Does Takeovers Code protect investors or entrench directors?

Friday 1st June 2001

By Paul Swain

A key aim for this government is to increase confidence and participation in the New Zealand securities market.

We have a number of measures under way to achieve that - an important element of which is the Takeovers Code, which comes into force on July 1.

The Takeovers Code will lay out an orderly process for companies to follow when staging a takeover.

The code will mean that all shareholders, big and small, are treated equally in a takeover situation and there will be an independent Takeovers Panel to oversee that process.

It is designed to ensure the fair treatment of all shareholders, and to improve international investor confidence by providing transparency and certainty. This ultimately increases the ability of New Zealand's sharemarket to be internationally competitive.

The takeovers regime is similar to many other jurisdictions including Australia, the UK, Hong Kong, Canada, Singapore and the European community - to name but a few.

While the US does not have a national takeover regime, some of the states in the US have included takeover provisions in their company statutes, requiring shareholder approval for any acquisition over a specified percentage.

The government's moves to introduce a Takeovers Code has received support from significant parts of the investment sector including various company directors, lawyers, accountants and commentators - among them the head of equities for New Zealand's biggest institutional director, AMP.

There has also been encouragement from some overseas experts who say it is important for New Zealand's investment image.

A survey of international fund managers conducted by Merrill Lynch in 1999 confirmed that these powerful investors attached a higher risk premium to New Zealand because of our lack of a takeovers code.

Merrill Lynch said that a takeovers code would "increase the attractiveness of New Zealand as an investment destination."

And in an interview earlier this year, president of the US- based Investment and Management Research Assoc-iation Tom Bowman said: "I definitely think it's a step in the right direction ... the new code should go a long way to attracting foreign capital."

It has been argued that the Takeovers Code may shelter incompetent management and directors from hostile takeovers.

On balance I believe that the benefits of having a takeovers code and increasing confidence in our market are so numerous that they outweigh any potential concerns that some people have expressed.

In any case, the government and the investor community will no longer tolerate the unfair treatment of shareholders that we have witnessed in some big takeovers recently.

Implementing a takeovers code is necessary if New Zealand is to compete effectively for international investment and to encourage more New Zealanders to invest in their sharemarket.

The new regime, along with tougher insider trading laws, is designed to achieve just that. It is an idea whose time has come.

Paul Swain is the minister of commerce

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