New Zealand-based investors are selling out of Diligent Corp before the company is acquired by venture capital firm Insight Venture Partners -- fearing they'll have to pay tax, analysts say.
Under the terms of the agreement, Diligent shareholders will receive $7.39 (US$4.90) in cash per share. The shares will go into a trading halt on Monday after the market closes before a special meeting of stockholders on Wednesday morning. If the sale goes ahead, Diligent will be delisted and money will be paid to shareholders.
In a statement filed to the stock exchange on March 7, Diligent said New Zealand holders of the stock may be liable for tax if the merger proceeds because Diligent is a foreign company for the purposes of the foreign investment fund (FIF) tax rules.
A tax liability will arise if a New Zealand investor applies the FIF rules to their foreign company investments. However, that can be avoided if a New Zealand shareholder sells before the merger is approved.
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The New Zealand Shareholders Association drew attention to the potential tax liability for New Zealand shareholders of the NZX-listed, New York-based company.
The stock has seen a sharp lift in volume since it announced the intended takeover in February, with 6.42 million shares sold in Thursday's session, beating the previous record of 880,357 shares traded in a single day.
JBWere's New Zealand equity manager Rickey Ward said questions whether the merger would be taxable have spurred selling.
"There was a paragraph in the booklet that indicated it could be a taxable event because it would be deemed to be a merger, which creates a problem. We recommend individuals seek personal tax advice."