The Takeovers regime in New Zealand

Brynn Gilbertson, Partner and Andrew Brown, Consultant | December 2002

Introduction

The Takeovers Act was originally enacted in 1993 to establish a Takeovers Panel to formulate and recommend to the Minister of Commerce a Takeovers Code to apply to "specified companies".

Although the Takeovers Panel did recommend a code in 1993, it took a change in government in 1999 before the Takeovers Code was finally adopted with effect from 1 July 2001.

The first meeting of the Panel following introduction of the Code took place at 9.30am on Sunday, 1 July 2001 to consider whether Allied Domecq plc may have breached the Code in relation to its contested takeover bid for Montana, New Zealand's largest wine producer and exporter.

Since that date, the Takeovers Code has had a significant impact on transactions involving the acquisition of controlling interests of New Zealand publicly listed companies.

Fundamental rule

The scheme of the Takeovers Code is to create a general rule - known as the "fundamental rule" - and to provide various exceptions to that fundamental rule. The fundamental rule is that no person can:

• acquire more than 20% of the voting rights in a code company; or
• increase an existing holding of 20% or more of the voting rights in a code company.

Exception

The Takeovers Code then creates exceptions to the fundamental rule, allowing voting securities to be purchased or acquired:

• under a "full offer" in accordance with the Code;
• under a "partial offer" in accordance with the Code;
• under an acquisition approved by an ordinary resolution of the code company in accordance with the procedure set out in the Code;
• under an allotment approved by an ordinary resolution of the code company in accordance with the procedure set out in the Code;
• under a "creeping" acquisition which allows a shareholder who already holds between 50% and 90% of a code company to acquire up to an additional 5% in a twelve month period; or
• by means of a compulsory acquisition if a shareholder holds 90% or more of the shares in the code company.

As is often the case with new legislation, the first 16 months following the introduction of the Takeovers Code have proved to be very busy as the parameters and nuances of the Code have been worked through.

During that period, the Panel granted 24 exemptions and made 14 restraining orders. Bell Gully has been very active in this area advising as legal counsel in a number of takeovers under the Code, including the following:

Allied Domecq takeover of Montana

In 2001 Bell Gully acted for the independent directors of Montana, New Zealand's largest wine producer and exporter, in the fiercely contested takeover bid by British-based liquor giant Allied Domecq and New Zealand-based brewing company Lion Nathan.

On 1 July, Lion Nathan made a partial offer for 11% of the ordinary shares in Montana at $5.50 per share - together with Lion's existing shareholding, this would have given it control of Montana.

The offer advised that if the $5.50 offer became unconditional, then Lion intended to make a further offer for all outstanding Montana shares at $3.70 per share.

In subsequent press announcements, Lion commented that if all shareholders (except Allied Domecq) accepted both offers for their shares, accepting shareholders would receive an average share price of not less than $4.38 for their shares.

The Panel considered whether the original offer satisfied the requirement under the Code that an offer be on the same terms and conditions, including the same consideration to all holders of securities in the same class.

The Panel concluded that Lion intended Montana shareholders to rely on its statements that it would proceed with a subsequent offer and that it encouraged Montana shareholders to evaluate the two "offers" together.

On this basis, the Panel concluded that the offer by Montana did constitute an offer at different prices which did not comply with the Code.

Rank Group takeover of New Zealand Dairy Foods Limited

In 2002, Bell Gully acted for Rank Group which made a cash takeover offer for all the shares in New Zealand Dairy Foods at $1.75 per share.

New Zealand Dairy Foods was owned as to just over 50% by Fonterra Co-operative Group Limited. The remaining shares were widely held by more than 6,000 farmers.

Before making the takeover offer, Rank Group obtained a commitment from Fonterra to accept the takeover offer when it was made. This pre-bid binding commitment guaranteed the success of Rank Group's offer.

Such pre-bid commitments do not breach the Code as the Code is only triggered if voting rights are held or controlled. Pre-bid commitments of this nature do not give rise to the bidder holding or controlling voting rights.

However, the requirement that the shares be sold into a code compliant offer ensures that all shareholders have the opportunity to participate in the offer thus fulfilling one of the fundamental aspects of the Code.

GPG attempted Partial Takeover of Rubicon

Bell Gully is currently acting for Rubicon, an investment company formed in 2001 as part of the restructuring of Fletcher Challenge, in connection with the partial takeover offer made for that company by GPG.

In contrast to other jurisdictions, the Code does permit partial takeover offers. At the time of its offer, GPG owned 19.9% of Rubicon. In late August 2002 it launched an offer to acquire 40% of the Rubicon shares it did not already owned or such lesser percentage that would leave it holding between 30% and 50% of Rubicon.

The Takeovers Panel restrained GPG from making this partial takeover offer on the basis that it breached rules 9(3) and 10(1) of the Code, which respectively require that:

	"A partial offer must be made for a specified percentage of the voting securities in the target company not already held or controlled by the offer"; and
	"[A] partial offer must be for voting securities that ? confer ? more than 50% of the voting rights in the target company or ? a lesser percentage ? if approval is obtained ?"

The Panel objected to the dual nature of GPG's offer saying that an offer could not be made for more than 50% on one hand and for a percentage less than 50% on the other.

The Panel also objected to GPG's failure to specify a specific percentage in relation to its offer for less than 50%. Rubicon shareholders were entitled to know precisely what they were being asked to agree to.

This article was first published in Asian Legal Business magazine in December 2002. For further information, please go to www.asianlegalonline.com.