they acquire securities outside of the offer during the offer period;

• the effectiveness of the Panel’s ability to grant retrospective exemptions. SK Foods was able to validly proceed with its compulsory acquisition while providing rights of objection to shareholders who had not accepted the offer or who may have been influenced by SK Foods’ acquisition notice to accept the offer. If the Panel had not been able to grant a retrospective exemption SK Foods’ flawed compulsory acquisition process could have become mired in legal challenge.

Underwriters exemption review

As part of its function to keep the law relating to takeovers under review the Panel has been considering the continued appropriateness and effectiveness of the existing exemption for underwriters.

The existing underwriters class exemption was aimed at “professional” underwriters because the motivation of professional underwriters would be to obtain an underwriting fee in return for a commitment to take-up any shortfall in subscriptions to a new issue or a rights issue. It would not be to hold voting rights in a code company on a long term basis.

The Panel considers that there is a risk not adequately addressed by the terms of the existing exemption notice that corporate investors and their associates may subvert the policy behind the Code by using an underwriting commitment to increase their control in a code company.

Consequently, the Panel has decided that the class exemption for underwriters should be more restrictive than at present and should not apply if the underwriter has a collateral intention of using the underwriting agreement to increase the underwriter’s (or its associates’) voting control in a code company. Such an intention may be evidenced if the underwriter has previously expressed an intention to increase its control percentage in that code company.

The Panel has also been reconsidering the availability of the exemption to underwriters who already hold or control voting rights in the relevant code company.

The exemption currently applies to underwriters who hold or control voting rights provided that the underwriter otherwise meets the criteria of the exemption. However, where

underwriters and their associates already hold shares in the code company, there is a risk that the underwriter or its associates may have the purpose or intent of increasing their voting power in that company. Their shareholding already demonstrates that their interest in the company is not just as an underwriter, but as an investor.

Accordingly, the Panel considers that it is also desirable to amend the exemption to underwriters so that it is not available to an underwriter who is, or who when aggregated with its associates would be, a substantial security holder of voting rights in the code company.

Proposed Amendment

The Panel proposes to amend the notice so that the exemption will apply only if:

• the purpose of the underwriter’s entry into the underwriting or subunderwriting contract was to earn fees, commission or similar remuneration; and
• neither the underwriter nor any upstream party of the underwriter had a collateral purpose or intention, in respect of the underwriter’s entry into the underwriting or subunderwriting contract, of enabling any person to increase that person’s voting control; and
• immediately before the underwriter’s entry into the underwriting or subunderwriting contract, the aggregate of the control percentages of the person and the person’s associates did not exceed 5%.

A draft of the proposed amended exemption notice in respect of underwriters is published on the Panel’s website. Last month the Panel sought submissions on the draft to be recieved by 19 March 2004. The Panel is now considering the submissions.

www.takeovers.govt.nz

The Panel’s website is a comprehensive collection of the Panel’s work and the legislation relating to takeovers.

Exemptions granted by the Panel are published in full, as are all determinations made by the Panel. The site also includes all issues of Code Word, speeches and articles, policies and guidance notes.

The site has a site map and search facility to assist visitors see what is available and quickly find the information they are looking for.

To keep up to date with the Takeovers Panel’s work, register on the website www.takeovers.govt.nz, and you will receive email alerts to new material published on the site.

How to contact us

Takeovers Panel
Level 8, Unisys House
56 The Terrace
PO Box 1171
Wellington

Phone: 64 4 471 4618
Fax: 64 4 471 4619
Email: takeovers.panel@takeovers.govt.nz
Website: www.takeovers.govt.nz