Public Censure of NZME Limited

20 April 2021
PUBLIC CENSURE OF NZME LIMITED BY THE NZ MARKETS DISCIPLINARY TRIBUNAL FOR
BREACH OF NZX LISTING RULES 3.1.1 AND 3.2.1
1. The NZ Markets Disciplinary Tribunal (Tribunal) has approved a settlement agreement
between NZX Limited (NZX) and NZME Limited (NZM) dated 26 March 2021 (Settlement
Agreement).
Summary
2. NZM is a New Zealand incorporated company, with its ordinary shares quoted on the NZX Main
Board. NZM is a Listed Issuer and is therefore bound by the NZX Listing Rules (Rules).

3. After an investigation NZX found that two market announcements made by NZM breached:

a. Rule 3.1.1 by omitting Material Information in a manner that gave a misleading
impression to the market; and

b. Rule 3.2.1 by failing to release Material Information to prevent the development or
subsistence of a false market that had been materially influenced by the misleading
information emanating from NZM.
Background
4. NZM is a provider of news and media services in New Zealand.

5. In 2016, the predecessors of NZM and Stuff Limited (Stuff) sought authorisation from the
Commerce Commission to merge their New Zealand media operations. Authorisation was
ultimately declined and appeals lodged by the applicants were unsuccessful.

6. In 2019, NZM and Stuff’s then-owner Nine Entertainment Co. Holdings Limited (Nine) entered
discussions about the acquisition by NZM of Nine’s shares in Stuff. NZM and Stuff entered into
a confidentiality deed in respect of their negotiations. Following media reports in November
2019, NZM made a market announcement confirming that it was in preliminary discussions
with Nine and had put a proposal to the New Zealand Government (Government) concerning
a potential transaction.

7. In April 2020, NZM made a non-binding indicative offer for Nine’s shares in Stuff (NBIO). The
offer provided for an exclusive and confidential top-up due diligence period and included
undertakings that Nine would not solicit or otherwise engage in negotiations with any other
party during that period and NZM had matching rights for any competing proposal by Nine.
Nine agreed to these terms.

8. Nine’s Board concluded that a sale of Stuff needed to be complete by 31 May 2020.

9. On 6 May 2020, Nine received an unsolicited indicative offer to buy Stuff from a competing
bidder, now known to be a management buy-out lead by Stuff’s Chief Executive Officer. Unlike
NZM’s offer, this proposal did not require Commerce Commission intervention or support from
the Government.

10. On 7 May 2020, Nine wrote to NZM stating that Nine had received an unsolicited competing
bid to acquire Stuff for $1 on an unconditional basis and that the transaction would be
completed by the end of May 2020. The information in the letter was stated to be confidential.
The letter requested that NZM advise Nine the following day whether NZM could match the
terms of the proposal. Nine informed NZM that if NZM was not able to match this proposal,
Nine anticipated terminating discussions with NZM.

11. On 8 May 2020, NZM responded and stated its intention to complete its due diligence, submit
a clearance application with the Commerce Commission and work towards agreeing
transaction documentation. NZM stated that the NBIO contained legally binding confidentiality
and exclusivity provisions to which Nine had agreed. These prohibited Nine from granting
access to due diligence materials or engaging in negotiations with any other party. NZM also
stated that it required further details of the competing bid in order to assess whether it was
able to match the terms of the bid.

12. Nine replied later that day, at 8.13pm, stating that it had provided the key term from the
competing proposal that went to NZM’s ability to match that offer, namely, unconditional
completion by 31 May 2020. Other proposed terms were said to be broadly comparable to
NZM’s offer, so Nine considered that NZM had the necessary information to decide whether to
match the competing proposal. Nine stated that it did not consider it was realistic for NZM to
complete a transaction by 31 May 2020 and accordingly Nine was “terminating further
engagement” with NZM. Aside from the correspondence, NZM did not have information to
verify Nine’s claim of an unconditional competing bid on similar terms.

