THE powerful Australian Council of Superannuation Investors says stockmarket rules that let companies be taken over without shareholder approval are a risk to market integrity and should be changed.
The call has been backed by other corporate governance advisers who say the rules allow game-changing deals to be done by boards without shareholders getting a say.
ACSI chief Gordon Hagart said the listing rules were almost unique to Australia and meant investors could not be certain they would get a vote if a company they held struck a friendly deal to be taken over.
The issue has flared in the planned $800 million friendly merger of Roc Oil and Horizon Oil, which has been structured so that Roc shareholders, who will own 42 per cent of the merged company, cannot vote on the deal.
“The current Australian standards are an anomaly when compared to other developed markets around the world,” Mr Hagart told The Australian.
“For companies listed in London, New York, Singapore and Toronto, you would have a vote on this type of proposal.
“We’ll be raising the issue with the ASX — fundamentally, it’s a market integrity issue.”
Mr Hagart said the problem was that investors buying shares in Australian companies could not be certain they would have a say if the companies they invested in were being taken over.
Under ASX listing rules, shareholder approval is not needed for a company to issue large amounts of equity if it is being done as part of a takeover deal.
As has happened in the Roc-Horizon deal, this means takeovers can be structured so that a smaller company technically takes over a larger one without shareholders of the smaller company having a say.
ASX listing rules say shareholder approval is needed if a company’s equity is increased by more than 15 per cent through a share issue. But this does not apply to takeovers, even if, as in Roc’s case, equity on issue is being more than doubled to make the purchase.
Governance advisers have backed ACSI’s call.
“There is a hole in the rules that allows this to happen,” Martin Lawrence, from advisory firm Ownership Matters said.
“It’s not clear why there is shareholder protection against somebody issuing 20 per cent of the company to other people — you have a right to vote on that — but if they say ‘it’s a takeover and we’re issuing 95 per cent’ you have no right to vote on that. It seems bizarre.”
CGI Glass Lewis said shareholders should be able to vote on these deals. “The exemption is at odds with what we consider to be a tenant of standard corporate governance practices, namely the right of shareholders to have a say in matters that will significantly dilute their ownership interests or otherwise transform the nature of the entity in which they are owners,” CGI Glass Lewis analyst Mark Grothe said in a report on the Roc-Horizon deal.
ASX listing rule 7.2, exception 5, permits the issue of securities in a takeover without a shareholder vote. This is so listed companies can participate in takeovers on an equal basis with unlisted entities and are not disadvantaged by the need to seek shareholder approval.
“There is, of course, nothing preventing Roc giving its shareholders a vote, should they decide to,” an ASX spokesman said.
The exception is mostly used when bigger companies bid for smaller ones through schemes of arrangement, meaning it causes little controversy.
Notable uses of the exception include the $12bn “merger-of-equals” between Oxiana Resources and Zinifex in 2008, where only Zinifex shareholders were given a vote.
Originally published as ACSI call to tighten deal standards
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