Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today announced regulatory changes to increase the disclosure requirements for off-market share offers where payment is to be made through instalments over several years.
Companies making such offers do so at prices that are above the current market price, thereby seeming attractive, but in most cases they will then pay for the shares in instalments over the next 20 years. However, as money loses value over time, the real current value of the amount being paid may be significantly less than the offered amount.
The Rudd Government's proposed regulations will require the buyer to provide additional information on how and when instalment payments will be made and the real value of the offer relative to the current market value.
"It is wrong that investors, particularly those who might be more susceptible, should be misled or deceived into accepting an unsolicited share offer where this offer is clearly not in their financial interest."
"They frequently target the aged, the frail or those who may not fully comprehend the outcome of an off-market sale."
"The additional information to be provided under these new rules will better inform consumers about the risks of unsolicited share offers where they are to be paid for by instalments."
"Such offers are very often misleading and deceptive because they suggest a reasonable price is being offered when actually it isn't," said Minister Sherry.
The former government attempted to address these issues by requiring certain disclosures about the current market price compared to the offer presented. Off-market share purchasing companies have since developed ways around this by offering to purchase shares over a longer period.
The new regulations go hand-in-hand with the release of a comprehensive set of reform options to significantly change the rules around access to share registers, the regulation of unsolicited off-market offers and the level of consumer protection.
Subject to approval by Executive Council, the regulations are scheduled for implementation by the end of June.
Example:
A shareholder holds 10 shares and the share purchasing company offers $300 in total, but the offer states that this amount is to be paid over a 20-year period at $15 per year. If the market price of the share is currently $20 per share, this may, on the face of it, appear to be a reasonable deal, as the market value would only be $200. However, as money loses value over time, the total current real value (calculated by using the formula set out in the regulations) of the amount that will be paid over the 20 years is only $113.