Take-overs defended by Reserve Bank

Press, 15 August 1984, Page 35

Take-overs defended by Reserve Bank

The Reserve Bank has defended take-over activity, and described it as an important method for the more efficient use of resources.

The governor of the bank, Mr S. T. Russell, yesterday made public the bank’s submission on the proposals for the reform of take-over law, suggested by the Securities Commission. The submission is understood to be one of a number received by the commission: other submissions include those from the Treasury, private sector companies and interested individuals.

The commission’s proposals, which are designed to correct perceived market failures, have two main thrusts:

9 That bids to acquire 20 per cent or more, of the shares in a listed company should be subject to a 14day notice period, followed by a 21-day compulsory trading period, both designed to allow an “auction for control” to develop; and

© That all like shares receive equal gains under a take-over offer.

The bank questions the commission’s view that an “auction for control,” as an allocative device, is superior to the operation of an unregulated marketplace, and considers that the implementation of the commission’s proposals could well result in a significant (and therefore undesirable) reduction in take-over activity. In summary, the bank concludes that the commission has yet to establish that serious problems result from the operation of the existing, largely unregulated marketplace. Commenting on the submission Mr Russell said that within the corporate sector, take-overs were an important method by which resources are used more efficiently, whether they were transferred between competing activities or used more efficiently within the same activity.

The threat of take-overs occurring also provided an important discipline on corporate management, in ensuring that it acted in the long-term best interest of shareholders. In a general

sense take-overs might be viewed as a means of increasing productivity within the economy and therefore boosting national income. Mr Russell also said that while the bank shared the commission’s view that take-over activity was an important policy area, the case for its regulation was far from conclusive. In view of this, what was now required was a re-examina-tion of the alleged failings of the marketplace, together with a thorough empirical evaluation of the costs and benefits of “correcting” any perceived failings through a range of policy options, including regulation.