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    Practical Experience under the Takeovers Code

    Author: KPMG Legal       

    Introduction
    The commercial community has been living with the Takeovers Code since 1 July 2001. During the latter part of 2001 there were only a few takeovers to which the Code applied. We acted for one of the companies taken over during that time. There are a number of valuable practical lessons which we have learned from this experience. The purpose of this note is to highlight a few of these lessons for any company likely to become an offeror or target of a takeover.

    Relevant Rules
    There are a multitude of rules applicable to the participants in a takeover. Most obviously, there are the Takeovers Act and Regulations and the Takeovers Code itself. The Companies Act is relevant in many cases. In addition, listed companies must be aware of the NZSE Listing Rules, the Securities Act and the Securities Amendment Act. The interplay between the different rules throws up many obstacles particularly where an offer is not a simple cash offer.

    Those who have not been involved in a takeover under the new regime will probably not be aware that the Takeovers Panel also issues procedural rulings which are very important from a practical perspective. These rulings govern matters such as the criteria and procedure for the approval of independent advisers and the grounds on which the Panel will consider exemptions from the application of the Code. The Panel's rulings are found in a publication called "Codeword" which is published on the Takeovers Panel website (www.takeovers.govt.nz).

    Time Constraints on a Target Company
    After the receipt of notice of a takeover offer a target company will have a maximum of approximately six weeks (and often only four weeks) to prepare its response. In order to issue that response the company must:
  • compile a considerable amount of factual information about the company;

  • engage an independent adviser to advise on the merits of the offer and have that independent adviser approved by the Takeovers Panel;

  • engage any necessary valuers to undertake valuations of company assets such as land, mining interests, trade marks and the like;

  • have a number of directors' meetings to approve the various steps to be taken and to formulate any recommendations which are to be made to shareholders; and

  • arrange for the compilation, printing and posting of the target company statement.


    • Ideally, if the directors of the target company support the offer, it is desirable for shareholders to receive a single package of information containing both the offer and the target company statement. This avoids confusion for shareholders and keeps costs to a minimum. However, unless the offer is very simple or significant advance notice of the offer is received, it would be unlikely that a target company could have its statement and the independent adviser report ready in time.

    Appointment of Independent Adviser
    The appointment of an independent adviser is important as each target company must have a report prepared on the merits of the takeover offer. The independent adviser must be approved by the Takeovers Panel which will wish to be assured of the independence (actual and perceived) of the adviser and that the adviser has appropriate skills and qualifications. Already the Takeovers Panel has rejected a number of persons proposed to act as independent advisers on the grounds of lack of independence.

    The need for approval of an independent adviser by the Panel can cause significant delays as the Panel takes its role very seriously. This exacerbates the problems faced by a target company in preparing a target company statement within the time frames applicable under the Takeovers Code. We suggest that it is essential the application to the Panel for approval of an independent adviser be made as quickly as possible after a takeover offer is received.

    Target Company Costs
    Under the Takeovers Code the costs of a target company and its directors must be borne by the offeror company. Those costs can be very significant. They include:
  • fees of the independent adviser;

  • fees of valuers;

  • costs of obtaining legal, financial and taxation advice; and

  • printing and postage.


    • The extent of these costs should not be underestimated. Even the costs of printing and postage can be very significant, particularly if the target company has a large shareholder base.

    An offeror company should be aware that such costs must be met whether or not the takeover is successful. Even if the takeover is successful, unless the target company becomes a wholly owned subsidiary of the offeror, payment must be made by the offeror.

    Conclusion
    At this stage not many companies or their advisors have had to deal with takeovers under the Code. There are a number of potential practical pitfalls in the process some of which are referred to above. We strongly recommend that anyone thinking of making an offer and any company which believes it is likely to be the target of an offer should take advice as early as possible to avoid those pitfalls.

    The contents of this document are for information purposes only and should not be acted upon without specific legal advice. KPMG Legal does not accept any liability other than to its clients and only then in relation to specific requests for advice. KPMG Legal is an independent law firm.

    For more information please contact our Mergers & Aquisitions team. Please contact:
    Rob Noakes: rnoakes@kpmg.co.nz,
    Martin Dalgleish: mdalgleish@kpmg.co.nz
    Ross O'Neill: rsoneill@kpmg.co.nz.

    Web site: KPMG Legal: Corporate Advisory/M&A

    February 2002
    May, 2002