File pic Photo: 123RF
Bidding for companies via the Takeovers Code will better serve shareholders compared to schemes of arrangement, according to a fund manager.
It comes after bidders for mobile donations company Pushpay failed at first to garner enough support to buy the company by way of a scheme of arrangement - although an improved offer has been presented.
Schemes of arrangement had a lower shareholder voting threshold to acquire a company compared to the Takeovers Code.
"You need to get 75 percent of votes under the scheme for the vote to pass versus a takeover [where] the bidder needs to acquire 90 percent of shares to compulsorily acquire the company," Fisher Funds portfolio manager Matt Peek said.
He preferred the Takeovers Code to represent shareholders' best interests.
"With the higher threshold it means that there's less chance of the bidder being able to opportunistically acquire a company that might be at a low point.
"That's because under a scheme the scheme vote can succeed even if almost one in four shareholders is voting against [because] the bar is higher for a takeover," Peek said.
He said "low-ball" offers were more likely to succeed under a scheme of arrangement.
Peek also believed schemes of arrangement have become more popular due to the lower threshold.
"The 90 percent threshold can be hard for a bidder to reach."
Peek said the other benefit of a scheme of arrangement from a bidder's perspective was they could approach a company board with interest in acquisition, which would put the board under pressure.
"[The board] might feel like they need to take the offer to shareholders if it's higher than the current share price to discharge their obligations as directors, but then the bidder can put them [the board] under quite a bit of pressure to bring an offer forward that might not be very good.
"That's what we saw in the case of Pushpay where we and other shareholders didn't think the offer was attractive enough but the board was put under a lot of pressure to bring it forward anyway," Peek said.