the merits of the acquisition refers to the merits of the acquisition insofar as there is an increase in control by affected persons. This requirement must be looked at in the context of the exemption.
(j) The Panel has wrongly focussed on tbe offer in its provisional view. The focus should be on the meeting to approve the increase in control.
 Submissions pointedly drew attention to the difficulty of providing the control outcomes before the offer was made. We have some sympathy with the difficulty the company has had in trying to obtain the co-operation of the 4 controlling shareholders. However:
(a) Alliant and Infratil filed a substantial shareholder notice on the day of the offer indicating clearly and publicly that they intended to increase their shareholding;
(b) TECT has to engage in a public consultation if it wishes to sell more than 5% of its shareholding. Accepting the offer 2 : 7 would require a reduction of 28%. They have not sought to commence a public consultation and advised that they could not complete the consultation in the timeframe available. They must be intending to hold on to the majority of their shareholding at least;
(c) The public hold only 20 million shares;
(d) Given these facts, to reach the minimum acceptance level of, initially, 50 million shares therefore required AGL, holding 40.6 million shares, to sell its entire shareholding and other shareholders to sell parts of their shares including public shareholders needing to adopt counter intuitive behaviour and accept a price below market for their shares;
(e) The arguments of difficulties determining the likely control outcomes failed to recognise that these outcomes were within a narrow range.;
(f) With these facts the Panel does not consider it difficult to determine the likely range of control outcomes.
 The Panel noted that Infratil, managed exclusively by Morrison and Co, had two directors on the board of TrustPower. Infratil and Alliant together control under a public agreement 46.8% of TrustPower. The Panel was told that Morrison and Co were advisers to TrustPower in relation to the transaction.
 After careful consideration of the submissions received at the meeting the Panel's conclusions are:
(a) Although the clause 4 class exemption is not specific as to the timing at which the buyback offer to the ordinary shareholders of the code company can be made, it should be made subsequent to the meeting being held at which the buyback is approved for the purposes of the Code;
(b) It is incumbent on any shareholder wishing to take advantage of the benefits of the clause 4 class exemption to provide the sponsoring code company with the required information about its acceptance intentions, and those of any associates, before any offer is made to shareholders so that an independent adviser's report and notice of meeting can be properly prepared;
(c) The sponsoring company is placed in an invidious position if it wishes to promote a buyback as a means of returning capital to shareholders and has shareholders who intend to retain any consequent increases in voting control but who are not, for whatever reason, prepared to disclose their precise acceptance intentions to the company. It risks the company being placed in the position of being a party that is aiding or abetting a breach of the Code by its major shareholder or shareholders through following a procedure that does not comply with the terms of the clause 4 class exemption;
(d) The Panel does not accept that TrustPower should have any difficulty in presenting information to shareholders that is meaningful and neither confusing nor misleading;
(e) The Panel concludes that the buyback offer distributed to shareholders on 26 March 2003 does not comply with the terms of the clause 4 class exemption.
 The consequence of this non-compliance is that any shareholders in TrustPower who intend to increase their voting control percentage, and retain that increase, through the buyback, in reliance on the clause 4 class exemption, can be considered to be intending to breach rule 6 of the Code because the buyback does not comply with that class exemption. The clause 5 class exemption is not available to such shareholders because the offer is conditional on approval of shareholders under the clause 4 class exemption, and that condition cannot be waived by TrustPower.
 The next issue to consider is the identity of those of the major shareholders of TrustPower that intend to increase their voting control in that company through the buyback.
 The Panel received evidence in confidence from each of the major shareholders about their intentions in relation to the buyback. The evidence was received in the absence of representatives of the three other shareholders of TrustPower, although legal counsel for all parties were present.
 The Panel wishes to protect the confidentiality of the evidence it received. On the other hand, it was the purpose of the Panel's meeting to ascertain if any of TrustPower's shareholders intend to breach the Code.
