Takeovers law change 'urgent'

John King outlines proposals to prevent deals such as Transpacific's

Transpacific Industries' $870 million acquisition of Waste Management has undermined the New Zealand sharemarket's credibility, says Takeovers Panel chairman John King.

The deal, effected by a controversial arrangement that required the support of just 75 per cent of Waste Management's shareholders, exploited a legal loophole. As a result shareholders were deprived of Takeovers Code protections.

The code governs changes of control in listed companies or those with 50 or more shareholders and assets of $20 million or more. It is designed to prevent any party from gaining more than 20 per cent of the shares without launching a full takeover.

It also specifies a buyer can take full control only after it has bought more than 90 per cent of the shares on issue. At this point it can compulsorily acquire the outstanding shares.

King said the loophole reflected inconsistencies between the Companies Act and the Takeovers Code and should be closed urgently. Yesterday he disclosed the panel's proposals to do just that.

"[Transpacific's buy] was simply a takeover done by an amalgamation," King said. "Companies should be able to choose which process they use to merge with or gain control of a code company. But the rights and protections of code company shareholders should follow consistent principles under all processes."

The proposals include:

* Amending the schemes of arrangement sections of the Companies Act so courts have to consider the code principles when approving a scheme. These include the level of shareholder approval needed, the information given to shareholders and that the courts take Takeovers Panel recommendations into account.

* Amending the amalgamation section of the act so merging parties have to obtain Takeovers Panel approval and that the panel take into account the principles of the code.

The changes would ensure the 90 per cent threshold was retained except in the most special of cases. The onus would be on the buyer to establish why the threshold should not apply.

King said the Government recognised the urgency of the matter. He expected it to move quickly once the panel had made its recommendations.

However, King warned that potential predators could move to exploit the loophole before it was closed.

"I think there is every opportunity for that. If you wanted to do a deal like Waste Management it is certainly advantageous."

The proposals would have no bearing on the proposed merger of Contact Energy and Australia's Origin Energy.

The companies have obtained in-principle approvals from the New Zealand Takeovers Panel, the Australian Securities and Investment Commission, the Australian Stock Exchange and Australia's Foreign Investment Review Board.

They are still waiting for approvals and waivers from the NZX and the Overseas Investment Office.

Contact expects the explanatory memorandum to be mailed to shareholders by early July. It hopes to hold the necessary shareholder meetings by early August.