"Milford believes that Xero's recent material share price underperformance is primarily due to the company's delisting decision. The NZ Equities Wholesale Fund, Milford's other funds and their underlying investors have been prejudiced for two additional reasons:
- The Xero waiver decision may reduce investor confidence that the NZX will fully protect
investor rights. This could reduce investor participation in the NZX and the performance of the domestic sharemarket.
- The Xero decision could encourage other NZ companies to list on the ASX or move from the NZX to the ASX. This would reduce the number of domestic investment opportunities for Milford's NZ Equities Wholesale Fund and Milford's other funds."
"We would be supportive of that attempt," said one fund manager, who did not want to be identified.
Xero did not enjoy a high level of institutional interest when it listed in 2007, with much of the initial support instead coming from private wealth and technology investors.
Xero has said the decision to stop trading and de-list from the NZX was made after an extensive strategic process which thoroughly canvassed all available options.
Chief executive Rod Drury said he didn't believe the delisting needed to go to a shareholder vote.
Xero had followed the right process with the NZX and Drury said the move was on track.
Although a few New Zealand fund managers were unhappy, Drury said the move was in the best interests of the company and shareholders.
If a shareholder vote was required, Drury was "100 per cent" confident that the delisting would get approved.
"We're excited now about moving from a top 10 NZX company to being one of the top ASX companies," he said.
Drury said the company would remain headquartered in Wellington and it thanked the NZX for providing its start.
The letter argues that:
"Milford's NZ Wholesale Equities Fund has a large Xero holding because the latter is listed on the NZX and Xero's directors have signed an agreement that it will abide by NZX rules," it says.
We invested on the basis that this agreement offers us protection under NZX rules. The NZX regulates this contract with Xero on behalf of shareholders. Listing is at the heart of this contract and Milford's NZ Equities Wholesale Fund has invested on the basis that Xero is an NZX listed company."
We recognise and accept the protections, opportunities and risks of the NZX. However, we don't agree that the NZX should make important decisions on behalf of shareholders and exempt Xero from requiring shareholder approval to delist from the NZX. We don't believe that the NZX has the right to decide whether shareholders have been prejudiced by a delisting decision (as per Listing Rule 5.4.1(b))."
