In terms of the compliance costs of the possible amendments to the Code and Part XIII of the Companies Act described above, an amendment of this nature would increase compliance costs for companies wishing to utilise the amalgamation provisions of the Companies Act because of the need to apply to the Panel for approval. Currently amalgamations take place without the involvement of any regulator. An amendment of the type discussed above would mean that code companies wishing to put an amalgamation proposal to shareholders would need to make an application to the Panel for approval of the proposed amalgamation process.

The Panel did not receive many comments on the issue of compliance costs regarding its proposed amendments as they related to amalgamations. The comments on the Panel's proposals concentrated on issues of certainty. However, some parties who were opposed to the Panel's suggested amendments considered that amalgamations under an amended Companies Act would be more costly.

Having reviewed the submissions the Panel considers that its suggested amendments regarding amalgamations are appropriate and necessary to address the problems arising from the use of amalgamations in respect of code companies.

The Panel does not agree that the current amalgamation provisions provide sufficient rights and protections for code company shareholders. It notes that the rights and protections differ in the key areas of provision of information, shareholder approval thresholds and compulsory acquisition thresholds. The Panel considers that the intention of the Code to provide special protections to shareholders of code companies is not fulfilled if market participants can utilise the amalgamation provisions of the Companies Act to avoid the requirements of the Code.

The deficiency in the present legislation is demonstrated by the Waste Management case. It was in effect, and seen by the market as, a takeover done by way of an amalgamation to avoid the constraints of the Code. This deficiency needs to be dealt with if the integrity of the takeovers market is to be maintained.

The Panel notes that market participants have a desire for certainty and the amalgamation provisions allow transactions to occur with a level of certainty that may not be available in respect of a code transaction, particularly an offer, because the approval thresholds are lower. However, the Panel does not consider it appropriate that this certainty for parties promoting a merger or acquisition of a code company by way of amalgamation be obtained at the expense of shareholders of code companies by avoiding the rights and protections provided by the Code.

The primary focus for the protection of shareholders of code companies is the Code. If amalgamations are to be permitted in respect of code companies then the intention should be to maintain the protections of the Code. As the procedures for takeovers and amalgamations differ there needs to be some modification of the absolute requirements of the Code to take account of these differing procedures.

The Panel considers that these mechanisms need to be as far as possible consistent with the principles of the Code. The Panel as a regulator under the Code is in the best position to determine how the principles of the Code can be applied to amalgamations. As with takeover matters the Panel develops and disseminates policy papers. In this paper the Panel has already indicated the way in which it would exercise the powers contained in the proposed amendment to the Companies Act. The position with amalgamations in analogous to schemes of arrangement except without the overview of the Courts. However, there is consistency under the proposed amendments in that the Court will have the benefit of the recommendations of the Panel.

This level of discretion which the Panel will have in respect of amalgamations under an amended Companies Act should not deter market participants from using the amalgamation provisions of the Code. It would be no more uncertain that the current provisions of the Companies Act relating to schemes of arrangement. In respect of schemes the Court has a discretion to impose voting and other requirements as it considers appropriate. A body of practice has built up over time and parties consider this practice in making applications to the Court but the Court maintains an ultimate discretion. The Panel would take a similar approach to amalgamations under an amended Companies Act. The discretion which the Panel will exercise is also similar to the discretion that the Panel has to grant exemptions from the provisions of the Code.

The Panel also notes that if parties do not wish to submit themselves to the discretion of the Panel under an amended Companies Act they can still seek to effect an amalgamation under the scheme of arrangement provisions in the Companies Act. The transaction could be exactly the same transaction but effected as a scheme under the supervision of the Court. If an amalgamation was structured under Part XV of the Companies Act this would mean that minority buy-out rights would not apply but it would be open to the Court to include such rights as a condition of approval of a scheme.