ASX to Reevaluate Shareholder Approval Rules Following James Hardie Controversy

Highlights:

• The Australian Securities Exchange has launched a review of its rules concerning shareholder approvals for mergers and acquisitions.

• The review comes after James Hardie announced it would hold a shareholder vote on its plan to shift its listing status.

• Investors have raised concerns over companies issuing shares for acquisitions without obtaining shareholder approval, citing dilution and management accountability concerns.

The Australian Securities Exchange (ASX) plays a significant role in the Australian capital markets, providing a platform for companies to list, trade, and meet regulatory requirements. It governs a wide range of financial activities, from securities trading to shareholder meetings and corporate actions. Recently, the ASX has come under scrutiny for its rules regarding shareholder approvals for mergers and acquisitions (M&A).

ASX's Review of Shareholder Approval Processes

The ASX has initiated a process to reassess its rules for mergers and acquisitions, particularly those involving shareholder approval. This review follows increased calls from investors to address perceived issues with the current system. Under the existing framework, companies listed on the ASX are required to obtain shareholder approval for certain corporate actions, but this requirement does not always extend to equity issued for acquisitions.

The ASX's decision to launch this review was triggered by controversy surrounding the plans of James Hardie, a major manufacturer of fibre-cement products. The company recently proposed an acquisition of AZEK, a US-based manufacturer, and this deal sparked concerns among investors about the dilution of their holdings. James Hardie has sought a waiver from the ASX's shareholder approval requirement, which has intensified the debate around M&A rules.

James Hardie's Controversial Acquisition Proposal

James Hardie, listed on the ASX, plans to acquire AZEK in a deal. While the company has disclosed that it will seek shareholder approval for the issuance of shares to directors, the acquisition itself would proceed without a broader shareholder vote. The company also intends to shift its primary listing to New York after the transaction, a move that has raised concerns about the diminishing influence of Australian shareholders over the company’s management.

A group of investors has criticized this arrangement, arguing that the ability of shareholders to hold management accountable could be undermined by the changes in listing status. Furthermore, the issuance of shares for the acquisition would dilute the existing shareholders' stakes without their explicit approval. This has led to calls for changes to the ASX’s rules governing shareholder votes on such transactions.

Investor Reaction and Calls for Rule Change

The response from investors has been vocal, with many highlighting the issue of shareholder dilution and the erosion of shareholder rights. They argue that major corporate transactions, such as mergers and acquisitions, should require broader shareholder approval to ensure that the interests of existing shareholders are safeguarded.

The ASX's review process is seen as a direct response to this backlash. The exchange has acknowledged that the increased attention on James Hardie’s waiver request has prompted greater interest in the need for stronger protections for shareholders during significant corporate changes. The outcome of this review may result in revisions to the ASX's rules, especially regarding the scope of transactions that require shareholder approval.

Impact on ASX’s Regulatory Framework

The review of shareholder approval requirements is expected to have wider implications for the ASX’s regulatory framework. Changes to these rules could affect how future M&A deals are structured, particularly for companies with a large shareholder base. The ASX may introduce more stringent requirements for obtaining shareholder approval for significant corporate actions, which would align the process more closely with the interests of shareholders.

As the review progresses, the ASX will likely continue to consult with various stakeholders, including corporate entities, investors, and legal experts, to refine its approach to M&A regulations. The outcome could reshape the way Australian-listed companies approach mergers, acquisitions, and other major corporate events in the future.