New Zealand takeover laws; what you need to know

Objectives underpinning New Zealand takeover laws

New Zealand takeover laws govern changes of control of listed New Zealand companies and unlisted New Zealand companies with 50 or more shareholders and 50 or more share parcels.  A company of this type is called a Code Company.

New Zealand takeover laws are set out in the Takeovers Act, the Takeovers Code and the Companies Act.  The six objectives considered when the Takeovers Code was formulated relate to:

  • the efficient allocation of resources;
  • encouraging competition for control of Code Companies;
  • fair treatment of shareholders;
  • promoting international competitiveness of New Zealand’s capital markets;
  • recognising that shareholders must ultimately decide for themselves the merits of a takeover offer; and
  • maintaining a proper relation between the costs of Takeovers Code compliance and the benefits resulting from it.

The objectives of the Takeovers Code are embodied in the provisions of the Takeovers Code itself. The rules of the Takeovers Code allow for pause (ensuring shareholders have adequate time to make a decision about a takeover) and publicity (ensuring shareholders are adequately notified and informed about a takeover).

The rules of the Takeovers Code allow for pause and publicity.

The basic concepts

The Takeovers Code uses a number of basic concepts to apply the objectives underpinning New Zealand takeover laws.

20% rule – the fundamental rule

The ‘20% rule’ or the ‘fundamental rule’ is the first basic concept and the most important.

The 20% rule prohibits a person (including associates) from increasing their shareholding above 20% in a Code Company, except in accordance with the Takeovers Code.

Voting rights

The second basic concept is known as ‘voting rights’.

The Takeovers Code is concerned with shares that have voting rights attached to them, as those confer the ability to make certain decisions in respect of the Code Company.

Association

The third basic concept is known as ‘association’.

Associates are broadly persons who act together or are accustomed to act in accordance with each other or who have a relationship such that, under the circumstances, they should be regarded as associates of one another.

The concept of association is used when calculating voting rights.  For example, a shareholder must take into account the voting rights of its associates when determining its level of control in the Code Company.

Exceptions to the 20% rule

The basic concepts described above effectively force someone who wants to acquire control of the Code Company to only do so through one of a limited number of exceptions.  The three most common exceptions to the 20% rule are:

  • a takeover offer (under the Takeovers Code);
  • a scheme of arrangement (under the Companies Act); or
  • an acquisition or allotment of shares approved by shareholders.

There are other exceptions to the 20% rule, including ‘creeping’ acquisitions of no more than 5% of the Code Company’s voting rights in a 12 month period in certain circumstances, and compulsory acquisition of the remaining shares in the Code Company, where the shareholder already has 90% or more of the voting rights in that Code Company.

Key features of a takeover offer

The takeover offer process is governed by the Takeovers Code and starts with the offeror giving notice to the prospective target company of its intention to make an offer for the Code Company.  This notice is called a ‘takeover notice’.

Under a takeover offer, the offeror makes an offer to all target shareholders to acquire all or some of their voting securities.

The offer must be on the same terms and provide the same offer price for all securities belonging to the same class.  If the target company has more than one class of securities, the offer price as between classes will usually differ to reflect the value of those different securities.  In such circumstances, the offer price must be fair and reasonable as between the different classes.

The offer is contained in a document that is sent to target shareholders called an ‘offer document’.

The offer document generally contains all information known to the offeror that is material to a target shareholder’s decision whether to accept the offer, as well as specified information including:

  • information about the offeror;
  • details of the offeror’s (and its associates’) ownership of equity securities in the target company (including details of any equity securities acquired or disposed of by the offeror (or its associates) in the 6 month period prior to the date of the offer);
  • in most cases a statement of the offeror’s intentions about the Code Company;
  • details of any target shareholders who have agreed to accept the offer; and
  • details relating to the financing of the offer.

The target company must respond to the offer document in a document that is sent to the offeror (and in some cases to the NZX (if the company is listed) and the target’s shareholders) called a ‘target company statement’.  The target company statement contains the target directors’ recommendation on whether to accept or reject the offer, and is required to contain or be accompanied by either a full independent adviser’s report on the merits of the offer, or a summary of that report with a full copy to be provided to shareholders on request.

