Wait AZEK – is this too much change?

Ahead of the Deal - Australian M&A Briefing

A history, brick-by-brick

The seeds of investor discontent were sown by two deals some time ago. Under the ASX Listing Rules, tracing back to 1996, there was no threshold at which a bidder vote was required for a scrip M&A deal. A bidder could issue more than 100% of its issued share capital as consideration in a takeover or scheme of arrangement.

Gloucester and Whitehaven

The proposed merger in 2009 between Gloucester and Whitehaven was one of the first times that this issue was agitated broadly in the media and in contentious proceedings.

Gloucester proposed a merger with Whitehaven, a company that was approximately 2.6 times its size (by market capitalisation). The deal would have resulted in Gloucester issuing approximately 200% of its then issued share capital, with Whitehaven shareholders estimated to own approximately 67% of Gloucester post-merger. The context was important. Gloucester's major shareholder, Noble Group (a 21.7% holder) had communicated to Gloucester its intention of controlling Gloucester without making a takeover bid. Noble Group only made its own bid of $4.85 per share for Gloucester once the Whitehaven deal was announced, and that bid was contingent on the Whitehaven merger failing.

Noble Group commenced proceedings in the Takeovers Panel, on the basis that the control implications of the Gloucester / Whitehaven merger were unacceptable due to the alleged association between Whitehaven shareholders and their resulting "control" of Gloucester Coal.

In other words, it was a control issue and not a dilution issue. Having lost quickly and decisively in the initial Panel, Gloucester obtained orders in the Review Panel that allowed it to proceed with the deal that its board considered best for shareholders. This ultimately led to a $7.00 per share bid by Noble Group, a very healthy premium for Gloucester's shareholders. The Review Panel also did not agree with the association findings in the first decision, and did not consider that the effect on control was of such a nature and scale as to require a shareholder vote.

ROC Oil Company and Horizon Oil

In 2014, ROC Oil proposed a merger with Horizon Oil. Following in the footsteps of Gloucester, Horizon Oil was approximately 1.4 times the size of ROC (by market cap) and the deal would have resulted in Horizon Oil shareholders owning approximately 60% of ROC Oil's shares.

ROC Oil's major shareholder, Allan Gray, aired concerns about the fact that ROC Oil shareholders did not get to vote on the deal. Allan Gray, along with some other shareholders, requisitioned an extraordinary general meeting to change the constitution of ROC Oil so that any issue of shares representing more than 30% of its share capital would require shareholder approval – thereby seeking to obstruct ROC Oil's ability to issue its shares under the deal. The resolution was not carried.

The same shareholders who sought to amend ROC Oil's constitution benefited from their failure to do so: ROC Oil had preserved the right to accept a superior proposal, it did just that when Fosun International came along with an attractive all-cash offer to trump the Horizon Oil. Fosun's bid was well-received by ROC Oil's shareholders, leading to Fosun's 100% ownership.

Back to the future - the 2017 amendment

With the backdrop of this investor concern, the ASX released a consultation paper on shareholder requirements for listed company mergers in 2015.

For context, under ASX Listing Rule 7.1, listed companies could (and still can) generally issue up to 15% of their share capital in any 12 month period without shareholder approval. An exception will need to apply if companies wish to exceed this 15% limit.

At that time, Exceptions 6 and 7 of ASX Listing Rule 7.2 permitted the issuance of any number of shares under a takeover bid or scheme of arrangement, either as scrip consideration issued to target shareholders or where shares are issued to fund the cash consideration payable under the transaction.

As part of the 2015 consultation, the ASX canvassed international thresholds for shareholder approval requirements for scrip issues, noting that exchanges in other well-regulated jurisdictions such as TSX, Nasdaq, SGX and LSE all hovered around the 20-25% mark, being the level at which shareholder approval would have been required.

However, in 2017, the ASX Listing Rule amendments introduced a 100% "reverse takeovers" threshold. That is, these exceptions will not apply if the takeover or scheme of arrangement is a "reverse takeover" (i.e. when a company issues 100% or more of its share capital to target shareholders).

In its 2017 response to consultation, the ASX had recognised:

In resisting any move to reduce the threshold below 100%, the ASX said:

It went on to say:

Exceptions 6 and 7 as modified in 2017 remain current. Over the years, and consistent with its guidance, the ASX has granted waivers to extend these exceptions to entities making a takeover offer for, or merging with, a foreign company or trust if the ASX is satisfied that the transaction is subject to an acceptable regulatory regime equivalent to the Australian Corporations Act.

These waivers have been granted in respect of takeovers or schemes under the laws of the US, UK, Canada, New Zealand, Papua New Guinea and Singapore.

Hardie times ahead

The acquisition by James Hardie (an Irish-domiciled ASX and NYSE dual listed company) of AZEK brought the issue back into sharp focus.

