Whose deal is it anyway? ASX consults on shareholder approvals for offering bidder scrip in M&A

In brief

• On 20 October 2025, ASX released its consultation paper titled “Shareholder approval of dilutive acquisitions and changes in admission status” (Consultation Paper) (link to the Consultation Paper here).
• The Consultation Paper, announced in April 2025, is a response to investor and media reactions to the merger of James Hardie Industries plc (James Hardie) and The Azek Company Inc. (Azek), where ASX granted James Hardie a standard waiver to Listing Rule 7.1 in line with its published guidance and established practices, which allowed James Hardie to issue around ~35% of its issued capital as scrip consideration without shareholder approval. See HSF Kramer’s further analysis ‘The James Hardie / Azek merger, investor backlash and ASX’s response – is more say for investors on deals coming next?’ here.
• ASX has invited submissions on shareholder approval for a dual listed company to change to ASX Foreign Exempt Listing Status, a dual listed company to delist from ASX, issues of shares under a regulated takeover or merger and significant changes to the nature or scale of a listed company’s activities.
• The most significant change suggested by ASX is to require shareholder approval for listed entities in the S&P/ASX 300, or which have a market capitalisation of more than $300m, to issue shares in excess of 25% of their ordinary shares on issue at the date of announcement of a regulated acquisition.
• Any changes to the Listing Rules following the consultation are expected to take place in the second half of 2026.

Shareholder approval thresholds for bidder share issuances

ASX consultation on the threshold for bidder shareholder approval as part of a scrip takeover bid or merger

What is the current threshold for bidder shareholder approval for a listed scrip takeover or merger?

Listing rule 7.1 currently requires that a listed company seeks shareholder approval before issuing equity securities amounting to 15% or more of its existing share capital over a 12-month period. There are a number of exceptions to this rule, with those of relevance being:

• Exception 6 – in respect of an issuance to form scrip consideration under a takeover bid or scheme of arrangement under the Corporations Act; and
• Exception 7 – in respect of an issuance to fund cash consideration payable under a takeover bid or scheme of arrangement under the Corporations Act.

Except where the relevant transaction is a reverse takeover, which in effect permits issuances by a bidder of up to 100% of its existing share capital. Guidance Note 21 of the ASX Listing Rules states that ASX will also consider granting a waiver to extend Exceptions 6 and 7 to an entity making a takeover offer for a foreign company where the entity can satisfy ASX that the takeover or merger is subject to an acceptable regulatory regime equivalent to the Corporations Act. Such a waiver was granted in the James Hardie / Azek transaction.

What sparked the review of these well-established exceptions?

Until James Hardie’s acquisition of Azek (which was paid by issuing ~35% more of its own scrip) made headlines, these rules had not made the news since 2017 when the reverse takeover shareholder approval requirement was introduced.

While the investor response to the James Hardie / Azek deal was highly publicised, it is certainly not the only instance of a significant scrip issuance by a bidder without shareholder approval, most of which have not attracted any similar critique. ASX included in its Consultation Paper an analysis of transactions from FY21 to FY25 involving an ASX-listed bidder issuing securities as consideration for the acquisition that were not reverse takeovers and that could potentially benefit from Exception 6 or 7 to issue securities without shareholder approval. Of these:

• 13 involved a bidder issuing between 15-25% of its existing share capital (7 of which were bidders in S&P/ASX 300 or with a market cap of >$300m);
• 22 involved a bidder issuing between 25-50% of its existing share capital (8 of which were bidders in S&P/ASX 300 or with a market cap of >$300m);
• 24 involved a bidder issuing between 50-100% of its existing share capital (11 of which were bidders in S&P/ASX 300 or with a market cap of >$300m); and
• the remainder involved issuance of less than 15% of the listed company’s existing share capital.

Regardless, the situation is now that influential voices in the investor community have begun crusading for more say for shareholders on dilutive acquisitions and so ASX must respond.  In the meantime, certain activist investors have successfully lobbied ASX listed boards to propose constitutional amendments to indelibly require shareholder approval for certain issuances for M&A, irrespective of whether the ASX Listing Rules would require it.

We support the ASX’s review in this regard in that the market is currently in a state of flux with some transactions proceeding based on the well-established existing regime, some companies voluntarily amending their constitutions to create shareholder approval requirements for issuing scrip as bid consideration and other companies otherwise having to navigate an uncertain path to meet investor expectations.

What is the position elsewhere?

ASX also considered analogous rules in other jurisdictions. We touched on the position in the US and the UK in our article linked here. In short, issuances over 20% require shareholder approval by the NYSE and Nasdaq (with no similar exceptions provided), while in the UK the LSE does not impose restrictions on issuances below a reverse takeover without approval, rather, limits on issuances are imposed by company law and usually amount to ~33% based on thresholds approved at annual an general meeting in accordance with institutional investor guidelines.

