Amalgamations under Part XIII of the Companies Act

Under Part XIII of the Companies Act two or more companies may amalgamate and continue as one company, which may be one of the amalgamating companies or a new company, if:

• the amalgamation proposal is approved by shareholders representing 75% of the voting rights voted at a meeting of shareholders of each amalgamating company; and
• the board of each amalgamating company resolves that in its opinion the amalgamation is in the best interests of the company and it is satisfied on reasonable grounds that the amalgamated company will satisfy the solvency test contained in the Companies Act.

Amalgamations under Part XIII are not limited to situations where two or more companies merge and the shareholders of the merging companies continue as shareholders of the amalgamated entity. The amalgamation provisions also anticipate amalgamations where the two companies amalgamate but the shareholders of one entity receive cash consideration from the other entity or have a cash alternative for their shares in an amalgamating company.

Neither the Code nor the Companies Act provides that the provisions of the Code do not apply to changes of control of code companies resulting from an amalgamation under Part XIII of the Companies Act.

Accordingly, if an amalgamation would result in a person becoming the holder or controller of voting rights in a code company the fundamental rule will apply and the parties will need to consider whether they can utilise one of the mechanisms in rule 7 of the Code. Some amalgamations which involve the allotment or acquisition of shares by a person can be approved by shareholders in accordance with rule 7(c) or 7(d)⁴.

In such situations, shareholders of the relevant company would in effect have two votes in respect of the amalgamation proposal:

• For the purposes of the Companies Act the amalgamation proposal would need to be approved by a resolution of 75% of shareholders voting at a meeting, with all shareholders in the code company being entitled to vote; and
• For the purposes of the Code the acquisition or allotment of shares in the code company would need to be approved by a resolution of more than 50% of shareholders entitled to vote and voting at a meeting. Parties acquiring or selling shares in the code company under the amalgamation and their associates would not be entitled to vote.

However, amalgamations can often be structured to avoid the Code.

If two companies are amalgamated and one is a code company the amalgamation can be structured so that the code company will be extinguished as a legal entity and the shareholders will become holders of shares in an entity that is not a code company. In these circumstances at no stage in the amalgamation process will any person actually obtain or control shares in the code company. Accordingly, even though such amalgamation transactions may have the same ultimate result as a code offer or acquisition they will not have any Code consequences. Since such amalgamations will not have any Code consequences, parties merging with a code company in this way will not need to comply with the requirements of the Code.

An amalgamation proposal will need to be approved by a resolution of shareholders of the code company but the level of shareholder approval required is different from that required in respect of code transactions.

Although an acquisition or allotment under the Code can take place with the approval of only a majority of shareholders entitled to vote and voting at a meeting, dissenting shareholders can continue to hold their shares in the code company unless a person reaches the 90% dominant owner threshold and compulsorily acquires all outstanding shares.

In respect of an amalgamation the nature of the transaction is that all shares of the amalgamating companies will be compulsorily acquired. Shareholders cannot choose to continue to hold their shares in the code company as it will cease to exist after the amalgamation. However, the threshold for this to occur is 75% of shareholders voting at a meeting. This is significantly lower that the compulsory acquisition threshold under the Code.

Dissenting shareholders in respect of an amalgamation under Part XIII of the Companies Act have a minority buy-out right under section 110 of the Companies Act. This right is only available to shareholders who cast an opposing vote at the relevant shareholder meeting. This differs from the Code in that under the Code all shareholders in a code company can require to be bought out if a person becomes the dominant owner of the company but this is only triggered when a person becomes the holder or controller of 90% or more of the voting rights in the company.

Like shareholders considering a code transaction, shareholders considering an amalgamation proposal must be provided with a document setting out the terms of the proposed transaction. Part XIII of the Code sets out a list of specified information that must be included in the proposal. Part XIII also requires that the shareholders in the amalgamating companies must also receive information about the constitution of the amalgamated company, the minority buy-out rights and material interests of directors in the proposal.

However, there is no requirement in the Companies Act that shareholders receive a report on the merits of the proposed transaction from an independent adviser. An independent appraisal report may be required by the Listing Rules if the relevant code company is a party to a listing agreement with the New Zealand Exchange Limited.

Footnotes

4. This was the case in the recent merger transactions undertaken by Wakefield Health Limited and Royston Hospital Limited. In that case an allotment was to be made by one of the merging companies, a code company, to a major shareholder of the other company. The parties sought the approval of non-associated shareholders of the allotting company to the allotment under rule 7(d) of the Code.