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Published: 27 August, 2007
Pages: 78

Introduction

Why a takeovers code?

1.1 Throughout the 1980s a debate raged, with the Securities Commission on one side and the Treasury on the other, as to the desirability and economic justification for the introduction of takeover laws.

1.2 This debate was fuelled by the takeover of L D Nathan & Co Limited
(“L D Nathan”) by Lion Corporation Limited (“Lion”) in early 1988 which saw Lion purchasing a controlling stake in L D Nathan from Fay Richwhite & Co Limited (“Fay Richwhite”) at a cash price of $9.20 per L D Nathan ordinary share and other L D Nathan shareholders being offered one Lion share for each L D Nathan share, with Lion shares then trading at $6.05 per share, a value equivalent to approximately 65% of the cash price offered to Fay Richwhite. The disparity between the price paid for the Fay Richwhite parcel and the consideration offered to other L D Nathan shareholders prompted investigations by both the New Zealand Stock Exchange and Securities Commission.

1.3 At the heart of the debate lay the question whether a majority shareholder should be entitled to a control premium for its controlling stake or whether economic efficiency was enhanced and greater confidence would be instilled in the New Zealand market by a regime which ensured competition for control of widely held companies and equality of opportunity for all shareholders to participate equally in the benefits which flowed from a contest for control.

1.4 While the Companies Bill 1990 was before Select Committee, the Government introduced the Takeovers Bill in December 1991, having in November 1991 appointed the Takeovers Panel Advisory Committee, the forerunner to the Takeovers Panel established under the Takeovers Act 1993.

1.5 In late 1993 the Takeovers Panel Advisory Committee recommended the form of a proposed Takeovers Code, although as there continued to be ongoing debate about the need for and desirability of the Code, the Government had already announced its intention to defer introduction of the Code to provide an opportunity to assess whether the protections under the Companies Act 1993 and the NZSE Listing Rules would obviate the need for regulating takeovers.

1.6 In 1995 the Takeovers Panel, which had been appointed following the Takeovers Act coming into force on 1 July 1994, submitted a report to the Minister of Justice proposing the adoption of the 1993 Code on the basis that in the 18 months after the enactment of the Companies Act 1993, virtually all changes of control in listed or large companies in New Zealand had taken place without participation of a majority of their shareholders.

1.7 Nonetheless, as a result of continued debate on the desirability of introduction of the Code, the Government decided once again to defer its adoption. This deferral was reversed by the incoming Labour Government in 1999 in the hope that a policy change towards greater shareholder participation in takeovers under the Code would help improve overseas perceptions of, and instil confidence in, the New Zealand market. At that time, the Panel recommended a Takeovers Code to the Minister largely in the form recommended in 1995, but with greater detail as to the procedure for the takeover process and more elaboration on defensive tactics. This was given effect to in the Takeovers Code Approval Order 2000 which took effect from 1 July 2001.

1.8 The Takeovers Amendment Act 2006, has amended the Takeovers Act and the Code in four significant areas:

(a) definition of code company;
(b) rights of the Panel to deal with misleading and deceptive conduct;
(c) expansion of the Panel's enforcement powers; and
(d) an increase in the penalties and remedies available under the Takeovers Act.

1.9 Further, on 1 July 2007, the Takeovers Code Approval Amendment Regulations 2007 ("Takeover Amendment Regulations") came into force. These regulations amend the Code and are of a technical nature only (although some are significant in their effect). The Takeover Amendment Regulations arose out of discussion papers by the Panel and the recommendations to the Minster of Commerce in the period 2003-2005.

Authors

Author(s): David Flacks, Derek Johnston, David Jones, Roger Wallis