New Class Exemption – Fair Scaling of Acceptances of Partial Offers

Published 1 September 2011

The Panel has granted a new class exemption in relation to partial takeover offers.[1] 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”.[2]

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.


[1] Takeovers Code (Class Exemptions – Partial Offers) Amendment Notice 2011.

[2] The “specified percentage” for the purposes of a partial offer is that percentage of the voting rights not already held or controlled by the offeror that the offeror wishes to obtain to reach its desired level of voting control in the target company.

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