Other key points relating to takeover offers include:

  • the offer must be sent to shareholders during the period beginning 14 days, and ending 30 days, after the takeover notice is sent to the target company and no later than 3 days after the date of the offer;
  • the offer price may consist of cash or shares in another company (or a combination of both or other financial products);
  • the offer price may be increased after the offer is made and, if increased, those who have already accepted the offer are entitled to be paid the increased price;
  • an offer can be made for a listed or un-listed Code Company;
  • the offer can be subject to conditions, although some conditions are prohibited such as conditions within the control of the offeror. An offeror is also not allowed to let an offer lapse in unreasonable reliance on a condition of the offer (for example, a condition that requires the target company’s cooperation); and
  • the offer period must generally be for a minimum of 30 days and a maximum of 90 days but may be extended in certain circumstances.  This is particularly important if there are any delays in obtaining regulatory approvals, for example, OIO consent.

Key features of a scheme of arrangement

Since legislative change in 2014 allowed schemes of arrangement to deal with control of Code Companies, schemes have become the most popular way to conduct friendly takeovers of Code Companies.  A scheme of arrangement is a statutory Court-approved procedure largely run by the Code Company and governed by the Companies Act, but still subject to the jurisdiction of the Takeovers Panel.

There are generally two stages to the court approval process for a scheme (initial orders and final orders).

Initial orders – the Court will usually make initial orders regarding the holding of a meeting or meetings of shareholders to consider and vote to approve the scheme, including an order requiring scheme documents for the proposed scheme be prepared and supplied to shareholders.

Final orders – the Court may make final orders approving the scheme if:

  • the target company shareholders have approved the scheme by:
    • resolution approved by 75% of the votes in each interest class[1]; and
    • resolution approved by a simple majority of all votes on issue (whether voted or not); and
  • either of the following applies:
    • the Court is satisfied that shareholders will not be adversely affected by the change of control of voting rights being undertaken under the Companies Act rather than the Takeovers Code; or
    • the scheme promoter has filed a no-objection statement from the Takeovers Panel.

Scheme documents (including the notice of meeting) setting out the details of the scheme are usually prepared and provided to the Court in draft form at the first court hearing for the initial orders.  The scheme documents will typically contain information that would usually be required to be disclosed to shareholders under the Takeovers Code and will typically include an independent adviser’s report on the merits of the scheme.

The Takeovers Panel views schemes as a legitimate and valuable means for undertaking corporate transactions in New Zealand.  The Takeovers Panel has an enhanced role in a scheme as it can issue a statement that it has no-objections to the scheme.  The Takeovers Panel will review scheme documents in draft to check whether it considers shareholders have adequate information and protections under the scheme.  It is important to engage with the Takeovers Panel early if a takeover by way of a scheme is proposed to be undertaken.

Once the scheme documents are sent to shareholders, the meeting is held and shareholders will vote on the resolutions.

If shareholders approve the scheme and it is otherwise unconditional, the scheme promoter will then seek the final court orders approving the scheme, following which the scheme is implemented by, for example, the transfer of all the shares to the offeror in return for consideration.

Other key features of a scheme include:

  • a scheme has an ‘all or nothing’ outcome, meaning that the offeror has certainty that it will either achieve its proposed outcome if the scheme is approved or not acquire any shares if the scheme is not approved;
  • the voting approval thresholds for a scheme are generally considered lower than the 90% threshold required under a takeover offer in order to trigger compulsory acquisition (and therefore acquire 100% ownership), but this depends largely on the shareholder register and the ability to meet the 2 different thresholds required in a scheme;
  • a scheme is a target-driven process requiring the co-operation of the target, it is generally only suitable for a ‘friendly’ acquisition of a target company;
  • a scheme can be used to acquire a listed or un-listed Code Company;
  • a scheme is subject to fewer prescriptive rules than a takeover offer, allowing greater flexibility to include ancillary features such as asset transfers and capital injections or reductions, or to treat different target shareholders differently (but this may give rise to separate interest classes in voting to approve the scheme and is uncommon);
  • it is more difficult to make changes to the terms of a scheme (such as increasing the consideration in response to a rival offer) than under a takeover offer. Changes in the terms of a scheme will generally require Court approval, an adjournment of the scheme meeting, and supplementary disclosures;
  • the scheme promoter and its associates will vote in a separate interest class from the other shareholders; and
  • if the offeror already holds a large percentage of target shares, this may be a disadvantage under a scheme because those shares will be voted under a separate interest class and this will therefore enlarge the effective vote of all the other target shareholders on the scheme resolution, potentially making it more difficult to pass the requisite majorities.

[1] An interest class is broadly a group of shareholders with similar interests in the Code Company.

Since the law change in 2014, there have been 19 successful full takeovers and four of those were undertaken by way of scheme of arrangement.

Since the law change in 2014, there have been 19 successful full takeovers and four of those were undertaken by way of scheme of arrangement. The most recent being the CITIC Capital acquisition of 100% of the shares in Trilogy International, where the MinterEllisonRuddWatts team advised the successful buyer (read more here).

