Planned 'friendly' amendment to Takeovers Act sparks worry

John Hawkins. Photo / APN

As the Government seeks to sell the public on state asset sales it is amending a key protection for small investors which is feared may allow company takeovers to go ahead in order to maintain friendly relations with other countries.

The Rodney Hide-sponsored Regulatory Reform Bill introduced to Parliament late last year contains a series of amendments to the Takeovers Act, including one that would enable the Takeovers Panel to take into consideration "international comity" or friendliness between nations.

The panel administers the Takeovers Code and can issue exemptions for companies looking to take over another business where it believes they are warranted. Amid concerns about the Government's proposal to partially privatise state-owned power companies, the Takeovers Act and code are seen as a key protection for retail investors and New Zealand's wider interests.

In combination with ongoing majority state ownership, the act - which requires any would-be purchaser of more than a 20 per cent stake in a company to make an offer to all shareholders and secure at least 50 per cent of it - is seen as a safeguard against the companies falling into the hands of foreign investors.

Ministry of Economic Development officials said the amendment had been added to allow the Commerce Minister to take into account comity between New Zealand and any other country as an objective when formulating any recommendations relating to the code.

However, a companies law expert said while the amendment meant comity would be considered by the minister when making changes to the code, it could have an important flow-on effect when the panel is considering exemptions.

When deciding whether or not to give an exemption, the Takeovers Panel must give reasons why any exemption is consistent with the objectives of the code. Potentially, international comity may be used as a reason when an exemption is granted.

Shareholders Association chairman John Hawkins yesterday said his organisation was concerned at the possible flow-on effects of the amendment.

"We'd be concerned if it allowed the minister to alter the objectives of the Takeovers Act and thereby reduce the protections available to New Zealand minority shareholders."

The association planned to write to the relevant minister to clarify the effect of the amendment, he said.

Commerce Minister Simon Power expected the issue would be carefully scrutinised during the bill's select committee stage but should it pass into law, he did not intend amending the Takeovers Code to reflect the new objective, "at this time".