NEW ZEALAND Law and Practice Contributed by: Ian Beaumont, Tom Gillespie and Sam Kember, Russell McVeagh
In New Zealand, we have not yet seen public transac - tions structured with an earn-out component. 6.4 Common Conditions for a Takeover Offer For a takeover offer under the Takeovers Code, com - mon conditions include: • receipt of regulatory approvals (including OIO consent, NZCC clearance and any other sector- specific consents); • a minimum level of acceptance (see 6.5 Minimum Acceptance Conditions ); • no material adverse change in the target; • no material acquisitions, disposals or new financial commitments by the target; and • no prescribed occurrences, such as any issue of new shares, alteration of share capital or amend - ment to the target’s constitution. The Takeovers Code prohibits conditions that are solely within the offeror’s control. In practice, the Takeovers Panel will scrutinise conditions to ensure they do not render the offer illusory or give the bidder an unjustified ability to withdraw from the offer. If the Panel considers that a condition has these character - istics, it may make orders requiring the condition to be amended or waived, or may declare that unacceptable circumstances exist in relation to the offer. For a scheme of arrangement under Part 15 of the Companies Act, the conditions will typically be similar to those outlined above for a takeover, except that there will be no minimum acceptance condition (giv - en the “all or nothing” outcome a scheme produces), and the scheme will instead be subject to approval by the requisite majority of shareholders as well as the approval of the High Court. 6.5 Minimum Acceptance Conditions For takeover offers under the Takeovers Code, the offeror may specify a minimum acceptance condition. The offeror specifies in the offer the number of voting rights (expressed as a number or percentage of the total voting rights) chosen as the minimum accept - ance level. Minimum acceptance conditions often reflect relevant control thresholds and are generally either 50.1% if the offeror merely wishes to control
the target or 90% if the offeror wishes to proceed to compulsory acquisition and obtain 100% ownership. The 50.1% threshold provides the offeror with majority voting control, including the ability to pass ordinary resolutions and appoint directors to the board. The 90% threshold is significant because, under the Take - overs Code, if an offeror reaches a holding of 90% or more of the voting rights in the target, it may invoke the compulsory acquisition provisions to acquire the remaining shares and achieve full ownership. An offeror is precluded from specifying a condition under 50.1% of the voting rights in a code company other than with approval of shareholders via ordinary resolution (and subject to other prescribed require - ments). 6.6 Requirement to Obtain Financing For private M&A transactions, there is no legal impedi - ment to the inclusion of a funding condition in the sale and purchase agreement. It is a matter of nego - tiation. Targets are generally not receptive to funding conditions, especially in a competitive sale process where a target will evaluate offers not just on headline price but also overall execution certainty, which entails assessing the certainty and timeliness of the prospec - tive acquirer’s funding arrangements. For public M&A transactions under the Takeovers Code, the offeror must, when the offer is made, have reasonable grounds for believing it will be able to pay the consideration to all offerees that accept the offer. This obligation applies at the time of the initial announcement of the takeover and throughout the entire offer process. It requires the offeror to have its financing arranged, or be in a position to demonstrate that financing is committed and available, before the offer is dispatched. A public takeover offer that is con - ditional on the offeror obtaining financing is unlikely to satisfy this requirement and would face significant regulatory scrutiny. While there is no legal impediment to an offeror includ - ing a financing condition in a scheme of arrangement, this would be unlikely to be palatable to a target board (and has not yet been seen in the New Zealand mar - ket).
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