21 May 2014

Schemes of arrangement 'erode protections'

7:20 am on 21 May 2014

A prominent business commentator who fought for years for the introduction of the Takeovers Code is concerned the increasing use of schemes of arrangement may be eroding the protections provided to shareholders by the code.

Milford Asset Management executive director Brian Gaynor said the New Zealand experience of schemes of arrangement was that they always favoured the acquirer at the expense of the target's shareholders.

He said because a scheme of arrangement is an agreement with the company and the company then proposes the motion.

Mr Gaynor said that meant there was not the opportunity for other people to come in because the company had effectively agreed to the scheme of arrangement before it was announced.

He said that stops alternative bidders from coming in and contesting the bid.

Mr Gaynor said a scheme of arrangement can close off other people from wanting to come in and make an offer.

"If you gave a bidder a choice as to what they're going to do they would always go for a scheme of arrangement - that means that you've got a system that's preferential to the purchaser rather than the seller."

Mr Gaynor said purchasers would always choose to go for a scheme of arrangement because it meant they had a better chance of acquiring the company at a lower price.