NASDAQ wants to eliminate or change a rule that requires a vote by shareholders in certain situations where a company is carrying out a takeover, saying the rule is no longer needed due to advancements in investor protection laws and practices over the last 25 years.
The exchange operator wants to change rule 5635, which states that a company must seek shareholder approval when it’s planning a takeover that could lead to the issuance of stock totaling 20 percent or more of the company’s current common stock or voting power in cases where company executives, directors, consultants or employees have an interest in the target company.
The existing rule also affects companies seeking to acquire assets from another company under the same conditions outlined above as well as some private placements at less than the book or market value, whichever is greater.
‘These rules were adopted in 1990 and, over the last 25 years, the capital markets and securities laws, as well as the nature and type of share issuances, have evolved significantly,’ NASDAQ says in an invitation for comment. ‘Since these rules were first established, other investor protection mechanisms have been put in place, including, for example, requirements for majority independent boards and stronger corporate governance practices by listed companies, as well as the increased threat of shareholder litigation.’
NASDAQ says some provisions of the existing rule ‘may no longer serve their original shareholder protection purpose and others may no longer make sense. In addition, companies may face higher costs of capital by structuring transactions in sub-optimal ways in order to satisfy NASDAQ’s shareholder approval rules.’
NASDAQ is seeking comment from investors and companies by February 15. The comments will be reviewed by the exchange operator’s listing council ‒ an independent committee of the board ‒ which will suggest changes for the board to consider.
