NEW ZEALAND Law and Practice Contributed by: Ian Beaumont, Tom Gillespie and Sam Kember, Russell McVeagh
5. Negotiation Phase 5.1 Requirement to Disclose a Deal
to the market that the company is potentially in play, generating the potential for competing proposals to emerge, and may neutralise pressure tactics from the prospective acquirer (eg, leaks to key shareholders or the media). As a matter of best practice, market participants should have holding announcements and communi - cations plans prepared in advance so that they are in a position to respond promptly in the event that confidentiality is lost or a price enquiry is received from NZX. 5.3 Scope of Due Diligence The scope of due diligence in a negotiated business combination in New Zealand is broadly consistent with international practice. Buyers generally take a risk‑based approach based on impact on valuation, including: • Corporate structure and governance: Constitutions, share capital and registers, shareholder arrange - ments, delegated authorities and compliance with director duties. • Material contracts and commercial arrangements: Change-of-control and assignment restrictions, termination and exclusivity rights, price-review and most-favoured terms, distribution/agency and JV arrangements, and key customer and supplier dependencies. • Financing, debt and security interests: Facilities, covenants, guarantees, intercompany funding, hedging, security packages and PPSR searches. • Financial and tax matters: Quality-of-earnings interface, working-capital normalisation, tax com - pliance and exposures (income tax, GST, PAYE, withholding), tax losses and grouping, transfer pric - ing and any rulings or disputes. • Employment, labour relations and incentives: Individual and collective agreements, policies and compliance, immigration/visa status, restraints and confidentiality, change-in-control terms, bonus/ commission and equity plans. • Real property, resource management and envi - ronmental: Title and lease reviews (including rent review/renewal), encumbrances and easements, building consents and code compliance, resource
Listed issuers are subject to continuous disclosure obligations under the NZX Listing Rules and the FMCA. Generally, a target must disclose material information (ie, information that a reasonable person would expect, if it were generally available to the mar - ket, to have a material effect on the price of its listed securities) as soon as it becomes aware of it. In an M&A context, this obligation is qualified by a recognised confidentiality exception. Disclosure is not required where releasing the information relates to an incomplete proposal, provided that the information is confidential and confidentiality is being maintained, and a reasonable person would not expect disclo - sure in those circumstances. Practically, this means a target will usually not need to announce an initial approach, exploratory discussions or a non-binding term sheet, provided that confidentiality is intact and there is no false market. Once confidentiality is lost, rumours emerge, a false market develops, or the transaction reaches a point where it is sufficiently certain and material, the issuer must disclose without delay. In most cases, execution of binding transaction documentation in respect of a material transaction will necessitate an immediate market announcement. 5.2 Market Practice on Timing Market practice on the timing of disclosure sometimes varies from the strict legal requirements. In practice, parties typically seek to maintain confidentiality for as long as possible during the negotiation phase, and announcement is usually made either at the point of signing a definitive agreement or when a leak or mar - ket rumour makes earlier disclosure necessary. NZX may also issue a price enquiry to a listed company if there is unusual trading activity in its securities, which may prompt earlier disclosure even where no leak has been identified. Notwithstanding the general approach of maintain - ing confidentiality, some target boards elect to vol - untarily disclose the receipt of a non-binding indica - tive proposal. The usual rationale is that this signals
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