Old rule 44 required the offer to be on the same terms and conditions as those in the draft offer accompanying the rule 41 takeover notice, except for conditions already satisfied or waived, or variations made with the target company directors’ prior written approval.

In a hostile takeover the target company directors could refuse consent to a bidder to amend its offer document to correct the omission from the offer of a class of securities of which the offeror was unaware. This effectively required the bidder to recommence its offer.

The changes to the Code facilitate the takeover process by requiring the target company to give the offeror specified information about its securities. The prospective offeror can then amend the offer document by adding the omitted class(es) of securities to its offer, without the prior consent of the target company directors. These new provisions operate as follows:

• within two days of receiving a takeover notice the target company must give the prospective offeror a class notice which describes each class of the target company’s equity securities (for a full offer) or voting securities (for a partial offer) whether or not that class is included in the proposed offer. The class notice must have sufficient information about each class of security for an offer to be made, and for an independent adviser to provide a report under rule 22 of the Code if the offer is for more than one class of securities;
• the final terms and conditions of a formal takeover offer can vary from those in the draft offer sent with the takeover notice, without the target company directors’ prior consent, if the variation adds only classes of security that were not included in the draft offer but that were identified in the target company’s class notice. The offeror must notify the target company of such a variation at least seven days before the date of the offer. If applicable, a rule 22 report (or an amended rule 22 report) will be required to accompany the seven-day variation notice to the target company.

More than one class of securities - independent adviser’s report on fairness between classes

Rule 22 requires an independent adviser’s report on the fairness of the consideration being offered as between two or more classes of securities. The offeror must send this report to the target company with the takeover notice. The Code had also required that the rule 22 report be sent to target company shareholders with the offer document.

Under the changes, the rule 22 report must still be sent to the target company with the takeover notice, but it is no longer given to shareholders with the offer document. Rather, it must be sent to offerees with the target company statement and rule 21 report (on the merits of the offer).¹

In the draft offer sent with the takeover notice and in the formal offer document sent to shareholders, the offeror is required to:

• explain how the calculation of the terms and consideration as between classes of securities complies with the "fairness and reasonableness between classes" requirement of rule 8 or rule 9 (whichever applies); and
• confirm that a report under rule 22 of the Code will be sent with the target company statement.

Where the offeror varies the offer price after the offer has been made, a further rule 22 report for that variation must be sent to shareholders together with the variation notice sent under rule 28. However, if the offer document has already been sent to shareholders but the variation is made before the target company sends the target company statement, the offeror must send only the variation notice to shareholders (and to others referred to in rule 28) and must send the further rule 22 report to the target company and to the Panel. The target company then sends the further rule 22 report with the target company statement to the shareholders.

Registered prospectus must accompany takeover notice for scrip offers

Rule 41 sets out the requirements for sending a takeover notice. This rule had not prevented offerors, who intend to use scrip as consideration for their takeover offer, from sending the takeover notice to the target company and the Panel before registering a prospectus for the offer.

The changes ensure that when a scrip offer is made, the offer documents, including the registered prospectus and any other related documents (for every jurisdiction in which the securities are to be offered), are sent to the target company (and are therefore available to the rule 21 independent adviser) at the same time that the takeover notice is sent.

This change coincides with provisions of the Securities Act (Takeovers) Exemption Notice 2001 (as amended) under which, for an offeror or issuer to rely on the exemption, it must provide the target company with its New Zealand registered prospectus and investment statement at the same time as it sends the takeover notice.