Other jurisdictions which the Consultation Paper covers include:

• TSX, which has a 25% limit on issuances for the purposes of an acquisition;
• HKEx and SGX, which require issuances over 20% to have been approved by shareholders; and
• NZX, which has similar rules in respect of issuances to Australia.

ASX’s reform proposals

In its paper, ASX considers several options for reform (in addition to simply maintaining the status quo), being:

• limiting the exception to Listing Rule 7.1 to only apply to a scheme or takeover under the Corporations Act (and potentially other more limited foreign jurisdictions, such as New Zealand), meaning that ASX would update its published guidance and change its practices to no longer extend this exception to a variety of overseas jurisdictions (which currently includes the US, UK, Canada, New Zealand, Papua New Guinea and Singapore);
• reducing the percentage limit for issuances permitted in accordance with Exceptions 6 and 7, possibly only for larger entities, with the potential that the 100% limit is retained for smaller entities; and
• removing the availability of Exceptions 6 and 7 completely or only permitting the exceptions to be relied upon by smaller entities.

In the case of option 2 above, ASX’s initial position is that it supports keeping the current 100% limit on Exceptions 6 and 7 for entities that are not in the S&P/ASX 300 and that have a market capitalisation of no more than $300 million. For other entities, ASX’s initial position is that it would support a reduction in the limit from 100% to 25% of ordinary securities on issue at the date of announcement of the transaction.

Does the limit on share issuances without bidder shareholder approval in the case of a takeover or scheme need to be lowered, or did the reverse takeover amendments take it far enough?

The reason the exceptions exist in the first place is to recognise that encouraging a form of deal finance in this way increases the competitiveness of ASX listed entities in M&A. Conversely, a whole new level of risk will be associated with deals where ASX listed bidders are offering scrip consideration as the bidder shareholder approval requirement acts in some ways like an option for bidder shareholders, which will create a level of deal uncertainty that is very unattractive to targets. This could place ASX listed bidders at a competitive disadvantage compared to private bidders and could perhaps disincentivise companies pursuing inorganic growth from pursuing an ASX listing.

At a time where there are calls to reduce the red tape imposed on Australian listed companies to encourage listings (see further our articles ‘ASIC scrutiny of private markets and the continued role of public markets’ here, ‘If it ain’t broke? What ASIC’s review means for private markets and deals’ here and ‘ASIC public and private markets update’ here), it seems inconsistent to introduce further restrictions on listed company flexibility. It is also worth juxtaposing this debate with that in the UK where the emphasis has been on relaxing these types of rules to encourage activity.

In relation to the options put forward by ASX, our view is that the first is hard to support based on either of the competing principles of relevance. If listed entities should be able to competitively engage with public M&A processes, it seems as though no distinction should be drawn based on the jurisdiction of the target. Looking at it from the other direction, if the principle is that shareholders should have a right to vote on significantly dilutive transactions, why should it be that this is the case for some jurisdictions but not for other jurisdictions?

In relation to options 2 and 3, we agree with ASX’s commentary that corporate governance plays a role and decisions regarding an entity’s M&A transactions are matters for directors who “are subject to duties to act in good faith in the entity’s best interests”. Furthermore, we would note that shareholders (acting by majority) have the ability to determine board composition and their greatest protection (which applies not just to M&A but all important decisions relevant to their investment) is to have in place a board that they trust to make the right decisions for the future of the entity.   

While the argument that Australia has one of the more lenient policies on share issuances without approval compared to other similar jurisdictions is of relevance, this cannot be the sole justification for significantly reducing the flexibility afforded to boards, in particular where, as noted above, a prevailing view is that listed companies need to face less, not more, regulation in order to ensure that public markets remain competitive. Ultimately, the current position in the listing rules was largely unquestioned (despite multiple transactions relying on these exceptions) until recently. That said, now that certain activist investors have focussed on the rules in this regard, they seem unlikely to let the status quo remain. A well thought out ASX regime change is possibly more helpful than the ad hoc constitutional amendments currently popping up in the market to a similar, but all but irreversible, effect.

Shareholder approval for dual listed companies to change ASX listing status or delist

Dual listed entity becoming a Foreign Exempt Listing

The Consultation Paper also invites submissions as to whether shareholder approval should be required for a dual listed entity to change its admission category to a Foreign Exempt Listing, which allows an entity to be listed on the ASX without having to comply with the majority of the ASX Listing Rules on the basis that the entity is complying with the rules of its overseas home exchange.

Currently, a dual listed entity can apply to ASX for Foreign Exempt Listing status, which will be granted at ASX’s discretion and may be subject to conditions. While ASX could impose a shareholder approval requirement as a condition of an entity obtaining Foreign Exempt Listing status, the Consultation Paper notes that ASX could not identify an instance where this condition was imposed. The significance of this is that the investor protections contained within the ASX Listing Rules can be ‘taken away’ from shareholders without their approval.

