Power to close takeovers-by-amalgamation loophole

Power to close loophole on takeovers by amalgamation

By Paul McBeth

Aug. 12 (BusinessDesk) – Commerce Minister Simon Power will shut a controversial loophole in takeovers law that was used in 2006 by Waste Management NZ and Transpacific Industries.

Power recommended Cabinet approve aligning the reconstruction provisions in Companies Act with the Takeovers Act, preventing unrelated firms “amalgamating” as a means to avoid the Takeovers Code, according to a cabinet paper published on the Ministry of Economic Development website. He’s working through a way to legislate the proposals, and is looking to accommodate them at the earliest possible opportunity, it said.

“The proposed changes will promote investor confidence by ensuring fair treatment of local and foreign investors,” Power said in the paper. “The proposals complement the government’s overall aim of increasing investor confidence and participation in New Zealand’s capital markets.”

The use of amalgamation provisions annoyed fund managers in 2006 when Waste Management was essentially taken over by Australia’s Transpacific through an amalgamation under the Companies Act, which only required 75% of shareholders’ support, rather than the 90% needed under the Takeovers Code.

Over the past five years, about 14% of transactions where companies changed ownership used provisions under the Companies Act rather than the Code.

Power agreed to ban mergers between two or more unrelated companies, though related parties will still be able to do so.

The government also plans to introduce third-party oversight of reconstruction provisions under the Companies Act that would otherwise fall under the Code. Courts will need to be satisfied shareholders won’t be adversely affected, and promoters of the deal will have to produce a ‘no objection’ statement from the Panel. It will also specify a two-fold voting threshold for schemes affecting voting rights, requiring 75% support and 50% of votes cast.

The Takeovers Panel received 16 submissions on its discussion document on the issue, half of which supported keeping the status quo to maintain flexibility for promoters of takeover transactions.

The proposals will lift the total transaction costs for companies, with more independent adviser reports likely, and it’s likely that Panel will charge a fee of between $10,000 and $30,000 for its ‘no-objection’ statements.

Bronwyn Turley, manager of corporate law and governance team at the MED, said there isn’t much evidence suggesting shareholders have been adversely affected by these transactions, though “any perceived avoidance of the Code may damage the takeovers market in New Zealand,” in the regulatory impact statement.

“The proposals may increase costs to business which would have carried out transactions using the loophole. However, this transactional cost is outweighed by greater shareholder protection and market confidence,” she said.

(BusinessDesk)

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