CODEWORD

Code a milestone for Securities Law

The Minister of Commerce, Hon Paul Swain, spoke to a recent seminar on takeovers in Auckland. He had this to say about the Takeovers Code:

“The introduction of the Takeovers Code on 1 July last year marked a milestone for New Zealand securities laws.

The intention of the Code is to align our takeovers regime with international best practice. It seeks to give greater confidence to small and minority investors by providing them with fair and equal treatment and participation in takeover situations.

Other key objectives include:

• providing a transparent and orderly process which ultimately reduces transaction costs to domestic and international investors. This increases the ability of New Zealand’s share market to be internationally competitive;
• providing an effective supervisory enforcement body that operates within statutory guidelines; and
• providing a takeovers regime which is similar to other jurisdictions, thereby creating greater confidence for international investors in the integrity of our market.

The Code does this by prohibiting a person from increasing their voting rights in a Code company above the 20% threshold except in compliance with the Takeovers Code.

In the short time it has been in force, we believe the Takeovers Code has achieved many of these objectives. Industry feedback on the effectiveness of the Code since its implementation has been generally very supportive. In fact many who were originally opposed to the implementation of a Takeovers Code, are now supportive of the current regime.

Incidents such as the Lion Nathan takeover of Montana Wines have illustrated how the Code has provided a more transparent and certain process in takeover situations. The Takeovers Panel, through their immediate reaction and resolution of the Montana takeover situation proved very effective in enforcing the Code.

All prospective takeover offers must now comply with the Code and adhere to its core concepts of fair and equal treatment and participation of all shareholders.

By requiring an offer to remain open for a specified period and to all shareholders equally, the Code has removed some of the urgency seen in takeovers of old, where shareholders were coerced by brokers into selling out at a lightning pace for fear of missing out on the deal.

Shareholders, led by fund managers, are now taking the time to consider offers and wait for competing bids to emerge.

Edison Mission’s bid for Contact Energy is a good example. Edison was forced to up its offer and extend the deadline on acceptances in the face of strong opposition to its bid. Although unsuccessful, it is a good example of the new regime’s requirement to treat all shareholders fairly and equally.

We are confident that perceptions of the New Zealand market in relation to takeovers have been greatly improved since the introduction of the Code.”