ASX’s paper considers the following potential changes (or maintaining the status quo):

• updating its guidance to provide that ASX will require shareholder approval as a condition of its consent for an entity to change from an ASX Listing to a Foreign Exempt Listing; or
• amending its rules to mandate shareholder approval for an entity to change from an ASX Listing to a Foreign Exempt Listing,

and has expressed a preference for the latter, including because of the potential significance to shareholders of a change in admission category.

Dual listed entity delisting from ASX

The Consultation Paper also considers whether shareholder approval should be required for a dual listed entity to delist from ASX. This requires the consent of ASX and ASX can impose conditions, including shareholder approval. The Consultation Paper acknowledges that ASX’s usual practice, in line with its published guidance, is that where an entity is also listed on a foreign exchange, the condition of shareholder approval before voluntarily delisting will not usually be imposed on the basis that the securities will still be able to be freely traded on that foreign exchange.

ASX’s paper considers either of the following (or maintaining the status quo):

• updating its guidance to provide that ASX will require shareholder approval as a condition of its approval of a voluntary delisting regardless of whether securities can be traded on another exchange; and
• amending its rules to require shareholder approval for voluntary delisting from the ASX, noting there could be a differentiation for dual listed entities which were first listed on the foreign exchange,

and has expressed a preference for the latter.

However, ASX also notes that an argument for maintaining the status quo is that foreign listed entities may be less likely to venture an additional listing on ASX if they think that it may be difficult to exit if the listing is not a success.

As a result, ASX’s initial view is that this new requirement would be reasonable but should be limited to dual listed companies that were first listed on ASX before taking an additional listing on another exchange. A foreign listed company that takes an additional listing on ASX would not require shareholder approval to discontinue that additional listing.

Do we need to impose shareholder voting requirements for a dual listed entity to become a Foreign Exempt Listing or voluntarily delist?  

The rationale cited by the ASX for shareholders being able to vote in respect of an entity seeking a Foreign Exempt Listing or voluntary delisting is that each case may have a “significant impact on the voting and other rights of the entity’s security holders”.

We agree with ASX with this contention where the change would in fact have the effect of reducing liquidity and governance oversight. Shareholders who invest in a company with an ASX standard listing may rightfully have an expectation that that company will continue to be governed by the ASX Listing Rules. We also agree with ASX that an entity that has obtained a secondary listing on ASX should have enhanced flexibility to de-list from ASX, in order to encourage dual listings on ASX and in light of the fact that shareholders of such an entity are more likely to understand that the ASX listing “may not work” for the entity. In many cases, such entities will have listed on ASX as a Foreign Exempt Listing in any case, which will mean that the vast majority of the ASX Listing Rules do not apply to them.

Furthermore, unlike the Listing Rule 7.1 issue which is discussed further above, we do not see significant downside to introducing these reforms. They will not at all (or only in extremely rare cases) impact a listed entity’s competitiveness in public M&A settings. As such, we think the reforms suggested by ASX strike an appropriate balance.

However, in limited cases, the inability to change to Foreign Exempt Listing status may result in entities being forced to bear the burden of complying with two sets of listing rules. Take the James Hardie / Azek deal as an example (although under the proposed new rules it would require shareholder approval for the scrip consideration issuance anyway). Post-completion, James Hardie may have lost its “foreign private issuer” status with the NYSE (similar to Foreign Exempt Listing status on the ASX), requiring James Hardie to bear the cost and burden of meeting administrative requirements to comply with the full rules of both exchanges. We would for this reason encourage a nuanced approach permitting granting of waivers where listing rules across jurisdictions are irreconcilable for example. Exchanges like NYSE make compliance with their listing rules mandatory in cases such as this.  The question ultimately becomes in this regard whether ASX appreciates its relative spot in global markets and defers as a default position to the rules of a foreign exchange without shareholder approval, considering ASX does not impose a certain percentage limit of assets or shares which must be held outside of Australia when considering Foreign Exempt Listing status, or not.

Shareholder approval for change to the nature or scale of activities

ASX’s final issue for consultation is whether Chapter 11 of the Listing Rules should be amended to mandate shareholder approval for any significant acquisition or potentially any significant acquisition or disposal, regardless of whether the transaction involves issuing securities. Listing Rule 11.1 primarily regulates back door listings and 11.2 currently requires shareholder approval for a disposal by an entity of its main undertaking.

ASX’s commentary in its consultation paper suggests that ASX is including this issue for completeness and it does not anticipate making changes to the listing rules on this front, absent overwhelming feedback suggesting it is necessary.  This is heartening because the breadth of transactions which Listing Rule 11 could cover go so far beyond the narrow issues raised in respect of the James Hardie / Azek merger.

In our view, the proposal for more shareholder approval requirements in this regard is not practical and would be an overreaction to the issue at hand, as the nub of the issue is dealt with through the Listing Rule 7.1 exceptions amendments.