New 'low-ball' offer rules come into force

New rules aimed at stamping out misleading 'low ball' share offers are being introduced from next month. Photo / Richard Robinson

Shareholders now have greater protection under new rules designed to clamp down on misleading, 'low-ball' share offers.

New regulations which came into effect over the weekend will govern how unsolicited offers to investors can be made, said Commerce Minister Craig Foss today.

"Unsolicited or 'low-ball' offers are a predatory tactic that damages the health and confidence of our capital markets," he said.

Low-ball offers are unsolicited approaches to shareholders offering to buy their stocks, bonds and other securities.

Shareholders typically receive a letter putting pressure on them to sell their shares quickly, often with little information and using unconventional business practices.

A recent example saw an Australian company offering to buy shares from Tower investors for $1 each. Stock & Share Trading Company's offer was about 90 cents below the market price of Tower shares at the time.

Stock & Share also made a low-ball offer to Vector shareholders in September.

The changes come after the Commerce Committee's recommendation last year that the Financial Markets Authority (FMA) be granted powers to capture low-ball offers.

"The new regulations will require greater disclosure requirements from a person or company that makes an offer, and introduce stronger rights and remedies for shareholders," Foss said.

Anyone making an offer will now have to state the market price or a fair estimate of the value of the shares being sought.

Minimum offer and cancellation periods will also have to be specified and failure to comply with an FMA order can result in a fine of up to $30,000.