Redomiciliation transactions can be a valuable option for Australian companies seeking to gain access to foreign stock exchanges and capital markets. In this article, we take a look at the reasons why a business might seek to redomicile and consider some of the key legal issues involved.
Redomiciliation transactions can be a valuable option for Australian companies seeking to gain access to prominent foreign stock exchanges and capital markets. The benefits include listing on an exchange where: (i) investors better understand the company (driving a higher valuation multiple); (ii) accessing deeper capital liquidity in foreign markets; and (iii) the scrip is more attractive for global M&A than ASX listed stock, as well as corporate structure advantages.
- A redomiciliation transaction involves a business relocating its domicile or legal ‘home’ from one jurisdiction to another. This is usually achieved by ‘top-hatting’ the corporate group with an offshore entity.
- There are a number of potential benefits to undertaking a redomiciliation, including potentially achieving a better valuation, better access to capital and using better accepted scrip consideration for global M&A.
- The central focus in undertaking a redomiciliation is designing a corporate structure with the appropriate corporate law, reporting and shareholder rights regime that is not unduly onerous but meets the long-term expectations of investors.
- Redomiciliation transactions are rare, and it is important to use experienced advisers who can navigate the bespoke considerations and challenges.
What is a redomiciliation transaction?
A redomiciliation transaction refers to the process by which a business relocates its domicile or legal home from one jurisdiction to another.
For a business that is structured as a corporate group, undertaking a redomiciliation usually involves changing the jurisdiction of incorporation of the ultimate holding company of the group. This is usually achieved by having a company in the new jurisdiction acquire all of the shares in the current ultimate holding company in exchange for scrip (a process often referred to as a ‘top-hat’).
For listed corporate groups, a redomiciliation transaction is often driven by a desire to change listing venue. For instance, a group headed by an Australian company listed on ASX could become a group headed by a Hong Kong company listed on the HKeX. Alternatively, it could become a group headed by a Jersey company with a primary listing on NYSE and a secondary listing on ASX.
The possible combinations of jurisdiction of incorporation and listing venue are many, although for transactions heading out of Australia there are a few well-worn paths to take — ASX to NYSE or Nasdaq, for instance.
We advised Amcor in 2019 on the largest example of such a transaction in the last ~20 years. Examples of redomiciliations for large corporate groups with broad shareholdings such as this are extremely rare.
Benefits of redomiciling
The reasons for redomiciling are varied and in some cases are quite company specific, such as a wider corporate restructure or transformational acquisition. Here are some benefits commonly put forward:
- Comparison with peers in new listing venue — Where a company relocates to the same listing venue as its peers, it may be possible to achieve a better valuation outcome as comparing the company with its peers becomes much easier. This can be driven by a number of factors, for example financial and other information will start to be reported in a manner consistent with the peers. This can assist analysis and understanding of the company by equity research analysts and institutional investors. This may attract new investors who see greater value in the business by comparing directly to the peers listed on the same exchange.
- Better liquidity and access to capital — Some overseas capital markets are larger and more liquid than those in Australia, especially in global financial hubs like the US, London, Toronto and Hong Kong. The NYSE has a much larger trading volume and liquidity than ASX, for instance, which can provide a company with greater market depth and liquidity for its shares, as well as better access to new equity capital.
- Major index inclusion — Relocating to certain stock exchanges could result in inclusion in a relevant stock market index (eg, S&P 500, FTSE 100 or Euronext 100), which will further drive demand for the company’s shares from index funds and other investors that may overlook Australian capital markets. In some instances it is possible to retain an ASX index inclusion by retaining an ASX listing.
- Facilitates M&A — For companies that are looking to undertake M&A, offering scrip consideration in a company listed on a major global stock exchange may be more attractive than ASX-listed scrip. For example, using NYSE or Nasdaq-listed scrip to acquire a US-listed company is usually much more palatable for the US company’s shareholders than using ASX-listed scrip.
- Corporate structuring — If an Australian company earns the majority of its income overseas, it may be less tax efficient to have an Australian holding company as income needs to be repatriated. As the company will not be generating Australian franking credits on its foreign sourced income it may be underrated by Australian shareholders in comparison to an entity paying a similar franked yield.
- Growth into new markets — If a company has an international focus or its main operations are overseas, relocating to ‘where the action is’ (and the majority of management are located) can encourage growth, brand visibility, and access to new markets and customers.
