Dated at Wellington this 20th day of May 2004.
The Common Seal of the Takeovers Panel was affixed in the presence of:
J C King,
Statement of reasons
Clause 19 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 exempted underwriters from the fundamental rule, rule 6(1) of the Takeovers Code (the Code), because professional underwriting agreements can inadvertently lead to a breach of the fundamental rule.
The Takeovers Panel became aware that there may be some uncertainty regarding whether the exemption in clause 19 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 applies to corporate investors who seek to use underwriting agreements as a means of increasing control in code companies. The Panel did not intend the class exemption to apply in such circumstances. In these circumstances, where appropriate, a specific exemption may be sought from the Panel. Alternatively, shareholder approval under rule 7(d) of the Code could be sought, provided that an appropriate exemption from rule 16(b) of the Code is first obtained.
The Panel decided to amend the exemption for underwriters from rule 6(1) of the Code to make it clear that it does not apply if an underwriter has a collateral intention in respect of the underwriting agreement of enabling any person to increase that person's voting control in a code company. Also, the exemption will not apply where the underwriter and its associates already hold more than 5% of the voting control of the code company.
The Panel considers that it is appropriate to grant an exemption to professional underwriters, and upstream parties of professional underwriters, from rule 6(1) of the Code because—
underwriting arrangements are an accepted means of assisting companies to raise capital in New Zealand, which should be facilitated by the Panel; and
the allotments pursuant to the underwriting agreements to which the exemption applies would not change the effective control of the code company.
The Panel considers that the exemption is consistent with the objectives of the Code because—
it is a condition of the exemption that any increase in voting control is eliminated within 6 months and the additional voting rights are not exercised before that elimination; and
it maintains a proper relation between the costs of compliance with the Code and the benefits resulting from it.