Australia’s ASX proposes 25% cap on share issuance in M&A without shareholder vote

[SYDNEY] The Australian Securities Exchange (ASX) plans to limit companies to issuing no more than 25 per cent of their share capital to fund takeovers without a shareholder vote.

This is due to pressure from investors who fear dilution of their ownership in buyouts.

The draft new rules published on Wednesday (Jun 17) reduce the number of shares companies in the S&P/ASX300 index can issue, from 100 per cent of their capitalisation to 25 per cent before seeking shareholder approval.

The ASX launched a review in 2025 after building products company James Hardie was exempted by the stock exchange from a shareholder vote when it issued about 35 per cent of its shares to fund the US$8.8 billion takeover of home-building product company AZEK.

Some Australian companies issuing less than 100 per cent of their capitalisation would typically seek a shareholder vote on the move to give their investors a say on whether a buyout should proceed.

James Hardie investors argued that the company issuing such a large amount of stock, while allowable under ASX rules, severely diluted their shareholdings and they should have been allowed to vote.

“We have listened to the market,  and have heard loud and clear the  market’s support for more  protections against share dilution in public takeovers and mergers,” said Gavin Skene, the ASX’s acting group executive, listings.

Despite the changes, some investors believe the rules should be extended to cover smaller companies which sit outside the S&P/ASX300.

“These companies are at greater risk of entering into the types of transactions that Australian shareholders are trying to protect themselves against,” said Simon Mawhinney, fund manager Allan Gray’s chief investment officer.

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“It doesn’t seem consistent to afford shareholders of large companies the rights they deserve, and not protect investors in those companies that happen not to be in the ASX300.”

But Airlie Funds Management’s head of Australian equities Matt Williams said that the ASX rule changes were in line with most investors’ expectations.

“They listened to the serious concerns from shareholder participants post the James Hardie fiasco and have acted appropriately. We support the changes,” he said.

James Hardie’s chair Anne Lloyd and two directors were voted off the board by investors, who were frustrated with the way the takeover was handled by the Australian-listed company. REUTERS