13. The NZM Board met with NZM management and NZM’s external legal advisors to discuss its
response to this letter on Sunday 10 May 2020. During this meeting, the Board decided to file
a public clearance application with the Commerce Commission, seek the assistance of the
Government, make a market announcement and inform Nine of its planned course of action.
At the meeting, the Board sought advice from its external advisors. The external legal advice
to the Board was:

a. NZM was able to make the proposed announcement to the market, as required by the
Rules, in compliance with NZM’s confidentiality obligations to Nine, as long as notice
was given to Nine prior to the announcement being released.

b. NZM continued to be in an exclusive negotiating period with Nine and did not need to
announce Nine’s termination of engagement.

14. On Monday 11 May 2020, the following market announcements were made:

a. At 9.31am NZM released a market announcement confirming that NZM had made an
offer to acquire Stuff from Nine, that an exclusivity period was in place between NZM
and Nine for the purpose of progressing that offer and that NZM had that day written
to the Government seeking “urgent legislation” to allow NZM to acquire the shares in
Stuff by 31 May 2020.

b. At 10.52am, Nine responded to this market announcement in a release on the ASX,
stating that Nine had notified NZM that it had “terminated further engagement with
NZM”.

c. At 12.11pm, NZM released a further market announcement stating that NZM’s view
was that it was “still in a binding exclusive negotiation period with Nine and does not
accept that exclusivity has been validly terminated”.

15. NZX investigated the market announcements made by NZM for the purpose of assessing
whether NZM had failed to comply with any of the Rules. As a Listed Issuer, NZM is required:

a. Under Rule 3.1.1 to promptly and without delay release Material Information through
NZX’s market announcement platform (MAP).

b. Under Rule 3.2.1 to promptly and without delay release Material Information through
MAP to the extent necessary to prevent development or subsistence of a market which
is materially influenced by false or misleading information emanating from the issuer.

16. After investigation, NZX concluded:

a. NZM breached Rule 3.1.1 because NZM’s announcements on 11 May 2020 were
incomplete and therefore misleading. Once NZM had decided to make the clearance
application and announce it, NZM could not present only part of the Material
Information to the market:

i. The 9.31am market announcement gave the impression to the market that a
proposal to acquire Stuff by NZM was well advanced. The implication was that
it was competition concerns that were the obstacle to a deal that could
otherwise settle in the very near future. The substance of the announcement
was that Government intervention in the market was needed to enable
completion of the transaction by 31 May 2020. The announcement gave no
sense that the deal was at risk of not proceeding because Nine had purported
to terminate engagement with NZM and an alternative bid had come to light
which did not face the competition problems that confronted a deal between
Nine and NZM and which could be completed by 31 May 2020.

ii. Following Nine’s ASX release at 10.52am (NZST) and NZM’s second market
announcement of the day at 12.11pm, the market was better informed.
However, even at this point, the market was not made aware by either NZM or
Nine of the important detail that Nine was in receipt of an alternative bid that
did not require Commerce Commission clearance.

b. NZM’s failure to release all Material Information to the market also constituted a
breach of Rule 3.2.1. NZX considers that the incomplete announcements led to an
increase in the NZM share price that reflected market optimism in circumstances
where the market had not been provided all Material Information. It was incumbent on
NZM in these circumstances to issue a corrective release.
Determination
17. NZM accepts the findings by NZX that it failed to release all Material Information about its
offer to acquire shares in Stuff and that it failed to prevent the development of a false market
and thereby breached Rules 3.1.1 and 3.2.1. NZM accepts that a penalty should be imposed
by the Tribunal for these breaches.

18. The Tribunal considers that a breach of the Rules relating to continuous disclosure is a breach
of a fundamental obligation. Compliance with these Rules by Issuers is essential in maintaining
market integrity and investor confidence.

19. Accordingly, the Tribunal considers that the breach of both Rules 3.1.1 and 3.2.1 relate to
fundamental obligations on Issuers that falls within Penalty Band 3 of Procedure 9 of the
Tribunal Procedures. Under Penalty Band 3, a penalty of between $0 and $500,000 may be
imposed.

