Broker Handling Fees in a Takeover

Published 1 June 2008

Broker handling fees are sometimes offered to brokers in connection with a takeover offer made under the Code.

Generally, the offeror pays the fee to brokers for ‘handling’ target company shareholders’ acceptances of the offer. Evidence is provided of the broker having handled the shares, for example, by the broker’s stamp appearing on the acceptance form relating to the shares.

The payment of broker handling fees by takeover offerors is now becoming a more common practice in New Zealand. The practice is relatively common in Australia. [1]

The Code does not prevent the payment of broker handling fees. However, the Panel considers that the commitment by an offeror, to pay brokers fees for handling target company shareholders’ acceptances, constitutes a term of the offer. Therefore the terms and conditions of any arrangement to pay a broker handling fee should be included in the offer document.

If the terms and conditions of a broker handling fee are not included in the terms of the offer, any announcement of an intention to pay such a fee may amount to a variation of the offer which is not permissible under rule 27 of the Code.  The Panel considers that broker handling fees are not simply a matter between the offeror and the brokers.  The payment and the conditions pertaining to the arrangement have implications for shareholders because shareholders will necessarily be approached by brokers and may be invited to pursue a particular course of action, involving use of the broker in relation to their acceptance of the offer.

This was an issue which the Panel had to address recently.  In December 2007, the Canada Pension Plan Investment Board (CPPIB) made a partial takeover offer for Auckland International Airport Limited (AIAL).  CPPIB wished to obtain a 40% stake in AIAL. The Code’s partial offer rules required CPPIB to provide voting forms for the AIAL shareholders (to accompany the offer document and acceptance forms sent to the shareholders) so that the shareholders could vote on whether to approve or object to CPPIB making a partial offer for less than a majority stake in the company.

The offer document was sent to AIAL shareholders on 14 December 2007. The offer document contained a statement indicating that a broker handling fee may be paid by the offeror, if the offeror chose to do so.

On the same day, an announcement was made that included terms and conditions for the payment of the handling fee that were not included or anticipated in the offer document. In particular a condition required that, in order for brokers to be eligible to obtain payment of the fee, the brokers’ stamps had to appear on not just accepting shareholders’ acceptance forms but also on accepting shareholders’ voting forms and the shareholder had to have voted to approve the partial offer being made.

There was no suggestion in CPPIB’s offer document that the payment of the broker handling fee was conditional on acceptance forms being accompanied by voting forms where shareholders had voted in favour of the offer being made. The Panel took a preliminary view that the broker handling fee may have amounted to a variation of the terms of the offer and may have also resulted in the offer document being misleading by omission.

Following discussions with the Panel, CPPIB decided to withdraw the qualification to the payment of broker handling fees that required shareholders to also approve of the offer. Advisers should ensure that if broker handling fees are to be paid by an offeror, the offer document makes an express statement of that fact and sets out the terms and conditions which apply to their payment. 

 

Footnotes:

[1]  The Australian Panel published a Guidance Note in 2003 expressing its view on the use of broker handling fees in the context of that jurisdiction’s takeover rules. See GN 13: Broker Handling Fees, available under the Guidance menu, at www.takeovers.gov.au.