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Offers of Securities in Takeover Bids

PART II
BACKGROUND

41. Proposal Three establishes a special class of issuers. Under Proposal Three where the issuer of the securities is listed and the securities to be offered are of a class that is quoted on the New Zealand Stock Exchange ("NZSE") the offeror, and the issuer where different, would be exempt from the standard content requirements for registered prospectuses, but would be required to register a prospectus which contained the information generally as specified in clause 18(1) of Schedule 1 of the Takeovers Code, in the nature of a short form prospectus. Proposal Two would continue to apply where the securities were not of a class which is quoted on the Exchange.

Dividing issuers into categories

42. There are a number of points that can be made in favour of a special arrangement for listed issuers and their quoted securities:
    1. accurate, timely and regular information about the issuer of securities;

    2. accurate and timely information about transactions being carried out in the securities;

    3. liquidity, recognising the spread provisions in the NZSE Listing Rules;

    4. information about the past performance and track record of the issuer of the securities, where the issuer has been listed on the NZSE for some time;

    5. standard governance rules, for example, NZSE Listing Rules about the appointment of directors.

Scope of the exemption

43. If listing on the NZSE is used as a criterion for establishing a special class of issuers, then other questions will arise. For example, should there be a minimum time period for issuers to have been listed, as envisaged by clause 18 of Schedule 1 of the Takeovers Code? Where a listed issuer wishes to finance a offer with an offer of unlisted securities, should the class exemption still apply?

44. An alternative class of issuers could be that used in clause 18(1) of Schedule 1 of the Takeovers Code. That is, the modified disclosure requirements would apply where:
    1. the securities that are being offered as consideration are issued by an issuer that has a class of equity securities quoted on the NZSE; and

    2. those equity securities have been quoted for at least twelve months

45. Potentially, therefore, this would include unquoted securities issued by a listed issuer. Respondents may consider that other matters should be taken into account in defining the class. As with the other matters put forward in this paper, the Commission welcomes suggestions.

Other material information

46. Clause 18(1) of Schedule 1 of the Code provides for the disclosure in the takeover offer document of "the material terms and conditions of the securities" and "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".

47. The First Schedule to the Securities Regulations provides for the disclosure of particulars of any material matters relating to the offer of securities not otherwise disclosed at clause 40. There is an equivalent provision in the Second Schedule (clause 34).

48. The question arises whether the Code provisions deal adequately with the need to disclose other material matters relating to the offer of securities or whether there should be a condition of any exemption that there is disclosure in terms of the First or Second Schedule.

Investment Statements

49. The same exemptions for investment statements would apply for listed issuers under Proposal Three as for the preliminary indicative list under Proposal Two, that is, exemptions from provisions of Schedule 3D of the Securities Regulations as in Appendix B to this paper.

Liability provisions

50. Where material is attached to, or referred to, in a prospectus it is deemed to be included in the prospectus by way of section 55 of the Securities Act. A question that arises is whether the information suggested above is sufficient, or whether the takeover offer document should be incorporated by reference in the prospectus.

Advantage of Proposal Three

51. The advantage of this proposal would be that the key provisions of securities law including the liability provisions and the Commission's power of intervention would continue to apply but the information to be disclosed would reflect the judgement of the Panel, as expressed in the Takeovers Code, on the nature of the information which was "material to the making of a decision by the offerees to accept or reject the offer".

52. It would still be necessary for the offeror to prepare three prescribed documents, the takeover offer, the registered prospectus and the investment statement. However, the information to be disclosed in each document is separately prescribed and, we consider, will need to be separately disclosed to avoid confusion. It may be that each of the documents can be in the nature of separate sections of the full offer documentation. We consider that there will be advantages in providing for disclosure in this way.

53. Proposal Four follows Proposal Three in establishing a special class of issuers.

54. Proposal Four would exempt the offeror, and the issuer where different, from the requirement to register a prospectus in respect of securities offered in a takeover offer where the issuer is a listed company and the securities are quoted on the NZSE. This would follow the general model provided by the Securities Act (Amalgamations) Exemption Notice 2000 (SR 2000/168).

55. Such an exemption would be conditional on the same information being provided as with Proposal Three above, that is, the information as generally prescribed in clause 18(1) of Schedule 1 of the Code and, if this seems appropriate, other material information in the terms of the Schedules to the Securities Regulations

56. It may also seem appropriate to consider granting an exemption from the investment statement provisions of securities law, subject to the condition that the offer document contained a statement providing key information that may assist a prudent but non-expert person to decide whether or not to subscribe for securities (or, in this case, to accept the takeover offer).

57. The advantage of this proposal would be that it would bring the regulation of takeovers, so far as it related to the offer of securities to the public, in line with the scheme at present applying under a Securities Commission exemption for amalgamations. Is this an important consideration, even while recognising that the Commission may wish to review its present policy on the amalgamations exemption? Would arbitrage questions arise if takeovers and amalgamations were regulated in a different way?

58. A disadvantage of this proposal is that many of the core rules of law about the registered prospectus and the investment statement would not apply, including the specific information required by the Schedules to the Securities Regulations, and the provisions relating to liability and regulatory intervention contained in the Securities Act.