20. The Tribunal considered that there were aggravating factors in this case, namely:

a. that the lack of balance in the announcements is a particularly aggravating factor in
this case. In the Tribunal’s view, the announcements were incomplete and had the
potential to mislead the market because they gave the impression that NZM’s
acquisition of Stuff was still progressing and subject only to overcoming the
competition obstacle.

b. NZM was on notice of the materiality of the information relating to the potential
acquisition of Stuff given previous media coverage and NZM’s announcement via MAP
on 19 November 2019 confirming that it was in preliminary discussions with Nine and
would provide further information to the market as required.

c. NZX’s advice that NZM’s share price trended upwards on 11 May 2020 following the
market announcements closing at $0.245, an increase of 13.9% from the price on the
previous trading day. This likely reflected optimism about the prospects for NZM’s
acquisition of Stuff in circumstances where the market had not been fully informed.

d. NZM did not act promptly to prevent the development or subsistence of a false market.

21. The Tribunal does not accept that NZM was required to announce that Nine had received a
competing proposal, as asserted by NZX, given that NZM could not confirm the veracity of the
competing proposal at that time, the information had been provided by Nine in confidence and
the competing proposal was incomplete. However, in the circumstances of the competing
proposal, the deadline given by Nine for any sale to be completed and the Commerce
Commission’s processes, the prospect of a successful purchase being able to be completed
should not have been presented so optimistically.

22. The Tribunal also considered that there were mitigating factors:

a. The breach arising from the first market announcement at 9.31am was partially
rectified by the 12.11pm announcement, although the Tribunal considers that this
announcement also had the potential to mislead the market.

b. NZM’s Board and Management considered NZM’s continuous disclosure obligations in
accordance with NZM’s continuous disclosure compliance processes.

c. NZM sought, received and acted in reliance on external legal advice regarding the
effect of the exclusivity period on Nine and the approach to the disclosure that was
released on 11 May 2020. The Tribunal however does not accord this factor significant
weight in this case. The decisions made by NZM on what information would be
released were of a commercial nature, as opposed to difficulties in understanding the
legal requirements of the Rules. Ultimately Directors must exercise their own
judgement to determine whether disclosure is required under the Rules based on their
knowledge of the Issuer and its business.

d. NZM did not itself benefit financially from the breaches.

23. Taking these aggravating and mitigating factors into account, the Tribunal considers that while
the breach comes within Penalty Band 3 of its procedures, a penalty at the lower end of the
available range, together with a public censure, is appropriate. The Tribunal also considers
that the penalty in this case should be higher than the penalties imposed in other recent
matters determined by the Tribunal involving a breach of the continuous disclosure obligations
to reflect that NZM has breached both Rule 3.1.1 and 3.2.1.

Penalties
24. NZX and NZM have agreed that:

a. A public censure will be made by the Tribunal;

b. NZM will pay to the NZX Discipline Fund a financial penalty of NZ$80,000 for the
breach of Rules 3.1.1 and 3.2.1;

c. NZM will pay the costs of the Tribunal (plus GST, if any);

d. NZM will pay the costs incurred by NZX (plus GST, if any) in bringing this proceeding;
and

e. NZM will pay the external legal costs incurred by NZX (plus GST, if any) in bringing
this proceeding.
Approval
25. The Settlement Agreement is approved by the Tribunal pursuant to NZ Markets Disciplinary
Tribunal Rule 8, and as such, the Settlement Agreement is the determination of the Tribunal.
Censure
26. The Tribunal hereby censures NZM for a breach of Rules 3.1.1 and 3.2.1.
The Tribunal
27. The Tribunal is a disciplinary body which is independent of NZX and its subsidiaries. The
Financial Markets Authority approves its members. Under the NZ Markets Disciplinary Tribunal
Rules, the Tribunal determines and imposes penalties for referrals made to it by NZX in
relation to the conduct of parties regulated by the NZX market rules.
ENDS