Statement by John King, Chairman of the Takeovers Panel - 27 February 2001

Takeovers Panel Prepares For New Code

The issue of takeovers is very much in the limelight.

The Montana affair highlighted changes that will take place under the new Takeovers Code. For example, if the Code had been in force both Lion Nathan and Allied Domecq would have been obliged to make written offers to all Montana shareholders.

The Montana takeover drew attention to the new Code which comes into force in July. However, the Code is only part, albeit an important part, of a comprehensive new takeovers regime. Central to this new regime is the Takeovers Panel itself.

Takeovers Panel
The Panel is a body corporate established under the Takeovers Act 1993. We have existed since 1995, and before that as an advisory committee formed in 1991.

The Code that we submitted to Government in 1995 was placed on the shelf and consequently the Panel has been in abeyance until last year when the present Government decided to introduce the Code.

Members of the Panel

Government is advertising for new members, so, over the next few months there will be some changes in the membership of the Panel. My re-appointment as Chairman for another two years was announced by the Minister of Commerce last week.

The Panel's role

The Panel is a very important part of the takeovers regime. Its first task, which is now complete, was to prepare the Code.

The Panel's ongoing responsibilities include very wide powers to enforce the Code, granting exemptions from the Code and promoting public understanding of the law and practice relating to takeovers.

Preparing for the Code

The Panel is now preparing for the Code becoming law on 1 July.

The Government decided that the Panel will be resourced by the Securities Commission rather than establishing a new organisation. This is cost effective and provides the Panel with the benefits of the infrastructure developed by the Commission over many years.

However, although we share offices and use the resources of the Securities Commission, the Panel is an independent body.

All the establishment nuts and bolts are well advanced. In particular, our web site (www.takeovers.govt.nz) is now live and the first issue of the Panel's newsletter, "Code Word", has been published.

Exemptions from the Code

The waiver granted by the New Zealand Stock Exchange's Market Surveillance Panel in the Montana affair has raised the issue of the role of exemptions under the Code.

The Takeovers Panel will not grant exemptions which undermine the fundamental principles of the Code.

However, exemptions are needed because some technical issues arise from the new Code. For example, inadvertent breaches of the code may occur in a number of ways:

  • a rights issue may inadvertently increase a shareholder's votes beyond the threshold of 20% even though it only takes up its pro rata entitlement; or
  • with nominee companies and trustees the strict legal position is that the votes are exercised by the registered holder of the shares even though the beneficiary may control the exercise of those votes.

And there are other examples.

Class exemptions will ensure that shareholders and others do not unwittingly breach the Code. This is important as there are very heavy penalties for breaching the Code.

On the other hand class exemptions will always be consistent with the basic principles of the Code.

Consultation

The class exemptions are well advanced. We expect to seek public comment on the draft exemptions in mid March. They will be reviewed in the light of the public submissions before they are formally adopted by the Panel.

Enforcement

The Takeovers Act contains a comprehensive regime for enforcing the Code. The Panel is central to this regime and has very wide powers.

The Panel can call meetings at short notice and may issue restraining orders, including orders which prevent buying and selling shares and exercising voting rights.

If the Panel is not satisfied that the Code is being complied with then it can extend those restraining orders and apply to the High Court for the appropriate final orders.

On the other hand, if the Panel holds a meeting under the Act and determines that it is satisfied that the Code is being complied with then other parties cannot apply to the High Court under the Takeovers Act. This is to ensure that the litigation process is not used to obstruct the proper operation of the takeovers market.

When matters go to Court, the Court is directed to take account of any determination or recommendation made by the Panel and the Court can also request a recommendation from the Panel.

The Takeovers Code

The Takeovers Code and a summary of the Code in business language are published on our web site.

The voting rights threshold is 20% and that threshold cannot be passed except in compliance with the Takeovers Code. Shareholders with more than 20% of the votes may retain those holdings but cannot increase them except in compliance with the Code.

The procedure for takeover offers requires written offers so that changes in control will not take place by means of a stand in the market. The procedure will result in an orderly process where shareholders will be treated equally. On the basis of proper disclosure and with the assistance of independent advice shareholders will be able to make an informed decision as to whether or not to accept the offer.

Continuing review

The Panel has a responsibility to keep the Code and the takeover market generally under review and to recommend changes to the Government as appropriate. v The Panel is also charged with promoting public understanding of the law and practice relating to takeovers. In this role it will certainly be seeking to interact with the market to facilitate the introduction and operation of the new takeovers regime. John King
Chairman
Takeovers Panel

27 February 2001

For further information phone John King (09) 367 8270
or
Catherine Chapman (04) 471 7659