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Montana Takeover Fiasco Proves Need For Code

11 February, 2001

Minister of Commerce Paul Swain says the fiasco over the Montana takeover by Lion Nathan has proven once and for all that New Zealand must have a Takeovers Code.

Brewer Lion Nathan all but won control of Montana, in a lightening raid on the company that has left small shareholders out in the cold.

"This has come at a time when we are trying to encourage foreign investor confidence in this country," Paul Swain said.

"These sort of deals will become a thing of the past when we implement the new Takeovers Code on July 1 this year," he said.

"That Takeovers Code will lay out an orderly process for companies to follow when staging a takeover.

"There will be an independent Takeovers Panel which will oversee that process. No longer will the NZSE be judge and jury on takeovers.

"The Takeovers Code and Panel will mean that all shareholders, big and small, are treated equally in a takeover situation.

"This is fairer than the current situation and will help improve overseas perceptions of our market.

"Part of the blame for these recent event must lie with the previous National Government. They did the initial work on the code but bailed out of implementing it after bowing to pressure from big sectoral interest groups.

"The effect of that bail-out has meant that the sort of controversy that has surrounded the Montana takeover is still happening and New Zealand's investment image has suffered as a result.

"From July 1 there will be a new Takeovers Code in place which will be good news for small investors and give a much needed boost to confidence in the local sharemarket," Paul Swain said.

What's in the Takeovers Code?
* Prohibits increases in voting rights in a 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 occasion 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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