2019 M&A Forecast - Friendly acquisitions remain popular

Schemes of arrangement have quickly become the
most popular way to conduct friendly takeovers
of ‘Code companies’, as well as a flexible method
of undertaking a wide range of other corporate
transactions. Since legislation was updated in
2014 to provide for schemes of arrangement that
affect Code company voting rights, there have been
ten such schemes completed – the largest being
the billion dollar takeover of Nuplex by Allnex in
2016 and the most recent being Heartland Bank’s
demerger of its Australian subsidiaries from its New
Zealand banking business just a few months ago.

Key phases of a scheme of arrangement

  1.  Planning and approach
  2.  Due diligence
  3. Transaction documents
  4. Shareholders’ disclosures
  5. Court and shareholders’ approvals
  6. Implementation

We expect the number of schemes to continue to
rise because they:

  • have a lower shareholder approval threshold to
    get them across the line (75% of each interest
    class and 50% of all shares) in comparison to a
    full takeover (90% of all shares); and
  • are more flexible than a Takeovers Coderegulated
    process and can accommodate
    particular deal structures.

Because a scheme requires the buyer to work
with the board of the target company to present
the scheme to shareholders, there needs to be
alignment between the interests of the buyer and
the interests of the target company. We expect the
Takeovers Code process to continue to be used
mostly (if not exclusively) in hostile deals – of which
there are few in New Zealand due to the size of the
market.

The Takeovers Panel offers proactive guidance
to market participants on its expectations and to
clarify issues that arise as market practice develops.
The Panel has regularly updated its guidance on
schemes over the past 12 months, and we expect it
will continue to do so as required.

In the year ahead, we expect market practice to
settle further as more schemes are completed,
reducing the risk and uncertainty of these
transactions and further increasing their
attractiveness to potential buyers.

Read Full Merger and Acquisition Forecast

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