The Panel has granted a new class exemption in relation to partial takeover offers.5 The exemption came into effect on 12 August 2011.
The exemption allows for a fairer way to scale oversubscribed partial offers and affects acceptances from persons acting as custodians or nominees (such as financial institutions) on behalf of beneficial owners of voting securities in the target company.
The Panel has introduced the class exemption to address a discrepancy which potentially arises under the scaling formula in rules 11, 12, and 13 of the Code. The formula treats a custodian/ nominee recorded on the target company's share register as a single offeree, even though that person may hold voting securities on behalf of multiple beneficial owners. The scaling formula may result in a beneficial owner who owns the securities through a custodian or nominee having more voting securities taken up under the offer after scaling, than if that person directly held voting securities in the target company.
Under the terms of the exemption, the offeror may, in the offer document, make a request to custodians/nominees who hold voting securities in the target company to provide a written certificate to the offeror, in addition to the acceptance form. If custodian/nominee holders complete the certificate as requested, the certificate will state how many of the clients of the custodian/ nominee have not accepted the offer, how many have accepted the offer in respect of the "specified percentage" sought by the offer or less, or how many have accepted the offer in respect of more than the "specified percentage".6
The information provided in the certificate is relevant to the offeror if acceptances of the offer have to be scaled (i.e., an offeror cannot take up more than the specified percentage stated in its offer document, so if the offer is over-subscribed, acceptances for more than the specified percentage are scaled on a pro-rata basis).
The offeror, when processing the acceptances with the benefit of the certificates, can "look through" the custodian/nominee and scale the acceptances of the underlying beneficial owners of the voting securities as if they hold those securities directly in the target company. Accordingly, the procedure will ensure that the client of the nominee/custodian is treated the same for scaling purposes as those offerees who hold securities directly in the target company. Depending on the acceptances levels, this could result in some underlying beneficial owners having fewer voting securities taken up under the offer than would be the case if the look through procedure in the class exemption was not used.
Compliance with the change to the scaling formula is voluntary in the sense that offerors can choose whether they want to rely on the class exemption. Similarly, if an offeror does rely on the exemption, custodians/nominees can choose to complete a certificate. However, the Panel is proposing changes to the Takeovers Code to make the fair scaling process mandatory for all partial takeover offers.
The directors of a target company are responsible for preparing the target company statement (TCS) in response to a takeover offer.7 The TCS must contain all the information required under Schedule 2 of the Takeovers Code. The directors must disclose in the TCS any information that could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer.8
Commonly, the board of a target company obtains advice from professional advisers in relation to a takeover offer. The Panel endorses the seeking of specialist advice by directors because it puts them in a better position to give advice to shareholders on the merits of the offer.9
The onus is on the target company's directors to turn their minds to the content of the advice and determine whether it includes information or views that could reasonably be expected to be material to the offerees' decision as to whether to accept or reject the offer. If the advice does include such information, then the TCS must be drafted in a way that ensures all such material information is disclosed.
If the directors have taken advice, they should consider whether their recommendations and general approach to the takeover are consistent with that advice. If the advice received by the directors is inconsistent with the recommendations and general statements, then it would be appropriate for the directors to consider carefully whether the advice should be disclosed (or described) for the offerees.
A takeover offeror's offer document must contain all of the information specified in Schedule 1 of the Code, stated as at the date of the offer.10 Clause 14 of Schedule 1 of the Code requires the offeror to include in the offer document a statement "as to the general nature of any material changes likely to be made by the offeror in respect of the business activities of the target company and its subsidiaries".11
Practice for making disclosures under clause 14 is variable. Some offer documents include quite detailed disclosures; others are light on their disclosure under this provision.
The Panel acknowledges that clause 14 is stated in quite general terms. It is working towards having clause 14 changed in order to raise the quality of these disclosures.
In the meantime the Panel draws to market participants' attention its expectation that the disclosure obligation under clause 14 be met robustly.
An offeror is required to disclose its intentions regarding any material changes likely to be made to the target company's business activities. Offerors need to bear in mind that their communications with the media and with shareholders, or with other regulatory agencies, about the offer need to be consistent with their clause 14 disclosures in the offer document.
In June 2008, the Panel recommended to the Minister of Commerce that minor amendments be made to the Takeovers Act. These amendments will be made when the Regulatory Reform Bill 2010 is enacted.
This article provides a brief overview of the amendments to the Act that will come into force when the Bill is enacted as well as an update on the passage of the Bill.
The changes to the Takeovers Act contained in the Bill largely relate to the definition in the Act of a "Code company.
Definition of a "Code company" - Clarifying "50 or more shareholders"
The Act currently defines a "Code company" as including companies that have "50 or more shareholders". The issue is whether each individual shareholder named on the company's share register should be counted as a shareholder, or whether the number of share parcels that are held by shareholders should be counted. These different approaches can result in different figures because some share parcels are held by more than one person.
After the Bill is enacted, the Act will define a "Code company" as including companies that have "50 or more shareholders and 50 or more share parcels". This amendment will reduce the scope of the Code and result in the Code compliance burdens (but also the shareholder protections) residing with only larger companies.
Definition of a "Code company" - Start with the Code, finish with the Code
The question has been raised whether the Code still applies if a company no longer meets the "Code company" definition of having "50 or more shareholders" midway through a Code regulated transaction or event. An example of where this question might arise is in relation to the requirements for compulsory acquisition, where a shareholder becomes the "dominant owner" by becoming the holder or controller of 90% (or more) of the voting rights in a Code company. There may be fewer than 50 shareholders left at the time the 90% threshold is reached.
After the Bill is enacted, the Act will clarify that a company that is a Code company by virtue of having "50 or more shareholders and 50 or more share parcels" remains a Code company for the purposes of Part 7 of the Code12 even if it ceases to have 50 or more shareholders and 50 or more share parcels as a result of a transaction or event that is regulated by the Code.
The amendment will provide certainty about the rights and obligations that continue in force for a transaction, and that the Panel retains regulatory oversight of transactions that begin under the Code.
Definition of a "Code company" - shareholders holding voting securities
In 2006 the Takeovers Act was amended to remove NZX debtlisted only companies from the purview of the Code. This was on the basis that the Code is concerned with voting rights. However, there are unlisted companies that have large numbers of shareholders whose shares do not confer voting rights,13 but that have fewer than 50 shareholders who do have voting rights.
After the Bill is enacted, the Code will apply more evenly as between listed and unlisted companies, because a definition of "shareholder" will be added for the purposes of interpreting "50 or more shareholders". The new definition defines a "shareholder" as "a shareholder holding a security that confers a voting right".
By stipulating that the Code applies to shareholders with voting rights, the amendment will reduce the scope of the Code to its intended sphere, and will correspondingly reduce the compliance costs for businesses that are no longer subject to the Code.
Panel procedures
The Takeovers Act does not presently allow divisions of the Panel to make decisions by written resolution. After the Bill is enacted, divisions of the Panel will be able to pass resolutions in writing. The amendment will allow the Panel to be more operationally efficient.
On 26 July 2011, the Bill was reported back by the Commerce Select Committee. The Bill is on the Parliamentary Order Paper, awaiting its second reading, and most of the Bill will come into force on the day after the date it is given the Royal Assent.
Footnotes