Discussion Paper: Schemes of Arrangement and Amalgamations Involving Code Companies
19 June 2006
Introduction
The Takeovers Panel is seeking urgent public comments on possible changes that could be made to the Takeovers Code and the provisions of the Companies Act 1993 governing amalgamations and schemes of arrangement.
One of the functions of the Panel is to keep under review the law relating to takeovers of specified companies (code companies) and to make recommendations for changes to the law as appropriate. The Panel has for some time been reviewing the use of schemes of arrangement and amalgamations under the Companies Act as a means of effecting changes of control of code companies. This first led the Panel to develop a policy on exemptions for schemes of arrangement, published in July 2003. With the growth of schemes as a means of effecting changes in control of code companies since publication of that policy, the Panel has had to regularly review its policy.
Recently that on-going review had coincided with significant media and market attention on the ability of market participants to use schemes of arrangement and amalgamations to effect a merger or acquisition involving a code company in a manner that is outside of the provisions of the Code.
The Panel has been reflecting on media comments, submissions made to the Panel in response to a recent paper produced by the Panel on its policy for exemptions for schemes and on its own experience with the application of the Code. As a result the Panel has decided that it should make recommendations to the Government on what it considers are desirable changes to the law. The Panel does not wish to do this without the benefit of additional market comment on a number of specific issues raised in this paper.
Background
Some market participants have advised the Panel that they are concerned that merger transactions that have the same result as a code offer can be structured as an amalgamation or scheme of arrangement in a manner that means the rights and protections available to shareholders under the Code do not apply. There has been some suggestion in the media that the integrity of the New Zealand market will suffer if the provisions of the Code can be avoided by adopting a mechanism to acquire a code company outside of the provisions of the Code.
Other market participants have argued that it is appropriate that companies should be free to choose between various change of control mechanisms.
In response the Panel has been reviewing the relationship between the Code and the provisions in the Companies Act relating to amalgamations and mergers.
The Panel, like many market participants, is concerned that the rights of shareholders of code companies, particularly minority shareholders, in respect of mergers and acquisitions are dependent upon the choice of mechanism used by parties to effect such a transaction. The Panel considers that there should be consistency as to the rights and protections for code company shareholders regardless of the form of the mechanism used to effect a merger with or acquisition of a code company.
In this paper we discuss the relationship between the Code and the reconstruction provisions of the Companies Act and possible issues arising from the use of schemes and amalgamations to effect a merger with or acquisition of a code company. We also discuss the Panel's current approach to issues arising in relation to the use of amalgamations and schemes in respect of code companies. This paper also discuses how such problems could be addressed in the form of amendments to the Code and the Companies Act.
The Panel would like to hear from the market on the issues raised in this paper and possible amendments to the Code and the Companies Act to address such issues. There is a list of questions that we would particularly like market participants to address at the end of this paper.