Regulations intended to regulate the making of unsolicited offers for securities, which we referred to in our 21 June 2012 Corporate Advisory Alert, came into force on 1 December 2012. The Securities Markets (Unsolicited Offers) Regulations 2012 (the "Regulations") create an impediment to those who may seek to profit through "low-ball" offers to purchase securities from members of the public. The Regulations achieve this, in part, by:
- requiring any offeror of an unsolicited offer to provide a disclosure document containing prescribed content ("Disclosure Document");
- requiring notification to the issuer of the relevant securities prior to the distribution of the unsolicited offer;
- stipulating a minimum 30-day period within which an unsolicited offer must remain open; and
- providing for a 10 day cooling-off period within which an offeree can cancel an agreement that results from an unsolicited offer.
More information on each of these points is set out below.
The Regulations apply to both listed securities and securities of a class that has previously been offered to the public in New Zealand (within the meaning of section 3 of the Securities Act 1978). However, the Regulations will only apply where the offeror (or its associates) is making, or intends to make, unsolicited offers on the same or similar terms to more than 20 persons within a 12-month period.
Anyone seeking to make an offer for securities which is unsolicited by the offeree must comply with the Regulations. However, the definition of "unsolicited offer", contained in section 48DA(1) of the Securities Markets Act 1988, specifically excludes:
- any offer made on a registered market (such as the NZX Main Board);1
- any offer which constitutes a takeover offer under the takeovers code (as the takeovers code contains its own compliance obligations); and
- any offer by a company to acquire or redeem its own shares under the Companies Act 1993.
Disclosure DocumentAs referred to above, where an unsolicited offer is to be made, the Regulations impose an obligation on the offeror to make the offer in a Disclosure Document. The Regulations do not require a Disclosure Document to be sent to an offeree where that offeree fits within specified categories, including, among others:
- "habitual investors";
- "wealthy people"; and
- "experienced investors",
as those terms are defined in the Regulations. Reliance on these exemptions in connection with low-ball offers is unlikely, as the necessary knowledge about the offerees may not be readily available.
Where the securities the subject of the unsolicited offer are listed, the Disclosure Document must clearly state (among other matters) the total consideration that is being offered for the offeree's securities, the total current market price of those securities and a statement as to how the offeree can check the current market price of their securities.
Where the securities are not listed, the Disclosure Document must contain (among other matters) the total consideration being offered for each security, a fair estimate of the value of each security and the basis for making that estimate. In addition, the offeror must include a statement as to whether these estimates have been reviewed by an independent third party (or whether the estimate simply reflects the offeror's opinion as to the value of the securities).
The intention behind this disclosure obligation is to ensure that offerors cannot take advantage of offerees' lack of financial acumen by offering prices for securities which are significantly lower than the price that would otherwise be obtainable on the open market (and omitting to disclose this fact).
Where an unsolicited offer is to be made, the offeror must notify the issuer of the relevant securities at least five working days prior to the offer being distributed. Such notification must include a list of the names and addresses of every offeree to whom the Disclosure Document is to be sent.
This prior notification obligation enables issuers to pre-emptively communicate their opposition (or support, as applicable) to unsolicited offers to the targeted offerees, further diminishing the likelihood that offerees will be uninformed as to the fairness of the offer made. Further, it may also permit issuers to arrange for more competitive offers, to assist those investors seeking a quick sale.
Minimum offer period
Previous unsolicited offers provided for short periods within which offerees were able to accept the offer. There was concern that this placed unfair pressure on inexperienced investors to accept the offer out of fear of otherwise missing out on the chance to sell their securities.
The Regulations have responded to this concern by prescribing a minimum offer period for unsolicited offers of 30 days, thereby providing any offeree with sufficient time within which to consider the offer and to get advice. The actual period the offer will remain open must be contained in the documents comprising the offer.
In addition to the above, the Regulations also grant all offerees the right to cancel any agreement to sell their securities under an unsolicited offer. Under the Regulations, offerees have ten working days, following acceptance of the offer, within which to notify the offeror of their intention to cancel (with any consideration received to be repaid within 20 working days of the date of acceptance).
The Regulations make life considerably harder for anyone seeking to take advantage of inexperienced or vulnerable security holders through unsolicited offers. The combined effect of the Disclosure Document, prior notification period, minimum offer period and the right of cancellation granted to offerees will undoubtedly remove part of the incentive which previously motivated low-ball offers. However, the Regulations will also catch genuine offers (in the sense of offers which more closely reflect current market prices and are not offered with a discount for so-called "convenience").
While the cost of preparing a Disclosure Document to accompany unsolicited offers may not be excessive (the level of disclosure required is not particularly burdensome), the restrictions imposed on withdrawing offers, combined with the ability of offerees to cancel the agreement within ten working days, will provide an increased level of protection for investors.