This is an early indication that schemes of arrangement are becoming increasingly more popular as was predicted in our 2018 Merger and Acquisition Forecast.

Who can help

Silvana Schenone

Partner - Corporate and Commercial

Silvana is a corporate and commercial partner and leads our Auckland corporate legal team. She is experienced in advising local and foreign clients on a range of corporate matters. With extensive expertise in M&A, private equity investments, takeovers, scheme of arrangements, capital raisings and corporate governance matters, Silvana is renowned for her ability to get the most complex and innovative deals done in a pragmatic way.

Skilled at getting to the heart of the matter and delivering excellent results for her clients, Silvana has been involved in some of New Zealand most iconic transactions, including a number of market “firsts”, setting precedent in the New Zealand legal market.

In doing so, Silvana regularly liaises with regulatory authorities including the Financial Markets Authority, the New Zealand Stock Exchange and the Overseas Investment Office.

Silvana is a board member of the New Zealand Takeovers Panel, evidence of her expertise and experience in the M&A and capital markets sectors locally and internationally.

The calibre of Silvana’s work is recognised in the independent and premiere international legal directory Chambers Global for her M&A, IPOs, takeovers and corporate governance work, with clients saying “I give her an A+ – the work she does is excellent, sophisticated, thorough and detailed.”  and commenting that Silvana is “a fantastic lawyer who is smart, commercially minded and able to deal with different parties in a pragmatic manner.”

She has a remarkable international background, having practiced law in New York, Chile and New Zealand. Her practice includes a Latin-American focus, where Silvana maintains a broad network of contacts. Due to her international experience she is ideally positioned to assist clients with all aspects of the overseas investment process as it applies to the acquisition of businesses or significant assets in New Zealand.

Silvana is a published author, having written ‘Duties and Responsibilities of Directors and Company Secretaries in New Zealand’, a highly acclaimed text referred to by the directors’ community in New Zealand.

Silvana Schenone

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9986
M: +64 21 312402
Email

Cameron Taylor

Partner - Corporate and Commercial

Cameron is a partner in the Corporate team at MinterEllisonRuddWatts.  He works with clients on a broad range of strategic transactions, including mergers and acquisitions (M&A), takeovers and takeover defence, joint ventures, restructurings, capital raising, IPO’s and corporate governance.

Cameron regularly advises leading private and listed companies, financial institutions and private equity firms. He has extensive experience in the New Zealand market, as well as in New York and London where he worked for Cravath, Swaine & Moore LLP, one of the world’s premier law firms. He is often invited to speak at international conferences on M&A and corporate finance.

He was admitted to the bar in New York in 2002 and in New Zealand in 1998.

Prior to his legal career, Cameron was an international athlete and competed at the Olympic Games, World Track & Field Championships, NCAA Championships and World Junior Championships. Cameron is Chair of the board of Athletics New Zealand.

He holds an M.B.A. in Finance from London Business School, an LL.B. (Hons) from the University of Auckland Law School, and a B.A. in Economics and B.B.A. in Finance from SMU in Dallas, Texas.

 

Cameron Taylor

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9749
M: +64 21 376 125
Email

Cathy Quinn ONZM

Partner - Corporate and Commercial

Cathy leads the Mergers & Acquisitions and Private Equity teams as well as our China practice. Cathy was chair of our firm for 8 years from 2009-2016.

Highly-regarded for her specialist legal work in mergers, acquisitions, securities law, corporate governance and private equity, Cathy is regularly sought out by international and local clients for her expertise in the areas in which she advises, and is a past Chair of the firm.

Cathy’s practice encompasses Corporate and Commercial, Government, Agribusiness and Health and Aging. She has particular expertise with Directors Duties, and was a past co-author of one of the leading company and securities law texts in New Zealand, Morison’s On Company and Securities Law, as well as being the principal author of MinterEllisonRuddWatts White Paper on Corporate Governance.

Her expertise spans mergers and acquisitions; advising on various security law issues; advising on numerous offshore ventures, acquisitions and divestments; advising on directors duties, corporate governance and general corporate law matters; advising businesses in the agribusiness sector on regulatory issues, governance, corporate law issues, restructuring, acquisitions, divestments and joint ventures; advising Asian entities on investing in New Zealand, including the dairy and forestry sector.

Cathy was a member of the Securities Commission for nine years and the only lawyer appointed to the government’s Capital Markets Development Taskforce, giving her a unique insight into the policy considerations underpinning our securities and capital markets. Cathy was an inaugural member of the Commercial Advisory Board to the New Zealand Treasury, and was appointed to the Board of the New Zealand Treasury in late 2016. Cathy is on the Executive Board of the New Zealand China Council. Cathy is a director of Tourism Holdings Limited.

