Allnex uses a scheme of arrangement to acquire Nuplex Industries in the largest New Zealand takeover in a decade. This NZ1 billion ($743 million) deal was the first large takeover under the new regime for schemes which came into effect in 2014.
Nuplex shareholders approved Allnex’s proposal to acquire all the outstanding shares in their company for NZ$5.43 cash a share. Beginning its business as a flooring distributor in 1952, Nuplex, which is now a resins producer, had been listed on the NZX for almost 50 years. Allnex is a global coating resins producer backed by Advent International a private equity firm.
“There have only been two change of control schemes undertaken since 2014, so the deal is fairly novel,” says James Cooney, an M&A and capital markets partner at Bell Gully, who advised Nuplex. “Under the Takeovers Code, the takeover is driven by the bidder and the target is responding to an offer whereas a scheme is driven by the target and the target is proposing the scheme.”
Compared to a traditional offer under the Takeovers Code, schemes of arrangement have a lower threshold. The bidder and target develop a takeover offer that the target’s shareholders vote on. With a Code takeover, the transaction can be undertaken without the cooperation of the target but a scheme can be blocked by the board of the target. A Code takeover requires that the bidder hold or control 90% of the voting rights in the target before acquiring the remaining shares. Under a scheme, a full takeover can take place by a shareholder vote supported by at least 75% of the votes of each interest class voting to approve the scheme and a simple majority of all voters entitled to vote. Separate interest classes can appear if shareholders have dissimilar rights against the company that a common interest cannot be formed. Takeovers under schemes can be achieved along with other transactions with a higher price being offered.
“There is an element of uncertainty with the voting threshold but this went smoothly with Nuplex because there was a high voter turnout,” says Cooney. “With an engagement process, shareholders knew of the vote and the importance of voting.”
The New Zealand Takeovers Panel previously did not permit transactions affecting control of Code companies without following the Code procedure. The role of the panel is to ensure that shareholders receive sufficient information about the scheme to the same standard as a Code process but does not examine the merits of the scheme.
“The New Zealand scheme is similar to scheme processes in the UK and Australian. In terms of the voting thresholds, it is similar to an Australian scheme in that it requires a 75% vote from the votes cast by shareholders in each interest class. The New Zealand scheme has a second voting threshold of the votes cast in favour of the scheme representing more than 50% of total voting rights,” says Cooney. In contrast, the Australian scheme has a headcount test in which a majority in number of the shareholders voting must vote to approve a scheme. Under the headcount test, a large group of minority shareholders has a greater chance to influence the vote even if it only has a small voting percentage.
An added advantage of a scheme is that it does not have the rigid timeframes as compared to the Code. The Code requires that any regulatory conditions, such as antitrust approvals, be satisfied within 120 days from the date of the offer. Failure to do so will result in a lapse of the offer and a new offer will be needed.
“Offshore parties, such as the European private equity firm Advent in this case, are familiar with scheme structures,” says Cooney. With the slew of benefits that a scheme of arrangement has and its popularity in other parts of the world, coupled with the success of the mega Nuplex/Allnex deal, it looks like schemes of arrangement will be picking up speed in New Zealand.