Applicants for an exemption must provide strong arguments as to why it is proposed to use a scheme of arrangement rather than using the Code. There must be genuine reasons for using a scheme for the Panel to favourably consider granting an exemption. The Panel needs to be satisfied that the scheme is not being promoted in order to avoid the disciplines and protections of the Code.

Any exemption granted by the Panel would be framed so as to preserve as far as possible the objectives of the Code and the disciplines of a Code offer.

The Panel may require as a condition of exemption certain voting thresholds for shareholder approval of the proposed scheme. Generally the following voting thresholds applied as conditions of exemption would be:

• 75% of votes cast by those entitled to vote and who vote at the meeting, including by proxy, and being more than 50% of the total voting rights of the target company; and
• 50% by number of shareholders who are entitled to vote, and who vote at the meeting, including by proxy.

However there may be circumstances where the Panel imposes different, more appropriate, voting thresholds.

The Panel will be concerned to ensure that shareholders are given adequate information about the proposed transaction. It will require, at least, that:

• information provided to shareholders should be equivalent to that which would have been provided under a Code offer; and
• an independent adviser approved by the Panel should report on the merits of the scheme of arrangement to shareholders of the scheme company who are entitled to vote on the proposal.

Applicants for exemption should indicate their intentions in respect of the proposed transaction to the Panel early in the planning process. The exemption application should be sent to the Panel for consideration well before the application to approve the scheme is made to the Court.

The full policy statement can be viewed on the Panel’s website www.takeovers.govt.nz.

SCRIP OFFERS

Scrip offers can provide difficulties for a bidder in two areas. First, small shareholders may receive unmarketable parcels of scrip. Second, overseas shareholders may necessitate compliance with the requirements of overseas jurisdictions. The Panel has considered both issues.

Unmarketable parcels – class exemption (2003/234)

Rule 20 of the Code requires an offer to be made on the same terms and provide the same consideration for all securities of the same class. The effect is that an offeror who makes a takeover offer with consideration that includes securities listed on a stock exchange may be obliged to provide some smaller security

holders with an unmarketable parcel of securities. Unmarketable parcels of securities may be difficult for security holders to deal with and are expensive for companies to administer.

Consequently the Panel has granted a class exemption to allow offerors to limit the consideration offered to small security holders to cash.

The expression “small security holder” referred to in the exemption is defined as a person who would, if that person was offered, and accepted, consideration securities under a scrip offer, receive an unmarketable parcel of consideration securities. The other key definition is the “unmarketable parcel” which is defined as a number of consideration securities that is less than the minimum holding of consideration securities specified by the stock exchange.

This class exemption obviates the need for specific exemptions in cases where scrip consideration may result in the issue of unmarketable parcels of shares.

The exemption specifies the way in which the cash consideration which is to replace the scrip consideration is to be calculated. It provides:

• if the offer does not include a cash alternative, the cash consideration is an amount equal to the value of the shares, plus any additional cash under the offer; and
• if the offer does include a cash alternative, the cash consideration is the greater of

• the amount of the cash alternative; and
• an amount equivalent to the value of the shares, plus any additional cash under the offer.

The “value of the shares” offered as scrip is defined as the weighted average of the closing prices of the shares on the exchange over a period of five trading days immediately preceding a date which is five days before the first date when consideration is sent to any offeree who has accepted the offer.

Overseas shareholders

Bidders wishing to offer scrip under a takeover offer will need to ensure that the offer complies with securities laws in every country where target company security holders reside.

The Panel is aware that compliance with securities law requirements in overseas jurisdictions can be expensive and time consuming for bidders. Most jurisdictions have rules or regulations governing the offer of scrip under a takeover offer and many jurisdictions impose prospectus-type requirements in respect of such offers. Compliance with such overseas requirements as well as New Zealand securities law requirements increases the cost and complexity of making a scrip offer for a New Zealand code company.

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