Transcript Allen Allen & Hemsley PROJECT CRICKET
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DUAL LISTED COMPANIES (DLCs) Jon Webster
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DLC by Agreement
… contractual arrangement between two companies under which they operate as if they were a single economic enterprise, while retaining their separate legal identities, tax residencies and stock exchange listings …
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Features
• Two companies managed having regard to the interests of the combined shareholders of both companies • Shareholders retain existing shares with economic interest in the combined assets of both companies • Shareholders of each company have equivalent dividend, capital and voting rights on a per share basis
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DLC Structure
Company A Shareholders Company A SVC Company A
Sharing Agreement Identical Boards Unified Management
Company B Shareholders Company B SVC Company B
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Advantages
• Unified management • Nil (or low) premium combination • Improved access to capital markets • Reduces flow-back issues • Flag issues - retention of Australian headquarters • Preserve existing shareholder taxation treatment • No transfer of assets or shares • Low implementation risk
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Disadvantages
• Compliance with two different legal and accounting regimes • Takeover of both companies more complex • Dilution of voting interests on Joint Electorate Actions • Certain actions subject to approval of both sets of shareholders • Liquidity split between jurisdictions
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Conditions to Implementation
• Shareholder approval from each company • Foreign Investment Review Board • All other regulatory requirements necessary to implement the DLC Structure including: – ASIC (accounting treatment, takeover amendments) – ASX (special voting share, constitutional changes) – ATO and UK Inland Revenue (residence) – Competition issues - ACCC, European Commission, Hart-Scott Rodino – US SEC (registration)
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Operation of the DLC
• Share Price and Listings • Common Management • Equalisation • Voting • Assets/Liabilities • Capital Actions • Takeovers • Cross Guarantees & Liquidation Equalisation Arrangements • Termination of DLC Structure
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Share Price and Listings
• Individual stock exchange listings remain • Shares should be economically equivalent and trade at similar levels • Share price divergence - may result from exchange rates and levels of demand
Common Management
• Identical Boards • Unified executive management • Constitution authorises directors to take account of interests of both groups of shareholders • Concept of 2 ‘simultaneous’ board meetings • Location of board meetings - tax residency issues 10
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Board Meetings - Practical Considerations
• Formally - 2 separate meetings convened - 2 separate notices • In practice - Meetings commence simultaneously - First company agenda - First company resolutions - Second company agenda (only those items not already discussed) - Meetings close - Minutes for each Meeting • Variations possible - eg. Time between 2 meetings
Equalisation
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AIM:
equivalent dividend, capital and voting rights on a per share basis •
MERGER RATIO
Interests of Company A’s shareholders Interests of Company B’s shareholders •
EQUALISATION RATIO
Distribution and Voting Rights per Company A share Distribution and Voting Rights per Company B share Based on EQUALISATION RATIO of 1:1, capital adjustment to reflect MERGER RATIO 12
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Equalisation - Dividends
• Distributions considered on a CASH basis (subject to the Equalisation Ratio) • Currency and taxation not relevant • If Company A intends to declare a dividend of $1 per share, Company B must declare dividend of $1 per share (assuming Equalisation Ratio is 1:1) • If Company B has insufficient profits to declare same dividend, then Company A either makes an equalisation payment to Company B or restricts its dividend
Voting
Joint Electorate Actions
• Shareholder interests same • Shareholders vote as a unified electorate in proportion to their interests in the combined entity
Class Rights Actions
• Shareholder interests differ • Shareholders vote as separate classes
The Mechanism
• 2 Special Voting Companies and the issue of a Special Voting Share in each of Company A and Company B to each Special Voting Company 14
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Joint Electorate Actions
Include: • appointment, removal or re-election of any director • receipt/adoption of accounts • change of name • appointment or removal of auditors • transactions which under law require shareholder approval • any other matter both Boards consider should be decided in this way
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Joint Electorate Voting Procedure
• Each Special Voting Company casts votes attaching to the Special Voting Share to reflect exactly the votes cast by shareholders at the other meeting • Result depends on aggregated votes of shareholders of both companies and will be same outcome for each company
Company A
For Votes of own shareholders 200 Against 50
Company B
For Against 50 50 Votes of special voting share (reflect votes of other company’s shareholders) 50 50 200 50 Total 250 100 250 100 17 Result is that resolution passed in both companies, even though defeated in Company B on stand-alone basis
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Class Rights Actions
Include: • voluntary liquidation or administration of one company • adjustment to the Equalisation Ratio (otherwise than as prescribed) • amendments or termination of DLC Agreements • amendments to DLC provisions in either Company’s Constitution • change in place of incorporation • any other matter which the Boards agree should be decided in this manner
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Class Rights Actions - Voting Procedure
• Resolution must be approved by both groups of shareholders, voting separately • If resolution is not approved by either group of shareholders, special voting share will carry sufficient votes to defeat the resolution in other company
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Assets/liabilities
• No transfer of assets on completion required • In the future, ability to locate assets where most efficient and appropriate
Capital Actions
Capital action in one company proposed Materially different financial effect between 2 sets of shareholders?
Yes No Can Matching Action be taken (must be financially equivalent, no disadvantage and practical & appropriate) Yes No Action may proceed (with Matching Action) Action may proceed Can appropriate Equalisation Ratio adjustment be made?
Yes No Action may proceed (with ER adjustment) Action may only proceed if approved by Class Rights Action 21
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Takeovers
• A takeover offer of one company should not occur without a takeover offer being made for the other company • Threshold levels • Provisions in Constitutions and modifications to Corporations Act to entrench thresholds • Directors power to restrict dividend and voting rights and disenfranchise shares in breach of thresholds • ASIC/UK Panel approach
Cross Guarantees & Liquidation Equalisation Arrangements
• Each company guarantees the (future) contractual obligations of the other • Liquidation equalisation arrangements exist to ensure equal distribution of any surplus assets to all shareholders
Results:
• Equivalent economic treatment of creditors of both companies • Combined credit rating and enhanced balance sheet • Equivalent economic interests of shareholders (subject to the Equalisation Ratio) in the combined assets 23
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Termination of DLC Structure
• Boards to determine equitable proposal for termination of DLC Structure • In absence of such proposal, valuation of each company on same basis and payment by one company to the other (if required) so that values are in accordance with the Equalisation Ratio at that time • Shareholder approval (by Class Rights Action) then required