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Takeovers Code Good For Business

Minister of Commerce Paul Swain says the Takeovers Code being gazetted this week is good news for New Zealand business.

"There has been significant public support from the business sector for the Takeovers Code," he said.
"That support has included a number of company directors, lawyers, accountants and commentators - including the head of equities for New Zealand's biggest institutional director – AMP.
"International evidence shows that investors see New Zealand as more of a risk because it does not have a takeover framework.
"I believe the Takeovers Code will help small investors get fair treatment in takeovers situations and go some way to help improve overseas perceptions of our market.

"In April we asked the Takeovers Panel to review the Takeovers Code that was proposed in 1995.

"After consultation around many of the technical issues in the Code the Panel recently recommended a revised Code to me which I took to Cabinet.

"The technical amendments that have been made to the Takeovers Code make provisions clearer, update and clarify definitions and references, and fix minor drafting errors.

"Many of the provisions in the Code are similar to those in the Australian Corporations Law.

"Some legislative changes will be made to the Takeovers Act to allow the Securities Commission to provide support and administrative services to the Panel. Other amendments will also be made to allow the Panel to sit in divisions and issue class exemptions for such things as inadvertent breaches of the 20% threshold.

"The Code will come into effect mid 2001 – this will give companies time to amend their constitutions and become familiar with the new regime," Paul Swain said.

What's in the Takeovers Code?

 Prohibits increases in voting rights in a code company across or above a 20% threshold except in compliance with the Code.

 There are six ways for a person to increase their voting rights across and above the 20% threshold:

- With the approval of shareholders.

- By an offer for all the outstanding shares, (a full offer).

- By an offer for a certain percentage of the total company (a partial offer)

- By acquisitions in the 50% to 90% range at a rate of 5% per annum

- In the 90% to 100% range by a compulsory acquisition (ie once a person holds or controls more than 90% of the voting rights in a company that person is entitled to and can be required by other shareholders to acquire the rest of the outstanding securities) ; and

- Under an exemption by the Panel.

 These provisions ensure that all shareholders get the opportunity to participate when a change in the control of a company passes and that all shareholders receive equal treatment.

 The Code also has a minimum acceptance condition. This condition requires a bidder holding less than 20% in a company to make any offer conditional on them receiving acceptances for a minimum of 50% of the company. A partial offer for a smaller holding is permitted with shareholder approval.

 There are no restrictions on the price that may be offered in a full or partial offer except that the same price must be offered to all security holders and that it must be fair and reasonable.

 There is no contracting out of the Code. To allow people to contract out would result in a lack of transparency and uncertainty for investors and may decrease rather than increase confidence and uncertainty in our market for domestic and international investors alike.

 The Takeovers Code prohibits directors from taking any action that could frustrate an offer this gives shareholders the opportunity themselves to decide on the merits of the offer.

 The Takeovers Code ensures that independent reports are required in relation to the fairness and merit of any offer. This enables shareholders to make informed decisions on whether the offer is reasonable or not.

Key legislative changes recommended by the Panel are:

 Amendment to the Takeovers Act to allow the Panel to sit in divisions

 Amendment to the Takeovers Act to allow the Panel to issue class exemptions for such things as inadvertent breaches of the 20% threshold. The Panel intends to formulate the class exemptions during the transition period and may consult with some market participants in this process. The Panel has indicated that some of the issues it will consider include:

- court approved amalgamations where the court approves a merger between two companies which will then own more than 20% of another company

- proxies where a person may on occaision hold more than 20% of the voting rights in a company, yet individually not own more than 20%

- acquisitions by will or operation of law where a person who owns say 15% of a company is left a 10% shareholding and thus inadvertently goes over the 20% threshold.

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