NEW ZEALAND Law and Practice Contributed by: Ian Beaumont, Tom Gillespie and Sam Kember, Russell McVeagh
Panel guidance and intervention reflect active regula - tory scrutiny of conflicts in takeover situations.
holders, if it is taken pursuant to a pre-existing con - tractual obligation or proposals approved before the offer became imminent, or if it is taken for reasons unrelated to the offer with the prior approval of the Takeovers Panel. The prohibition on defensive tactics under the Code does not apply in the context of a scheme of arrange - ment. 9.3 Common Defensive Measures Given the constraints imposed by rule 38 of the Takeo - vers Code, the defensive measures available to a tar- get board confronted with an unwelcome takeover bid are largely persuasive rather than structural in nature. The most common measures include publicly recom - mending that shareholders reject the offer and articu - lating detailed reasons for that recommendation, typi - cally on the basis that the offer materially undervalues the company or is otherwise not in shareholders’ best interests. The target board will also commission the independent adviser’s report required under the Code, which, in a hostile context, can serve to independently validate the board’s position on value. More aggressive structural defences that may be available in other jurisdictions – such as poison pills, dilutive share issuances or the disposal of key assets – are not a feature of the New Zealand market and would generally fall foul of the rule 38 prohibition on defensive tactics. 9.4 Directors’ Duties When enacting defensive measures, target directors remain subject to their duties under the Companies Act, including the duty to act in good faith and in what they believe to be the best interests of the company. These duties are owed to shareholders as a whole and require that any defensive response is directed at pro - tecting or advancing their collective interests, rather than serving an improper purpose such as entrench - ing incumbent management or preserving a particular shareholder’s position (see 8. Duties of Directors ). In addition to these general duties, directors must comply with the constraints imposed by rule 38 of the Takeovers Code, which prohibits action that could effectively frustrate an offer or deny shareholders the
9. Defensive Measures 9.1 Hostile Tender Offers
Hostile takeover offers are permitted under the Takeo - vers Code. They typically arise where a target board declines to engage with an approach or rejects a pro - posal, prompting the prospective acquirer to make an offer directly to shareholders. In practice, hostile takeovers are relatively uncommon in New Zealand. The small size of the market, concen - trated shareholder registers and significant execution risks mean that most transactions proceed on a rec - ommended basis. A hostile bidder faces a number of disadvantages, including no access to non-public due diligence, the absence of deal protections (see 6.7 Types of Deal Security Measures ), and the likelihood of vigorous opposition from the target board. The prohibition on defensive tactics in rule 38 of the Code limits the availability of structural defences. 9.2 Directors’ Use of Defensive Measures Once a code company has received a takeover notice or has reason to believe that a bona fide offer is immi - nent, rule 38 (1) of the Takeovers Code prohibits the directors from taking or permitting any action that could effectively frustrate the offer or deny share - holders the opportunity to decide on its merits. The prohibition is assessed objectively by reference to the potential consequences of the directors’ actions, regardless of their subjective intentions. Actions that may breach rule 38 include acquiring or disposing of a major asset, incurring material new liabilities, declaring an abnormally large dividend, undertaking material share issues or buy-backs, and entering into agreements that confer benefits available only to a particular bidder. Importantly, rule 38 does not prevent directors from recommending rejection of an offer or soliciting competing proposals. There are three limited exceptions to this prohibition. Directors may take an otherwise prohibited action if it has been approved by ordinary resolution of share -
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