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Highlights:
The Australian Securities Exchange (ASX) has begun reviewing its merger and acquisition approval processes.
James Hardie's proposed acquisition of AZEK has sparked calls for stronger shareholder approval requirements.
The ASX aims to address concerns over shareholder rights and accountability in light of recent investor feedback.
The Australian Securities Exchange (ASX), the primary stock exchange in Australia, is reassessing its rules regarding shareholder approvals for mergers and acquisitions (M&A). This move follows a significant backlash from shareholders, particularly related to James Hardie’s proposed acquisition of AZEK, a fiber-cement manufacturer. The ASX's decision to review its policies comes amidst rising concerns over shareholder rights in large corporate transactions.
James Hardie’s Proposed Acquisition of AZEK
James Hardie (ASX:JHX), a prominent player in the construction materials sector, is in the process of negotiating an acquisition with AZEK. The transaction, involves a significant shift in corporate structure. James Hardie has indicated that it plans to move its primary listing to the New York Stock Exchange following the completion of this acquisition. This move has raised alarm among some of James Hardie’s shareholders, who argue that such a shift could reduce their ability to hold the company’s management accountable.
Under the current ASX rules, companies like James Hardie are required to obtain shareholder approval before issuing equity for acquisitions. However, the proposed deal has prompted questions about the adequacy of these requirements, especially regarding situations where a company plans to alter its primary listing. In this case, the shareholder approval process is under scrutiny, with investors expressing concern that they may not have sufficient control over decisions that could dilute their holdings and alter their rights without their consent.
Investor Concerns Over Shareholder Approval Process
A group of investors recently raised concerns over the current system, stating that companies can issue shares for acquisitions without having to gain shareholder approval. They argued that this creates an imbalance, where corporate management can execute significant deals without proper oversight by those who are directly impacted by these decisions. The investors specifically pointed to James Hardie’s acquisition of AZEK as an example of the need for stricter rules surrounding shareholder approval.
James Hardie’s decision to change its primary listing to New York further exacerbated these concerns. Shareholders fear that moving the company’s listing to an international exchange could limit their ability to challenge management decisions, especially in a situation where they are no longer represented by a domestic board.
ASX’s Response to Investor Feedback
The ASX’s decision to review its M&A rules follows the backlash surrounding James Hardie’s acquisition proposal. ASX Managing Director and CEO, Helen Lofthouse, acknowledged that the complaints from shareholders had led to increased calls for reform. Many of the concerned shareholders are directly invested in James Hardie, highlighting the potential conflict between company decisions and shareholder interests.
In response to these concerns, the ASX has launched a review process to ensure that shareholder rights are appropriately represented in major corporate transactions. While the review is still in its early stages, the ASX has indicated its commitment to examining these issues carefully. Lofthouse emphasized that the review would seek to balance the needs of the broader market while addressing the specific concerns raised by investors regarding M&A deals.