In March 2025, James Hardie announced its proposed acquisition of AZEK, a NYSE listed company. The terms of the acquisition saw James Hardie agreeing to issue shares equal to approximately 35% of its share capital to AZEK shareholders (equalling 26%, post-acquisition). The ASX granted James Hardie a waiver such that the Listing Rule exceptions would also apply to exempt the issue of shares in connection with a US-law governed deal. This waiver fell squarely within established ASX guidance and practice referenced above.

The reaction from institutional investors and the press was swift and, at times, sensational. An open letter sent to the ASX by some of Australia's largest investors, including Allan Gray and various superannuation funds, claimed that the Listing Rules were not fit for purpose and that shareholders should have a vote on such a dilutive transaction. This letter, and extensive media coverage of the transaction, propelled the ASX to announce a fresh consultation on the appropriateness of the current rules.

The first change was the imposition of a new requirement that listed companies must disclose when they receive a waiver from the ASX. This new regime was discussed in Ashurst's August 2025 edition of Ahead of the Deal: Hasty disclosure? ASX's new waiver regime.

The issue resurfaced a few months later.

In September 2025, Southern Cross Media announced a proposed merger with Seven West Media by way of a scheme of arrangement which, if implemented, would result in Southern Cross Media issuing almost 100% of its existing share capital to Seven West Media shareholders. Southern Cross Media shareholders are slated to own 50.1% of the merged entity, with Seven West Media shareholders owning 49.9%.

Given that the proposed transaction is within the bounds of the "reverse takeover" rules, approval of Southern Cross Media shareholders is not required.

A quarter of the buying power

The ASX released its consultation paper on 20 October 2025, bringing back into the spotlight the issues canvassed in its 2015 paper. Most notable is the ASX's position that it supports lowering the "reverse takeover" threshold to just 25%, with the caveat that this would apply for larger entities (such as those in the S&P/ASX300), while potentially retaining the current threshold for smaller entities.

Its proposals range from doing nothing, to removing the exceptions entirely:

The imposition of this limit is a direct response to the James Hardie controversy. If the limit had been in place, the scrip issuance in that deal would have required shareholder approval.

Are the loudest voices on this issue right?

The ASX's proposal may not be the best approach for a number of reasons:

• in reality, nothing much from a policy sense has really changed since ASX decisively rejected any threshold lower than 100% in 2017. Yet a jump not to 75% or to 50%, but to 25%, has been proposed. The ASX paper does not provide the basis for this change in ASX's position, though the reality is explained with the comment in the paper that the consultation "followed representations from institutional investors about the dilutive impact of share issues for takeovers and mergers, in the context of the acquisition by [James Hardie] of [AZEK]" and that the changes "respond adequately to [such] representations made by institutional investors in [this] context". There was strong feedback, yet on this issue there are divergences of opinions across institutional investors. This was evidenced by the prompt rejection by Thorney Investment Group and Spheria Asset Management at Sandon Capital's recent attempt to amend the Southern Cross Media constitution to introduce a cap on share issuances to that company;
• restricting a board’s flexibility in this way will deprive companies of opportunities. It will place listed companies at a significant disadvantage to their unlisted counterparts. It will also deprive boards of their ability to do their job and make decisions in the best interests of all shareholders;
• listed companies may be forced to utilise alternate and possibly less optimal funding structures, including greater debt funding resulting in more leverage; 
• the issue is one of dilution, not control, given that the Takeovers Panel can and has dealt with control issues in takeovers with significant share issues;
• adopting regulatory thresholds from overseas markets without considering the unique features of the Australian market is not necessarily appropriate. Regulatory “cherry-picking” is inevitably selective;
• investors can deal with this issue without sweeping regulatory intervention. Apart from an arsenal of tools to express dissatisfaction and hold Boards accountable, shareholders can also change the constitutions of companies (as happened recently with Orora) to tailor share issue restrictions on a company by company basis. Does ASX need to impose an across the board "one size fits all solution"?; and
• the other remedy that shareholders have is that they can always sell their shares. Courts will generally enforce specific performance for contracts to buy houses, but not listed shares, for the latter are definitionally liquid assets without special features beyond their tradeable value. This is not, as some suggest, a case of boards "swapping half of a person's house for half of their neighbour's home without asking". These are transactions between listed companies, run by boards who seek to act in the interests of all shareholders, whose forms and scale will evolve and change over time with deals and capital raisings.

The Board – respect the role, or roll?

It is the role of the Board to determine the overall strategic direction and long-term goals of a company – whether this be operations, growth, divestments or acquisitions (and how to fund those acquisitions).

The prevailing legal framework recognises that shareholders’ main avenue for influencing a company's direction is through their ability to elect or remove directors.

