Annual Report for the year ended 30 June 2008
CHAIRMAN'S REVIEW
This has been another busy year for the Panel. In addition to its day-to-day operational
duties, including enforcement activities, the Panel has made recommendations to the
Minister for changes to the law in relation to schemes of arrangement affecting Code
companies; made recommendations for further changes to the Code and the Act; given
guidance to the market on a number of important Code-related issues; and undertaken a
review of its own governance arrangements.
Schemes of arrangement
The most significant of the Panel's policy work during the year has been the review of the
provisions of the Companies Act 1993 governing changes of control of Code companies and
the interaction of those provisions with the Code. This work was carried out at the invitation
of the Minister and against the background that schemes of arrangement under Part 15 of
the Companies Act are a legitimate and flexible legal vehicle for complex transactions.
Following intensive work and public consultation on an options paper prepared by the Panel,
after input from the New Zealand Institute of Economic Research and consideration of the
approach of overseas jurisdictions to schemes (particularly in Australia), the Panel has
provided recommendations to the Minister for her consideration.
Enforcement actions
Enforcement work is the largest of the Panel's outputs. Major enforcement activity during
the year concerned:
> Kerifresh Limited - in relation to the actions of certain of its shareholders;
> Auckland International Airport Limited - in relation to the proposed takeover by the Canada Pension Plan Investment Board;
> Abano Healthcare Limited - in relation to the unsuccessful takeover bids made to its shareholders and a dispute over the recovery of costs incurred by Abano in responding to the bid made by Crescent Capital Partners Limited.
Kerifresh
In October and November 2007 the Panel held two meetings under section 32 of the Takeovers Act 1993 in relation to Kerifresh. The Panel determined that various persons were associates who had not complied with, were not complying with, or did not intend to comply with, the Code.
The Panel sought a solution that was appropriate and fair to the shareholders and to the company, and would resolve the matter quickly without recourse to Court. The commercial solution agreed to, included the sale by auction of Kerifresh shares acquired in breach of the Code totalling some 23% of the voting rights in Kerifresh. The auction was conducted by an independent broker appointed by the Panel. The outcome was a successful auction and ultimately the takeover of Kerifresh by Turners & Growers Limited.
DAVID JONES
CHAIRMAN
Auckland International Airport (AIAL)
A number of issues arose in the course of the bid by the Canada Pension Plan Investment Board (CPPIB) for AIAL which engaged the Panel and the Panel executive over several months. These included interpretative matters around the rules for partial takeovers and issues over the payment of broker handling fees by CPPIB and in response by AIAL.
Abano Healthcare Limited
Interpretative issues also arose in the bid by Crescent Capital Partners for Abano. The final issue arising out of that bid concerned issues of alleged non-compliance by Crescent with rule 49(2) of the Code in relation to the recovery of takeover expenses properly incurred by Abano. The Panel convened a section 32 meeting to determine the issues, but without making a formal determination on the point as the parties reached a private settlement. The Panel intends to issue a guidance note to the market on its interpretation of rule 49(2) of the Code.
Legislative environment
New Law
Rule 64 of the Code, which prohibits misleading or deceptive conduct in Code-regulated transactions, came into force on 29 February 2008. The rule applies to any person who engages in misleading or deceptive conduct relating to a Code-regulated transaction or event, not just to bidders or target companies or major shareholders. The December 2007 issue of the Panel's Code Word explained the new law in detail and signalled to market participants that the Panel will protect the interests of the market by insisting that participants adhere to unequivocal statements they have made.
The Panel has not yet taken any formal enforcement action in relation to non-compliance with rule 64 of the Code.
Review of Law
One of the functions of the Panel is to keep the law under review. At a policy level the Panel's review of schemes of arrangement is an example. At a technical level the Panel is keen to ensure that any anomalies or areas of uncertainty which may arise in relation to the Code are addressed. For this purpose it is currently working on a range of technical amendments to the law, the need for which has come to light in the course of Code transactions over the last few years.
