Milford demands NZX action on Xero delisting

Fund manager Milford Asset Management has written to the NZX demanding it requires software company Xero to hold a shareholder vote before delisting or buy back its stock at $34.05.

Xero stunned the market on November 9 with an announcement it would delist from the NZX in February and consolidate its share trading on the ASX.

Milford director Brian Gaynor was among those shocked by the move, describing it at the time as a “dreadful decision.”

The fund manager has followed up today with a letter from Mr Gaynor and portfolio manager Sam Trethewey to NZX head of market supervision Joost van Amelsfort, asking the exchange to invoke listing rules requiring a Xero shareholder vote.

“Milford’s NZ Equities Wholesale Fund has been severely prejudiced by the delisting decision as it will be forced to sell a large percentage of its Xero shares because of the fund’s mandate to hold NZX listed companies and its NZX50 Gross Index benchmark,” they said.

Milford said its funds hold 584,037 Xero shares, of which the Wholesale Fund holds 339,445 shares – equivalent to 3.75% of the fund’s $293 million value.

Under the listing rules the NZX is entitled to impose conditions on a company’s delisting, including a requirement to hold a shareholder vote and “arrangements to protect the rights of [shareholders] … which, if lost on cessation of listing, would prejudice the position of those holders.”

Milford said it believed the negative performance of Xero shares, of minus 7% since the announcement, was mainly caused by the delisting announcement, further prejudicing their funds.

The fund manager had invested in Xero because it was listed on the NZX and its directors had agreed to be bound by NZX listing rules, Milford said.

“We don’t agree that the NZX should make important decisions on behalf of shareholders and exempt Xero from requiring shareholder approval to delist from the NZX. We don’t believe the NZX has the right to decide whether shareholders have been prejudiced by a delisting decision.”  

Milford said it believed its funds were further prejudiced if the NZX’s decision to waive the need for a shareholder vote reduced investor confidence it would fully protect investor rights.

In addition, “The Xero decision could encourage other New Zealand companies to list on the ASX or move from the NZX to the ASX. This would reduce the number of domestic investment opportunities for Milford’s NZ Equities Wholesale Fund and Milford’s other funds.”

Milford said an alternative to requiring a shareholder vote would be to require Xero to buy back stock from affected shareholders at $34.05 a share, which was the market price immediately before the delisting announcement.

Xero shares last traded at $31.07, valuing Xero at $4.3 billion.

• RAW DATA: Read the letter.