ASX chief Helen Lofthouse to launch review in wake of James Hardie shareholder backlash

ASX boss Helen Lofthouse says the market operator has listened to the concerns of aggrieved James Hardie shareholders over the company’s pursuit of Azek and a US listing.

ASX chief executive Helen Lofthouse. Picture: Max Mason-Hubers

The Australian Securities Exchange will review the shareholder approvals required for companies to embark on takeovers in the wake of a backlash over its deeply unpopular decision to allow James Hardie to proceed with a $14bn deal without putting it to an investor vote.

ASX chief executive Helen Lofthouse said the market operator had listened to the concerns of investors, many of them shareholders in James Hardie.

The review comes too late to have any impact on the ASX waiver on a shareholder vote granted to James Hardie in its pursuit of a $US8.75bn ($14bn) purchase in cash and shares of Azek, a US building materials company, and the planned move of its primary listing to New York.

The ASX conceded on Sunday that the outcry over the James Hardie waiver had led to a spike in investor interest in shareholder approval requirements for mergers and takeovers of listed companies undertaking significant transactions.

It acknowledged the listing rules needed to balance the interests of both listed entities and investors, stating the ASX had a strong interest in ensuring the rights and interests of both groups were properly represented.

“However, the ASX acknowledges that Australian institutional investors are concerned that the current settings for shareholder approval requirements may not provide them with enough of a voice,” it said.

The ASX said it would start work to update an analysis from 2017 that looked at the shareholder approvals needed for listed company mergers, which had a particular focus on reverse takeovers.

“We have heard from investors – many of them shareholders of James Hardie – that they want a greater voice for shareholders invested in ASX-listed companies, but we are also mindful that we need to examine this question in a way that ensures we serve the needs of the market as a whole,” Ms Lofthouse said.

“We will seek feedback from stakeholders once we have updated the 2017 analysis and this will support a more informed review of shareholder approval requirements.”

James Hardie CEO Aaron Erter. Picture: Rohan Kelly

James Hardie applied for and was granted the waiver under listing rule 7.2, with the ASX providing a rationale for its decision earlier in April. The explanation wasn’t enough to satisfy the concerns of investors, including ASX shareholders such as AustralianSuper and UniSuper.

Leading investors said the process had undermined shareholders in all ASX companies, and the ASX came under heavy fire from critics who accused it of hiding behind confidentiality obligations to justify ­secrecy in allowing James Hardie to circumvent a shareholder vote.

Former ASX chairman Maurice Newman described the market operator’s approach as legalistic and a departure from its discretionary mindset.

James Hardie never intended to seek shareholder approval to issue the new shares required to fund the deal, nor for its move to New York, compelling 21 investment managers and super funds to express their unified criticism in a letter to the ASX.

The letter was signed by a who’s who of Australian fund managers including Mark Delaney from AustralianSuper, Fidelity’s Paul Taylor, UniSuper’s John Pearce, Allan Gray’s Simon Mawhinney, Airlie’s Matt Williams, Troy Angus from Paradice, Andrew Fleming from Schroder and Ausbil’s Paul Xiradis.

James Hardie shares plunged after it announced its “friendly” purchase of Azek about five weeks ago at a 37 per cent premium to the target’s pre-­announcement trading price.

The transaction came with a record break fee of $US272m ($425m) if it failed to complete and – to the frustration of many James Hardie investors – allowed Azek shareholders to vote.

The ASX review is expected to look at various transactions across the past seven to 10 years and how they would have been affected by any change in the rules.

The ASX is trying to walk a fine line between interfering too much and ensuring shareholders have an appropriate voice in deals.

Any attempt to revisit the James Hardie waiver now would open the market regulator to legal action and is not being considered.

At the same time as updating its 2017 analysis, the ASX will look at circumstances in which companies are required to disclose receipt of a waiver when they publicly announce a deal such as the one involving James Hardie and Azek.

It is another sore point with investors that James Hardie was required to provide little in the way of disclosure about the granting of the waiver.

Some investors are furious about the dilution they face (James Hardie will have to issue 35 per cent more shares in itself to Azek investors) and the lack of opportunity to call an extraordinary general meeting to fire the board.

Although James Hardie is listed in Australia and loaded with superannuation funds such as AustralianSuper, it is domiciled in Ireland.

And even investors that like the idea of acquiring Azek have questioned the “full value” being paid by James Hardie chief executive Aaron Erter.

Originally published as ASX chief Helen Lofthouse to launch review in wake of James Hardie shareholder backlash