Investors are being handed fresh power over big takeover funding as the Australian Securities Exchange confirms new listing rules forcing votes on sizeable equity raisings. The changes follow the intense backlash to James Hardie’s roughly $14 billion purchase of US-based Azek which was funded using shares without a shareholder vote.
ASX says the new regime gives investors a direct say before their stakes are heavily diluted. Institutional investors in particular are set to wield more influence as oversight of capital raisings in public M&A increases.
Under the previous approach ASX allowed James Hardie to issue new shares equal to about 35% of its existing capital to pay for the Azek deal. That exemption meant Azek shareholders approved the transaction but James Hardie’s own investors were never asked to sign off on the large share issue.
The revised listing rules now focus on situations where equity raising for an acquisition could significantly dilute existing holdings. In those cases public company investors will get a binding vote on whether the capital raising can proceed.
The James Hardie episode alarmed parts of the Australian funds management sector which worried boards could give away large chunks of companies without investor permission. Critics argued that unfettered issuance during takeovers risked weakening governance and eroding long-term value for existing owners.
ASX is tightening the balance between deal-making flexibility for boards and protection for shareholders against unexpected dilution.
