Scrip offers and overseas shareholders

Published 1 January 2005

A number of offerors making scrip offers have sought exemptions from rule 20 to allow them to offer overseas shareholders cash only rather than scrip. In the absence of such exemptions offerors would be required to ensure that their offer complies with securities laws in every country where target company shareholders reside. Compliance with such overseas requirements as well as New Zealand securities law requirements increases the cost and complexity of making a scrip offer for a New Zealand Code company.

In contrast with the applications regarding differential offers, exemptions in respect of scrip offers and overseas shareholders are an example of addressing a situation where the provisions of the Code have an unintended and undesirable outcome. Scrip offers are an important part of the takeovers market and yet without an appropriate exemption the existence of overseas target company shareholders would have an undesirable effect on the ability to make scrip offers.

Consequently the Panel has a policy that it will grant exemptions from rule 20 in respect of offers to overseas shareholders but only if it is satisfied that the number of overseas shareholders in any jurisdiction is extremely small and the alternative consideration to be offered to overseas shareholders is equivalent to that being offered to remaining shareholders. The Panel’s exemptions will not extend to jurisdictions where there are a significant number of overseas shareholders or where it is known that the offer can be properly made using the New Zealand offer documents. This ensures that the purpose of rule 20 is preserved.

This policy was applied in respect of exemptions granted to Independent Newspapers Limited and Normandy NFM when making scrip or scrip and cash offers. In those cases the cash offered to overseas shareholders was the net proceeds of the sale by a nominee of the scrip that would otherwise have been allotted under the offer to each overseas shareholder. This ensured that overseas shareholders were in the same position as New Zealand shareholders who immediately sold the scrip received by them under the takeover offer. In both cases the scrip offered by the bidder was listed at the time the offer was made so was easily realisable in an established market.

This policy was also applied in respect of an exemption granted to Prime Infrastructure Networks (New Zealand) Limited in respect of an offer for Powerco Limited. The Panel granted an exemption from rule 20 to allow certain overseas shareholders, who at the time of the application held less than 1% of Powerco’s total issued shares, to be offered cash provided that an independent adviser certified that the cash amount to be offered was of an equivalent value to the cash and scrip consideration offered to New Zealand shareholders. The Panel took this approach because the scrip offered was new and was not listed and it was considered that the nominee approach adopted in respect of Independent Newspapers and Normandy NFM was not appropriate. Although the certificate as to equivalence was obtained, unfortunately the exemption was exploited because of the view, supported by the rule 21 adviser and actively promoted by share brokers and advisers, that the fixed cash amount was better than the cash and scrip consideration offered to New Zealand shareholders. The number of “overseas” shareholders increased dramatically as shareholders sought to obtain the benefit of the exemption. The policy behind the exemption was consistent with the Code but unfortunately the conditions were exploited in an unexpected manner as a result of the complexity of the offer to New Zealand shareholders. The Panel will ensure that the conditions of future exemptions from rule 20 in respect of overseas shareholders do not provide the opportunity for such exploitation.