A new draft guidance note entitled “Recovery of Expenses under Rule 49(2)” published by New Zealand’s Takeovers Panel has undoubtedly helped some Kiwi law firms, says David Quigg of Quigg Partners.

 

The panel published the document after they were asked to provide direction on a dispute about who would pay legal costs incurred by Abano Health Care during Crescent Capital Partners failed takeover bid. The matter was settled privately, but the panel decided to clarify rule 49 of the Takeover Code, which states that the target has the right to seek reimbursement of ‘properly’ incurred costs.

 

“Naturally, there is a reluctance to pay from acquirers,” said Quigg. “They see it as rubbing salt into their wounds - that’s why disputes generally arise after failed bids, like for example the Auckland Airport/Canada Pension Plan Investment Board and Abano Healthcare/Crescent Capital deals.”

 

According to the document it is acceptable to seek reimbursement for independent financial or legal advice, and relevant advertising or promotion to advise shareholders and the media of the offer.

 

“It will certainly help clients and law firms. Although it will help eight out of ten issues, there are still issues where there is room to argue,” said Quigg, who pointed out that the panel has not taken a position on whether success fees should be reimbursed.

 

When asked about this Margaret Bearsley, a general counsel at the Takeover Panel told ALB the panel might consider reimbursing it on a case-by-case basis, if a request was made.

 

Nevertheless, there remain factors that could prevent a target from receiving compensation. One scenario where expenses could not be recovered is if a client sought compensation for defensive tactics prohibited by the code. This might include selling a key asset of the company during a takeover offer without shareholder approval, says Quigg.

 

“Another example is where you have two parties bidding, but only one is successful. The target can only recover expenses if each party has issued a formal takeover notice. If one of them has not, then costs incurred by as a result of that party’s activities, such as due diligence expenses, cannot be recovered,” he said.

 

The panel is accepting feedback on the guidelines until 5 September 2008. Bearsley says she expects the document to be finalised by the end of the year.