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
- Planning and approach
- Due diligence
- Transaction documents
- Shareholders’ disclosures
- Court and shareholders’ approvals
- 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.