This dynamic was centre stage at James Hardie where, yesterday at its annual general meeting, investors voted to remove the Chair and two directors. There was also a "hardie" response against the
remuneration report.

Shareholders can agitate for change in other ways.

They can show soft discontent through the "two strikes" rule.

It is also open to them to requisition shareholder meetings and seek changes to the company's constitution to protect against dilution, for example by imposing restrictions on the issue of shares. This did not succeed in ROC Oil's case nor in a recent attempt to do so by Sandon Capital in respect of proposed changes to Southern Cross Media's constitution. Sandon's attempt was unsuccessful when major shareholders indicated they did not support it.

On the other side of the ledger, Orora shareholders amended the Orora constitution earlier this month to include a 25% cap on a non-pro rata issue of securities in a 12 month period without shareholder approval, with effect until its 2027 annual general meeting.

Just 'cause they did it…

Like its earlier paper in 2017, the ASX's international benchmarking shows comparable markets such as the TSX, SGX, NYSE and NASDAQ hovering around the 20-25% mark. The "diversity of practice" recognised in the ASX's 2015 paper is most clearly evidenced in the complexity around shareholder approvals in the UK market.

The listing rules similarly impose a "reverse takeovers" threshold of 100% (recently increased from 25% in mid-2024), but the statutory regime requires shareholder approval for the issuance of shares such that market practice has developed whereby companies commonly seek annual approval to issue up to a third of their issued capital in advance (which provides an effective limit on the number of shares that could be issued as part of a deal).

It is therefore important to recognise that thresholds and practices from other markets are not always transportable into the Australian context. The regulatory environment, investor expectations and market structures in Australia differ in significant ways from our foreign counterparts.

If the guiding principle is that the ASX should follow the example set by other major exchanges, does that mean we should now have dual class shares? These structures are widely accepted in markets such as the US, Singapore, the UK and Canada, yet have not always been warmly embraced in Australia. Selectively supporting the adoption of benchmark thresholds, while resisting other features of the very same exchanges will raise questions about the underlying rationale – are we seeking best practice here, or simply justifying preferred outcomes?

A win for private markets and others?

If the ASX's proposal is adopted, this represents a further hurdle to public market deals for listed companies.

While, positively, the ASX has sought to balance interests by limiting the application of this threshold to entities in the ASX300 or with a market cap of greater than $300 million, these companies are often the ones involved in complex, high-value transactions.

The distinction between this group of companies and smaller ones does not seem to address any particular underlying concern – the potential for dilution exists regardless of company size. Large companies may very well be the ones that require the ability to exceed the 25% threshold in order to secure transformative or strategic transactions and imposing a blanket cap on them fails to account for legitimate commercial needs and the diverse circumstances in which scrip-based deals are used.

Further, the impact on deal timetables, negotiation dynamics and the willingness of targets to engage with these ASX-listed bidders from resulting deal complexity will mean execution risk. Targets will be encouraged to seek substantive reverse break fees to be paid to combat the elevated execution risk, if they choose to deal with those bidders in the first place.

The proposed reform comes at a time when public markets and listed companies already face significant challenges compared to their private capital peers.

We (no longer) call Australia…home

The ASX consultation paper also proposes, perhaps less controversially, that dual listed companies must seek shareholder approval for changes to their listing arrangements:

1. to change from a primary ASX listing to a Foreign Exempt Listing category, which results in a company being primarily subject to the rules of its overseas exchange rather than the ASX; and
2. voluntarily delisting from the ASX, but only where the dual listed company was initially listed on the ASX only and continues to maintain its foreign listing (and would not be imposed on companies that were initially listed on a foreign exchange before listing on the ASX).

Given these proposed changes are limited in their likely application, they seem to strike an appropriate balance between policy concerns and market impact.

More broadly (and rightly), the ASX declined any proposal to impose a shareholder approval requirement to any "significant transaction" undertaken by a company, even if it does not involve the issue of shares.

Let public markets play on

We are not sure that in a small market like Australia, a change from the reverse takeover threshold of 100% to 25% achieves the right outcome. While the ASX has sought to balance interests by limiting the application of this threshold to a smaller subset of entities, a more moderate change, such as 50%, may have struck a better balance between maintaining prudent policy settings for the Australian market while addressing the situations involving the largest share issues.

If the ASX adopts a 25% position, its application should be contained to an even smaller group of companies.

Investors may want to have a veto over, well, pretty much everything. But that does not mean it is good policy. Hampering the ability for large listed companies to effectively pursue strategic and transformational transactions in this manner will not achieve the goal of protecting the competitiveness Australia's public markets.

Submissions on the Consultation Paper

The ASX is seeking submissions on the consultation paper by 15 December 2025. This is an important opportunity for listed companies and advisers to provide feedback on these changes which will impact deal dynamics in Australia’s public markets.