Statement of reasons
This notice applies to acts or omissions occurring on or after 27 August 2004.
As part of a global sale of its international assets, Edison Mission Energy (EME) has entered into an agreement (the purchase agreement) to sell all the shares in its wholly-owned subsidiary Mission Energy Universal Holdings (Universal) to Origin Energy New Zealand Limited (Origin Energy NZ). Universal and its subsidiary Mission Energy Pacific Holdings (Pacific Holdings) together hold approximately 51.2% of the voting shares in Contact Energy Limited (Contact), and Universal also holds all of the shares in Mission Contact Finance Limited (Mission Contact Finance). Accordingly, upon settlement of the sale of Universal, Origin Energy NZ will become the controller of 51.2% of the voting rights in Contact and all of the shares in Mission Contact Finance. Both Contact and Mission Contact Finance are code companies.
The Takeovers Panel (the Panel) has granted exemptions to Origin Energy NZ in relation to—
•Origin Energy NZ becoming the controller of voting rights in Contact as a result of the purchase agreement; and
•Origin Energy NZ becoming the controller of voting rights in Mission Contact Finance; and
•a proposed full takeover offer by Origin Energy NZ for Contact.
Exemption in relation to Origin Energy NZ becoming controller of voting rights in Contact as result of purchase agreement
Although the Takeovers Code (the Code) provides a mechanism by which shareholders in a code company can approve an increase in voting rights resulting from an upstream acquisition, the Code does not provide a mechanism by which a takeover offer can be accepted by means of an upstream transaction.
The Takeovers Panel has granted an exemption from rule 6(1) of the Code to Origin Energy NZ in respect of any increase in its voting control in Contact as a result of its purchase of Universal.
The exemption is subject to a number of conditions, including that Origin Energy NZ make a takeover offer to remaining Contact shareholders and that the consideration under that takeover offer is the same as the Per-Contact Share Price received by EME for its interest in Contact under the purchase agreement.
The Panel considers that granting the exemption to Origin Energy NZ from rule 6(1), in respect of becoming the controller of voting rights in Contact as a result of the acquisition of Universal, is appropriate and consistent with the objectives of the Code because the conditions of the exemption ensure that shareholders are treated fairly on the basis that Contact shareholders would be offered the same consideration per share under Origin Energy NZ's takeover offer as the purchase price of EME's Contact shares under the purchase agreement.
Exemption in relation to Origin Energy NZ becoming controller of Mission Contact Finance
Mission Contact Finance is a code company because it is a party to a listing agreement with New Zealand Exchange Limited in respect of the issue of redeemable preference shares.
Origin Energy NZ is not able to seek shareholder approval in respect of the transfer of voting rights because the only shareholder of Mission Contact Finance, Universal, would be prevented from voting to approve such a transaction under rule 17 of the Code.
If a takeover offer was made, it would be made to Universal only. It would not be required to be extended to the holders of redeemable preference shares issued by Mission Contact Finance because these securities are not equity securities for the purposes of the Code.
The Panel considers that granting the exemption to Origin Energy NZ from rule 6(1) of the Code, in respect of becoming the holder or controller of voting rights in Mission Contact Finance as a result of the acquisition of Universal, is appropriate and consistent with the objectives of the Code because—
•Mission Contact Finance is a code company solely by reason of being the issuer of redeemable preference shares that are the subject of a listing agreement with New Zealand Exchange Limited; and
•all voting securities of Mission Contact Finance are held by Universal; and
•there are no shareholders of Mission Contact Finance requiring the protection of the Code in respect of any change of control of Universal; and
•Universal is not a code company; and
•the exemption maintains a proper relation between the costs of complying with the Code and the benefits resulting.
Exemption in relation to Origin Energy NZ's full takeover offer
The Panel has also granted an exemption to Origin Energy NZ from rule 8(2) of the Code in respect of its full takeover offer for Contact to allow it to exclude from the offer—
•shares held by Universal and Pacific Holdings; and
•shares held by Contact as treasury stock under section 67A of the Companies Act 1993; and
•options, rights, or interests issued under the Contact Energy Limited Long Term Incentive Plan (the LTIP).
Under rule 8(2) of the Code, if a full takeover offer is made it must be in respect of all of the securities in each class of equity securities, whether voting or non-voting, of the target company (other than those that are already held by the offeror).
However, not all offerees would be able to accept Origin Energy NZ's takeover offer because—
•an offer for treasury stock would not be capable of acceptance under the provisions of the Companies Act 1993; and
•an offer for interests under the LTIP would not be capable of acceptance because the rules of that plan prohibit the transfer of those interests.
In the absence of an exemption, Origin Energy NZ would be required, under clause 9(1) of Schedule 1 of the Code, to confirm that it has resources available to meet the consideration provided on full acceptance of the offer. However, shareholders would not have any interest in, nor receive any benefit from, confirmation that the offeror also has sufficient resources to fund acceptance from holders who are legally prevented from accepting the offer.
In addition, if the takeover offer were required to extend to shares held by Universal and Pacific and shares held by Contact as treasury stock, this may have consequences in terms of the consideration to be paid under the compulsory acquisition provisions of the Code. Under rules 56 and 57 of the Code, if a person becomes the dominant owner by reason of acceptance of an offer under the Code, the consideration payable in respect of compulsorily acquired shares depends on the number of acceptances in comparison to the number of securities in respect of which the offer was made.
The Panel considers that granting the exemption to Origin Energy NZ from rule 8(2) of the Code, to the extent that that rule would require the offer to be made in respect of shares held by Universal and Pacific Holdings, shares held as treasury stock, or interests under the LTIP, is appropriate and consistent with the objectives of the Code because—
•Origin Energy NZ will become the holder or controller of all of the voting rights in Universal and Pacific Holdings before or shortly after making the takeover offer; and
•shareholders will not be disadvantaged if the offer does not extend to treasury stock or interests under the LTIP because an offer for such securities would not be capable of acceptance; and
•the exemption maintains a proper relation between the cost of compliance with the Code and the benefits arising from it.