to the Minister of Commerce on schemes of arrangement and amalgamations involving code companies (25 August 2006)1.

REVISED POLICY ON EXEMPTIONS FOR SCHEMES

The Panel’s policy on exemptions for schemes is aimed at schemes which cannot proceed without some form of exemption. The policy is not aimed at schemes which can proceed without an exemption.

The policy on exemptions for schemes has been changed in two respects.

Circumstances where exemptions may be granted

The Panel will when it considers an application for exemption, focus on how the Code applies to the particular scheme of arrangement that the parties want to use. It will consider any proposed exemption in accordance with the Panel’s guidance note on the Takeovers Panel’s Exemption Power (January 2005). The guidance note states that, when deciding whether an exemption is appropriate, the Panel will consider whether compliance with the Code is possible and whether compliance would create an inappropriate, unreasonable or unintended result.

Conditions of exemptions for schemes of arrangement

The conditions of any exemption for a scheme will preserve as far as possible the rights and protections contained in the Code. They will focus on:

  • the level of shareholder approval required for a transaction to proceed;
  • who is entitled to vote on the relevant resolution; and
  • the information given to shareholders about the proposed transactions.

When imposing conditions the Panel will focus on the same issues that it will address in submissions to the High Court on applications for the approval of proposed schemes. The Panel’s general approach is that schemes should be approved by shareholders representing:

  • at least 75% of the votes cast at a meeting at which all shareholders can vote, provided that the resolution represents more than 50% of the total voting rights in the code company; and
  • at least 75% of the votes cast at the meeting of independent shareholders. Independent shareholders are shareholders who were not involved in formulating the proposal.
  1. Available on the Panel’s website www.takeovers.govt.nz

The approach to approval thresholds recognises that:

  • the support of a significant majority of shareholders should be required where a change of control is being imposed upon all shareholders; and
  • shareholders involved in formulating and/or promoting a scheme, and their associates, should not dominate or determine the outcome of a shareholder vote. Independent shareholders should have a real opportunity to take part in the decision on whether or not to proceed with a scheme.

The exception to this approach is where a transaction does not involve a merger of shareholder interests, i.e. when the scheme provides for the shareholders of the merging companies to become shareholders of the same company. Where a scheme involves shareholders of one participating company exiting for cash, the Panel considers the appropriate shareholder approval threshold for the transaction to proceed is a resolution which represents 90% of the total voting rights in that company. This reflects the compulsory acquisition threshold in the Code.

The conditions of any exemption will also require that shareholders are given sufficient information about the scheme to decide the merits of the proposal. The conditions will require that shareholders are given at least:

  • information equivalent to information required to be provided under a Code offer; and
  • a report on the merits of the scheme by a Panel-approved independent adviser.

The Panel will decide in each case whether:

  • one adviser will be appointed to report on the merits of the transaction from the perspective of the shareholders of each of the companies taking part in the proposed scheme; or
  • different advisers for the shareholders of each company involved will be required.

In many situations one independent adviser would be appropriate.

Applications for exemption

The Panel will seek to be heard by the High Court on schemes of arrangement involving code companies when initial orders are being made. If parties to a scheme are granted an exemption, the conditions of that exemption may mean that the Panel does not need to seek to be heard by the Court.

Applicants for exemptions for schemes should tell the Panel their intentions early in the planning process and well before an initial application is made to the Court.
 

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