The New Zealand High Court has ruled on the extent to which a target company that successfully defends a takeover bid can recover the cost of doing so from the unsuccessful bidder (Abano Healthcare Group Ltd v Healthcare Partners Holdings Ltd [2018] NZHC 817).
A unique aspect of New Zealand takeover law provides that a target company is entitled to recover certain expenses from the bidder. To qualify, the expenses must be properly incurred in relation to an offer or takeover notice from the bidder. So, when the Healthcare Partners’ hostile partial takeover offer for Abano Healthcare was rejected (acceptances were received for only 3.56% of Abano shares), Healthcare Partners was left with approximately $793,000 of costs incurred by Abano for professional advice and additional director fees. Unsurprisingly, it is common for bidders in the position of Healthcare Partners to dispute that such costs were ‘properly incurred’. That is precisely what happened here.
A High Court case in 1972 (Canterbury Frozen Meats Co Ltd v Waitaki Farmers’ Freezing Co Ltd [1972] NZLR 806) distinguished between expenses of a target company incurred in countering arguments in favour of a takeover, and expenses directed at ‘resisting a takeover bid’. In that case the High Court held that costs incurred countering arguments in favour were recoverable, whereas costs incurred resisting a takeover bid were not.
In the recentAbano case the High Court decided that a fresh approach was appropriate given the development of law in the corporate environment in New Zealand since the 1970s and in particular the introduction of the Takeovers Code in 2001. The Court referred to provisions of the Takeovers Code to identify behaviours that ‘cross the line’ from a target company properly responding to a hostile takeover and defensive tactics or misleading or deceptive conduct (both of which are expressly prohibited under the Code).
As a result of the Abano judgment New Zealand companies that become the target in a takeover can be confident that costs properly incurred (including legal, investment banking and public relations adviser costs) in responding to a takeover offer will be recoverable from the bidder. Whether the target company supports or resists the takeover offer is not relevant to the question of cost recovery. Bidders will need to budget for target company costs in the event an offer is unsuccessful, which in the case of Healthcare Partners, was a case of having salt rubbed into the wound.
John Horner johnhorner@quiggpartners.com and David Quigg davidquigg@quiggpartners.com are partners specialising in mergers and acquisitions at Quigg Partners. They regularly advise on Takeovers Code issues for target companies and bidders.