• About
• Publications
• Exemptions
• Notices
• What's new?
• International
• Speeches
• Information for investors
• Contact us
• Site map
• Home

Offers of Securities in Takeover Bids

PART II
BACKGROUND

19. Clause 18 of Schedule 1 provides a disclosure requirement in certain circumstances where securities are offered as consideration. The clause provides in full:
    1. "If the consideration offered under the offer includes securities (within the meaning of the Securities Act 1978), the issuer of which is a public issuer that has a class of equity securities that has been quoted on the Stock Exchange for at least 12 months before the date of the offer, the offeror must -
       1. make available to offerees (on request) the most recent annual report of the issuer of the securities; and

       2. disclose in the offer document or send with the offer document -
          1. the name of the issuer of the securities offered as consideration and its relationship to the offeror; and

          2. the material terms and conditions of the securities; and

          3. a copy of the most recent half-yearly report of the issuer relating to a period after the annual report referred to in paragraph (a), if any; and

          4. a copy of the most recent interim report of the issuer relating to a period after the annual report referred to in paragraph (a), if any, or, if a copy of a half-yearly report has been disclosed under sub-paragraph (iii), a copy of any interim report of the issuer relating to a period after that half-yearly report, if any; and

          5. any other information that could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer; and

          6. if there is no information referred to in subparagraph (v), a statement to that effect.

    2. Subclause (1) does not apply if the issuer is required by the Securities Act 1978 to register a prospectus in relation to the securities offered as consideration under the offer."

20. Clause 18(1) only applies to securities issued by a public issuer which has had a class of equity securities quoted on the NZSE for at least 12 months. Potentially clause 18(1) could apply to securities that are not quoted, provided that another class of the issuer's securities were. For example, clause 18(1) could apply to an offer of non-quoted capital notes that a company whose shares are quoted on the NZSE is using to finance a takeover offer.

21. Clause 18(2) limits the application of clause 18(1) to situations where a prospectus is not required. This will be the case where previously allotted securities are offered as consideration for a takeover offer, and the issuer of the securities is exempted from compliance with Part II of the Securities Act by reason of section 6(1) of the Act.

22. On the face of it this may also be the case where the Commission grants an exemption from the requirement to register a prospectus, pursuant to section 5(5) of the Securities Act. However, we are informed that clause 18 was enacted on the assumption there would be a statutory exemption from the obligation of an offeror to comply with Part II of the Securities Act in the circumstances described in clause 18.

23. There is a fundamental policy question on whether any rules of securities law should cease to apply to scrip offers made in the course of a takeover, for example the rules about:
    1. the disclosure of all information that is material to the offer of securities;

    2. the signatures of issuers, directors and promoters;

    3. the liability of issuers, directors and promoters;

    4. voidness and voidability of allotments; and

    5. the powers of the Commission to intervene and, for example, suspend, cancel or prohibit documents.

24. There will be no equivalent for many of these things in takeovers law when the Code comes into force on 1 July.

Takeover regulation in Australia and the United Kingdom

25. The approaches adopted in other jurisdictions may be of assistance in evaluating proposals. Australia and the United Kingdom have differing approaches on the nature of securities regulation required in a takeover situation.

26. In Australia the Corporations Law excludes offers of securities in a takeover offer from the requirement to register a prospectus. However, takeover offerors are required to provide a offeror's statement, and where securities are offered this document must include the information required in a prospectus. There are equivalent provisions about liability and regulatory intervention. The effect is that while there is a statutory exemption equivalent to section 3(2)(d) of our Securities Act, the regulatory requirements remain effectively the same.

27. In the United Kingdom there are statutory exemptions, contained in the Financial Services Act and Public Offers of Securities Regulations, providing that the usual requirements of securities law do not apply to offers of securities made in the course of a takeover offer. Takeovers in the United Kingdom are regulated by the City Code on Takeovers and Mergers. The City Code sets out disclosure requirements for takeover offers, and as a part of these requirements offerors must provide information about the securities that are being offered as consideration.

28. In summary, the Australian Corporations Law does not require takeover offerors offering securities to register a prospectus, but does subject offeror statements to equivalent rules of law, not only about disclosure but also about liability and regulatory intervention. United Kingdom securities law exempts takeover offerors from ordinary securities law compliance, and relies on the City Code to ensure acceptable standards in respect of the offer of securities as part of a takeover offer.

What regulation applies if no exemption is granted?

29. If neither the Commission nor the Panel decides to grant an exemption in respect of takeover offers of securities where securities law applies, then offerors who wish to offer securities as consideration for their offers will need to comply with both the Securities Act and Takeovers Code.

30. If the offeror offers its own new securities for subscription, or the existing securities of another company with the advice, encouragement or knowing assistance of the issuer, the offeror would need to register a prospectus and prepare an investment statement in respect of the securities, and to comply with the Code.

31. There is a degree of duplication between the disclosure requirements of the Code and the Securities Regulations. If offerors are to be required to fully comply with both the Code and the Securities Regulations, certain information may need to be disclosed twice, and certain information may need to be disclosed which is not well tailored to an issue of securities for financing a takeover offer. In addition, the offeror will need to prepare three prescribed statements, a takeover offer document, a registered prospectus and an investment statement.