In a development that is not surprising in light of the furore that surrounded the waiver James Hardie received from ASX for its Azek takeover, ASX has changed its policy on public disclosure of waivers by listed companies. On 23 July, ASX announced that it would standardise its approach on this, such that a company will now be required to disclose to the market the nature and effect of any ASX waiver granted to it, as well as its reasons for seeking the waiver.
When James Hardie announced the Azek deal to the market, the company did not disclose that it had obtained a waiver from the requirement for shareholder approval that would have otherwise arisen given the number of shares it had agreed to issue under the takeover. Market observers (ourselves included) were initially able to deduce that James Hardie had obtained the waiver, ahead of the release of an updated ASX waiver register which occurred weeks after the initial announcement. Despite the investor outrage which erupted once the waiver became public knowledge, shareholders had no way of stopping the deal and the Azek takeover has recently closed.
Around the time the Azek deal was announced I suggested that ASX's policy settings could be improved in this regard, by ASX requiring the company make timely disclosure of the grant of the waiver to the market, as that requirement may cause boards to more closely consider whether a waiver (which a company can seek or not seek in its absolute discretion) is consistent with best corporate governance practice.
ASX has done just that. ASX's updated policy will require disclosure by the company when the waiver is granted, or if granted in relation to a confidential and incomplete proposal (ie. a pending deal), when the deal is announced. Companies will need to submit to ASX a draft of their proposed public disclosure about the waiver grant at the same time that they apply for the waiver. Importantly, the disclosure will need to include the company's reasons for seeking the waiver.
One can't help but wonder if the James Hardie board would still have run the gauntlet of shareholder blowback if this policy had been in place. Under this scenario, the company would have had a fair idea of the reaction of shareholders to the waiver, rather than expecting (or hoping) that the market would remain unaware of it. Whether or not that would have altered its decision in obtaining the waiver, we cannot know – but it certainly would have been more of a consideration. Therein lies part of the benefit of this new policy.
Overall, this change seems sensible, as it is in the interests of promoting transparency of board decisions to shareholders, particularly those decisions that seek to avoid the operation of those ASX Listing Rules which are in place for purpose of protecting existing shareholders.
ASX has previously announced that it would also review its 2017 analysis of shareholder approval thresholds in relation to listed company mergers (particularly reverse takeovers, a category in which ASX placed the James Hardie / Azek merger). It remains to be seen whether any additional changes will result from that review.
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