- new laws regarding misleading or deceptive conduct (now embodied in rule 64 of the Code);
- generally harsher penalties imposed for noncompliance;
- a greater expectation placed on company directors by shareholders and the commercial community with the development of Codes of Conduct for directors;
- a greater public scrutiny of the performance of target company directors;
- a more litigious commercial environment.
3.2
One consequence of the above changes is that, to
a much greater extent than in past years, the target
company may need (and perhaps would be expected)
to engage professional advisers, consultants and experts
(e.g. lawyers, accountants, financial advisers, analysts,
public relations experts, market sector experts, etc) to
assist it throughout the takeover process. As a result
it should be recognised that target companies in the
modern takeover environment may properly incur costs
that would not have been incurred, or may not have
been seen as properly incurred, at the time Canterbury
Frozen Meat was decided.
3.3
This environment means that companies subject to
takeovers suffer from not only a significant diversion
of resources when a bid occurs, but also very real cost
which, in some cases, can be quite disproportionate
to the size or assets of the target company. Takeover
offers can be hostile and in any event do not require the
agreement of the target company to be made. Therefore
it is important that rule 49(2) is applied in a manner
which reflects the realities of a modern takeover and
enables all properly incurred expenses to be recovered.
4.
Applying Canterbury Frozen Meat to rule 49(2)
4.1
The Panel considers that Canterbury Frozen Meat
should be applied to rule 49(2) as set out below.
Category 1 (expenses related to notices and target company statement obligations)
4.2
In broad terms, this category is directed to the
regulatory obligations of target company boards in
responding to takeover offers. The manner in which
the category is expressed by the Court reflects the
limited regulatory requirements of both the Companies
Amendment Act 1963 and the law generally in 1972.
Applying the principle to which this category is directed in the light of today's takeover environment, the Panel
recognises two parts to this general category:
- Part 1 - costs incurred in complying with the procedural requirements of the Takeovers Code. By way of example, such costs would include costs associated with:
- preparation, printing and supply of target company statement
- preparation, printing and supply of the Independent Adviser's report
- the supply of the share register
- approving variations to the takeover offer where prior approval of directors of the target company has been sought under rule 44(1)(b)(ii)
- attendances with the Panel in relation to target company statement.
- Part 2 - costs incurred in complying with the law and directors' fiduciary obligations which touch on the target company's response to a takeover. By way of example, such costs may include costs for:
- meeting NZX requirements
- meeting Securities Markets Act requirements (e.g. substantial security holder and continuous disclosure requirements)
- satisfying itself through advice, that it (the target company) is not engaging in defensive tactics in breach of the Code
- monitoring the bidder's compliance with the Code for issues which may affect target company shareholders
- instigating complaints (provided they are not vexatious or an abuse of process) to the Panel which arise from actions of the bidder which may affect target company shareholders
- responding to complaints made to the Panel by the bidder or associates of the bidder (other than in respect of actions or omissions of the target company which the Panel determines have caused a breach of the Code).
The line between complaints about matters which affect target company shareholders and complaints designed to frustrate the course of the bid can be a fine one. Bidders should not be expected to pay for relentless target company actions regarding legal compliance.
4.3
Expenses which are incidental to the above should also be recoverable. It is recognised that there may be some overlap between Part 1 and Part 2.