Guidance
Improving public understanding of takeovers law is an important function of the Panel. The
Panel achieves this through engaging with market participants in person, participating in
industry seminars, the publication of Code Word on a regular basis, the maintenance of an up-todate
and comprehensive website and the publication of guidance notes. In the last year the Panel
has published a number of guidance notes:
> In August 2007 the third edition of the Panel's guidance note for approved independent
advisers was published. This edition highlighted the undesirable concentration by advisers
on the "fairness" of transactions at the expense of a balanced consideration of the merits of a
transaction;
> In December 2007 a guidance note was published stating the Panel's view that shareholders
means each shareholder named in the company share register. Another guidance note dealt
with conditional acceptance facilities under which acceptances are held by a third party until
certain conditions (e.g. an acceptance threshold) are met which trigger the actual acceptance;
> In June 2008 a guidance note was published on the increasingly common practice of
takeover offerors paying broker fees for handling target company shareholders' acceptances.
Arrangements with Securities Commission
The Panel has contracted with the Securities Commission to provide a number of the Panel's
operational resources including the Panel's dedicated staff and premises. Following an internal
governance review undertaken during 2007, the Panel is in the process of becoming the
employer of all its dedicated staff. Ultimately the Panel intends to move to its own premises.
The Panel continues to enjoy the support of the Commission under its Memorandum of
Understanding and records its gratitude to the Commission for its assistance and support over
this period.
Executive Team
Following the staff restructuring, the appointments of Kerry Morrell as the Chief Executive
Officer, and Margaret Bearsley as General Counsel, were formalised.
Kerry is a chartered accountant who was employed by the Securities Commission for 17 years,
for the last seven of which he was the Senior Executive Officer of the Panel. Before that he was
employed by the Reserve Bank in various senior positions.
Margaret Bearsley was appointed as the Panel's first General Counsel. Margaret was also
employed by the Securities Commission for several years as a Senior Lawyer for the Panel, prior
to accepting the new position. Margaret had previously spent several years at the Ministry of
Economic Development after some time in private practice.
During the year, and before the restructuring, Marion Hemphill, Counsel to the Panel for some
three years, resigned her position with the Panel to pursue her legal career overseas. The Panel is
grateful to Marion for her commitment to the Panel and for her contribution to many facets of
the Panel's legal work.
Panel Members
The Panel is a committee of the market. The Panel has provision for 11 members who must be
qualified or experienced in business, law or accounting. Members are variously lawyers, company
directors, sharebrokers, merchant bankers, accountants or financial advisers. Included in that
number is provision for the appointment of a member of the Australian Takeovers Panel under a
reciprocal arrangement made between the Governments of Australia and New Zealand. Under
that arrangement, the Chairman of the New Zealand Panel sits as a member of the Australian
Takeovers Panel.
The term of office of Kevin O'Connor expired during the year and he was reappointed for a
period of two years. The term of office of the Panel's Deputy Chairman, Alastair Lawrence,
expires later in 2008. Mr Lawrence has been a Panel member since 1993 and is not seeking
reappointment to the Panel. Current member, Colin Giffney, has been appointed to succeed
Mr Lawrence as Deputy Chairman. Peter Scott was appointed as the Australian Panel's
representative on the New Zealand Panel with effect from 10 July 2008.
Relationship with Australian Panel
The reciprocal arrangement with the Australian Panel has been very beneficial once more.
The Panel has been able to draw on Australian experiences when looking at cross-border
consequences of takeovers affecting Code companies, and in developing its own policies on
misleading and deceptive behaviour. Additionally the Panel has been able to consult with the
Australian Panel in developing its consultation paper on schemes.
Appreciation
My thanks go to the members of the Panel for their dedication, skills and willingness to take
part in Panel work, often at very short notice. I congratulate Kerry Morrell and Margaret
Bearsley on their recent appointments and thank them and the other staff members for their
commitment and highly professional work during the past year. I also acknowledge and thank
the Minister and the Ministry for their constructive support of the Panel during the year.
I believe 2007-2008 has been a year when the Panel has proved itself responsive to the market
environment and has kept market participants well informed on matters which affect them,
including on the Panel's views on takeovers law. We will continue to do so in future.
D O Jones
Chairman
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