 The Panel reached the following conclusions regarding the major shareholders:
(a) In respect of AGL, the Panel considers, on the basis of the evidence received at the meeting, that it does not intend to increase its control percentage as an outcome of the buyback;
(b) In respect of Infratil, the Panel considers, on the basis of the substantial security holder notice filed on 26 March 2003 and evidence received at the meeting, that it intends to increase its control percentage in TrustPower, both on its own and when combined with its associate Alliant, as an outcome of the buyback in reliance on the clause 4 class exemption;
(c) In respect of TECT, the Panel considers, on the basis of evidence received at the meeting, that it intends to increase its control percentage in TrustPower as an outcome of the buyback in reliance on the clause 4 class exemption;
(d) In respect of Alliant, the Panel considers, on the basis of the substantial security holder notice filed by Infratil on 26 March 2003 and evidence received at the meeting, that it intends to increase its control percentage, both on its own and when combined with its associate Infratil, in TrustPower as an outcome of the buyback in reliance on the clause 4 class exemption.
 The Panel determines that it is not satisfied, because of the non-compliance with the clause 4 class exemption, that those shareholders who intend to increase their voting control in TrustPower as an outcome of the buyback intend to do so in compliance with the Code. These particular shareholders are Infratil, Alliant, and TECT. The Panel notes that TrustPower has aided this non-compliance by promoting its buyback in a form that does not comply with the clause 4 class exemption.
 The Panel considers it would be inappropriate, in present circumstances, for TrustPower to proceed to call a meeting of the company purporting to put resolutions to shareholders for approval under the clause 4 class exemption when TrustPower has not followed the procedure required by that exemption notice. The Panel is aware of the significance of the buyback offer and is prepared to accommodate by exemption a solution that would allow the increases in voting control on the major shareholders to be validated. However, the Panel considers it needs to act to protect the interests of the public shareholders in the meantime in case TrustPower does not choose to follow this path.
 Accordingly the Panel makes a restraining order under section 32(4) of the Act to restrain TrustPower for a period of 21 days from calling a meeting of shareholders of the company at which resolutions seeking the approval of shareholders to increases in voting control by Infratil, Alliant and TECT arising from the buyback undertaken by TrustPower in March and April 2003, acting in reliance of clause 4 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001.
 The Panel appreciates that TrustPower has been put in a difficult position because, on the basis of evidence received by the Panel, three of its four major shareholders have, for various reasons unrelated to the application of the Code, not disclosed to it their acceptance intentions in relation to the buyback. The buyback offer is a very large commercial transaction, valued at some $220 million, and is currently underway.
 The Panel considers that the structure of the clause 4 class exemption requires any major shareholder which wishes to avail itself of the opportunity to increase its control percentage by a buyback to disclose their acceptance intentions before the offer was made to all shareholders. In the particular and somewhat unusual circumstances of TrustPower (having four major shareholders holding or controlling close to, or over, 20% of the voting rights) this was not achieved.
 The Panel recognises the importance of the buyback to TrustPower and its shareholders. However, it is concerned that smaller "public" shareholders have made decisions in relation to the buyback offer without the benefit of an independent adviser's report or a notice of meeting identifying those shareholders seeking to increase their control percentages as an intended outcome of the offer.
 In order to enable the current buyback offer to continue following the termination of the restraining orders the Panel invites TrustPower and those shareholders intending to take advantage of the benefits of the clause 4 class exemption to apply to the Panel for a specific exemption in approximately the following terms:
(a) The buyback offer would finish on its present closing date of 24 April 2003;
(b) Once the responses of the four major shareholders, and the "public" shareholders, are known:
(i) TrustPower would prepare a notice of meeting containing appropriate resolutions seeking shareholder approval to the maximum increases in voting control of those shareholders relying on the notice; and
(ii) an independent adviser's report would be prepared by an independent adviser approved by the Panel; and
(iii) the notice of meeting and the adviser's report would be distributed to TrustPower's shareholders,
(c) the meeting of TrustPower would be held at least three weeks after distribution of the notice of meeting. During the period between the time of distribution of the independent adviser's report/notice of meeting, and the meeting itself, public shareholders would be given the opportunity to reconsider their decision in relation to the offer. That is, they could either rescind an earlier decision to accept the offer, or make a late acceptance of the offer, once they had the benefit of the additional information provided to them in the independent adviser's report and the notice of meeting.
 The Panel would endeavour to deal with any exemption application as expeditiously as possible.
 The Panel will deal with costs separately in terms of the Takeovers (Fees) Regulations 2001.
DATED at Auckland this 17th day of April 2003
SIGNED for and on behalf of the Panel
D O Jones