Guidance Note – Payment of Takeover Consideration in Foreign Currency

Published 1 May 2010

The Takeovers Code has no prescriptive rules about the form of consideration that can be offered in a takeover. Consideration can include scrip (e.g., equity securities in the offeror, debt securities, etc), cash, any other thing of value, or a combination of these.

The terms of an offer may provide for target company shareholders to be paid the offer consideration in a currency other than New Zealand Dollars. A number of recent offers have included this facility.

The key issue for offerors to be aware of when including options for payment of any type of consideration is that any such offer must comply with rule 20 of the Code. Rule 20 provides that:

An offer must be made on the same terms and provide the same consideration for all securities belonging to the same class of equity securities under the offer.

This means that all offerees must be given the option to be paid under any of the consideration options. For example, it would likely result in a breach of rule 20 of the Code if, say, only Australian resident target company shareholders were offered the option of being paid in Australian Dollars.

Where consideration in a foreign currency is offered, the Panel’s expectation is that the terms of the offer will clearly indicate how the exchange rate will be calculated at which the offer consideration is to be converted from New Zealand Dollars into foreign currency. This may include a reference to an objectively determined formula for calculating the exchange rate. For example, the formula might be the spot rate for buying the relevant foreign currency with New Zealand dollars quoted by a reputable financial institution at a specified time before the date of payment.

Prospective offerors and legal advisers are encouraged to discuss with the Panel executive any questions they may have about offering payment of foreign currency as consideration.

Where consideration in a foreign currency is offered, the Panel’s expectation is that the terms of the offer will clearly indicate how the exchange rate will be calculated at which the offer consideration is to be converted from New Zealand Dollars into foreign currency.