Normandy. The nominee is then obliged to sell those shares and
distribute the proceeds to the shareholders. A similar
arrangement is permitted for holders of small parcels of Otter
shares. They can elect to transfer their share entitlement to the
nominee.
These exemptions were granted because of:
- the cost of complying with securities law in multiple
jurisdictions where share scrip is being offered as
consideration in a takeover;
- the opportunity provided to consolidate small holdings; and
- the principle of equal consideration still being observed.
COMMENT ON RULE l6
As an exception to the fundamental rule contained in rule 6 of
the Takeovers Code, a person may become the holder or
controller of an increased percentage of the voting rights in a
code company by an allotment approved by an ordinary
resolution of shareholders under rule 7(d). In this situation, the
requirements of rule l6 Notice of meeting: allotment of voting
securities, must be met.
Rule l6 (b) and (d) require the notice of meeting to state among
other things:
- the number of voting securities being allotted to the
allottee;
- the percentage that number represents of the voting shares
on issue post-allotment;
- the total percentage of the voting rights on issue that the
allottee will have post-allotment; and
- the price at which the securities will be issued and the date
the consideration is payable.
The situation may arise where rule 7(d) cannot be complied with
because the notice of meeting is unable to state the particulars of
rule l6, especially l6(b) or (d). This situation can arise in a
number of instances including:
- major shareholder underwriting a pro rata issue of voting
securities made to all shareholders;
- issue of options convertible at a later date; or
- issue of convertible notes, convertible at a later date.
The precise number of voting securities to be allotted might be
unknown because:
- the exact number of options that may be exercised is
unknown;
- a conversion ratio for convertible notes may not be known;
- the number of shares that a principal shareholder has to
subscribe for under an underwriting agreement is not known.
Often where an event is happening in the future the outcome
post-allotment cannot be stated with the certainty required by
the Code.
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In such cases, an exemption from rule l6 is required for the
allotting company, and an exemption from rule 7(d), to the extent that rule 7(d) requires compliance with rule l6, is required for the allottee. An exemption aims to facilitate such allotment arrangements while remaining consistent with the objectives of the Code. To achieve this outcome conditions will be imposed relating to the information to be included in the notice of meeting. They are also likely to include:
- a constraint on any change in effective control of the allottee between the time of shareholder approval of the allotment of voting securities and the allotment itself; and
- a requirement to disclose the effect of any ability of the shareholder to take advantage of the “creep” provisions of rule 7(e) of the Code.
COMMENTS ON INDEPENDENT ADVISERS
| TIME AND COSTS OF PROCESSING APPROVALS |
Applications for approval to act as an independent adviser should be sent to the Panel as early as possible and should comply with the Outline for Application set out in Code Word 3.
The cost to applicants of processing an application has ranged to
date from about $1000 to more than $5000.
| DISCLOSURE OF ALL INFORMATION IN APPLICATIONS - INCLUDING RELATIONSHIPS WITH DIRECTORS & SHAREHOLDERS OF PARTIES TO THE TRANSACTION AND WHETHER AN APPLICATION HAS BEEN MADE TO THE NZSE |
Frequently the Panel has had to seek more information from prospective independent advisers about their applications. In particular these requests have related to:
- Disclosure of all past and present relationships between the applicant and any other party, including the directors and major shareholders of the parties, as well as the directors and major shareholders of the offeror and the target company.
This disclosure should give the nature, extent and duration of the relationship, including the fees earned, the time-frame of the assignments and whether there has been any past or present involvement with any of the parties as auditor.
- Whether the independent adviser has any involvement in other advisory activities associated with the transaction and whether they have had any prior involvement in the transaction, especially the formulation of the transaction.
- If the independent adviser is preparing an appraisal report under the New Zealand Stock Exchange Listing Rules, this should be disclosed.
Each case is considered very carefully. Several applications have
been declined because the Panel considered that the nature,
extent or duration of a disclosed relationship was such that the
applicant was not sufficiently independent.
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