Cathy has advised numerous boards on governance issues. In recognition of her expertise, Cathy has provided governance training for the director community along with a major accounting firm. Cathy is a regular commentator on securities, competition and corporate law.

Cathy Quinn ONZM

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9951
M: +64 21 610 771
Email

Mark Forman

Partner - Corporate and Commercial

Mark is a corporate and commercial lawyer with broad corporate experience in both New Zealand and the United Kingdom.

He specialises in mergers and acquisitions, private equity, forestry transactions, commercial contract advice, NZX listing rules/takeovers code advice, corporate governance advice, shareholder agreements and employee shareholding arrangements. Mark also advises on Overseas Investment Office consent applications.

Mark has advised on numerous high profile New Zealand transactions in recent years, including the largest forestry transaction in New Zealand in a number of years, and the MediaWorks – NBCUniversal joint venture, which won Consumer, Media and Tech Deal of the Year at the 2017 NZ Law Awards. Having advised on large merger and acquisition transactions for international financial institutions, in New Zealand, Europe and the United States, he is familiar with global trends.

Mark has particular experience advising clients in the media/technology, forestry, financial services and aged care/health sectors. Clients include MediaWorks, Campbell Global, Hastings Funds Management, Metlifecare, Southern Cross Hospitals and Bupa Group.

Mark Forman

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9944
M: +64 21 243 6954
Email

Mark Stuart

Partner - Corporate and Commercial

Mark is a corporate and commercial lawyer with over 20 years experience advising on all aspects of M&A, private equity, business sale, commercial and business transactions and contracts for a range of private equity investors and corporates. He also advises on companies on governance issues, listing rule compliance, director responsibilities and strategic issues.

Mark has significant equity capital markets experience having advised Tegel Foods, Evolve Education and Synlait Milk on their successful IPOs. Mark also works closely with Minter Ellison in Australia on trans-tasman transactions.

Mark Stuart

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9985
M: +64 21 318 627
Email

Neil Millar

Partner - Corporate and Commercial

Neil has broad corporate and commercial experience, in particular in the mergers and acquisitions and private equity area. He is also the leader of the firm’s privately-owned business team, responsible for the delivery of commercial services to our owner-operator clients.

With extensive and international experience, Neil advises on all aspects of mergers and acquisitions and private equity, business sale, commercial and business transactions for a range of private equity players and corporate, SME and start up companies. He also advises on practical governance issues, director responsibilities and strategic issues for his clients.

Neil is also a specialist in the field of warranty and indemnity insurance, providing in-market assistance to a number of the key insurers and assisting buyers and sellers with advice in connection with policies and claims.

Neil Millar

Partner


Corporate and Commercial
Auckland

P: +64 9 353 9977
M: +64 21 495 565
Email

Paul Foley

Partner - Corporate and Commercial

Paul practises in all areas of corporate law, has a reputation for innovative thinking, providing the input that has enabled complex transactions to be worked through to a successful conclusion.

Paul’s corporate advisory spans governance, continuous disclosure obligations, directors’ duties and Companies Act, Securities Act, Takeovers Code and Listing Rules advice. Paul also provides leading advice on strategic transactions, mergers and acquisitions, take overs, equity capital raisings, and foreign investment approvals.

He has experience as an external director, including as Chair of a publicly listed company.

Paul Foley

Partner


Corporate and Commercial
Wellington

P: +64 4 498 5119
M: +64 21 948 841
Email

Rodney Craig

Partner - Corporate and Commercial

Rodney leads the Wellington corporate team and specialises in mergers and acquisitions, capital markets and advising early-stage and growth businesses.

Rodney has an NZX Diploma and has advised a range of listed companies, NZX firms and substantial shareholders in relation to their participation in New Zealand’s capital markets.

A significant part of Rodney’s practice involves assisting early-stage and growth businesses with their legal needs: from day-to-day contracting and compliance issues through to advising on expansion activities and other significant transactions (such as raising capital, the entry or exit of shareholders, entering into joint ventures, or restructuring the business).

Rodney provides sound, pragmatic advice and is able to communicate complex issues in an easy to understand way. He regularly presents seminars and workshops on commercial and corporate law issues, and is a co-author of Lexis Nexis Practical Business Law and several chapters of Morison’s Company Law.

Rodney Craig

Partner


Corporate and Commercial
Wellington

P: +64 4 498 5025
M: +64 27 466 9788
Email

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