Key legal considerations
Undertaking a redomiciliation transaction requires detailed consideration of a wide range of issues affecting the corporate group, including legal, tax and regulatory matters. We often liken the process to redesigning the legal and tax identity of an operating corporate group from a blank sheet of paper.
The legal issues fall into two categories.
First, there are the legal aspects associated with implementing the transaction. Each of the examples noted above effected the redomiciliation by way of a top hat scheme of arrangement where the new foreign holding company acquires the old Australian holding company and the shareholders exchange their shares in the old holding company for shares in the new one. The process is similar to what would happen in a normal public company M&A transaction effected by scheme of arrangement — a scheme booklet (including an independent expert’s report) is prepared by the company and sent to shareholders, shareholders vote on the redomiciliation and the company then applies to the Court for approval.
A longer timeline than usual can be needed to prepare the scheme booklet if accounts are to be restated in a different accounting standard or different audit standards — this can take time but also results in changes to the reported financial information that will need to be explained to shareholders. If there is a change of listing venue, the company will need to comply with the relevant overseas stock exchange admission requirements, which may include preparing an overseas disclosure document alongside the scheme booklet. For example, a prospectus or similar in a foreign jurisdiction may be necessary to facilitate the listing on the overseas stock exchange. As in any restructure, regulatory approvals (such as FIRB) and impacts on the company’s contractual arrangements (including debt facilities) must be considered.
It is not uncommon for a redomiciliation to be coupled with another transaction, such as an acquisition or merger or capital raising, which can be a driver for the redomiciliation (eg, to allow the use of scrip listed on a particular exchange) or be used to create liquidity in the new listing venue post-redomiciliation. Combining these transactions can increase the implementation complexity, adding all the challenges of an acquisition or capital raise to those of the redomiciliation and potentially compromising the ability of Australian shareholders to obtain rollover relief in respect of any unrealised gains on their existing shares. An ATO class ruling confirming the tax implications of the transaction would be recommended.
Second, there are the ongoing legal aspects of the new holding company and home jurisdiction. Different jurisdictions have different corporate law frameworks regulating matters like shareholder rights, dividends, company meetings, takeovers and so on. Some jurisdictions are more prescriptive in regulating these kinds of fundamental matters, while others leave companies to fill in the detail themselves in constitutional documents. Generally, companies will want to aim for a jurisdiction with a stable corporate law environment that meets stakeholder expectations (in particular investors) in terms of governance, but avoid an overly burdensome regulatory compliance regime. The ongoing reporting and compliance burden imposed by the particular listing venue will be relevant. For example, companies seeking to list on NYSE or Nasdaq will be subject to reporting requirements in the US (even if the company itself is not a US company), and therefore should be thoughtful to avoid having competing obligations under the selected corporate law regime. In addition, the company will need to transition its corporate governance policies, management equity plans and key employment contracts to the new jurisdiction, which can involve replacing them entirely with new arrangements.
Tax implications of the new corporate structure and domicile of the ultimate holding company will of course also be an important consideration. In particular, ensuring that the new holding company is not a resident of Australia for tax purposes will be critical. Under Australian tax law, if the new holding company has Australian directors who regularly only attend board meetings from Australia, there is a risk that the new holding company will also be a resident of Australia for Australian tax purposes on the basis that it has its central management and control in Australia, and therefore carries on business in Australia. Although the previous Australian government announced that it would look to amend these rules, the current Australian government has been silent on this issue as of April 2023.
An important part of these transactions is explaining the changes to the existing shareholder base and understanding how core rights and protections will change as a result of the redomiciliation. A good example of this is explaining how the takeover rules applicable to their shares will change and whether or not this can impact their ability to access a premium for control.
Given the regulatory and tax structure adopted will have important consequences for the corporate group, designing a regime that balances competing demands of stakeholder expectations, norms in the market and not adopting undue regulatory compliance burden is critical.
This transaction occurred in 2018–19. We advised Amcor. With a market cap of over $17 billion, it is the largest redomiciliation transaction in recent years.
Amcor’s earnings and executive team were largely overseas and it had a large overseas shareholder base, so a redomiciliation move made sense. The transaction came about in conjunction with Amcor’s $8 billion acquisition of Bemis Inc, a US incorporated company listed on NYSE. Pursuing the redomiciliation gave Amcor the benefit of being able to offer NYSE-listed scrip to Bemis shareholders (who were more accustomed to NYSE-listed shares). The two transactions were inter-conditional. This gave Amcor shareholders the benefit of the new acquisition and gave the former Bemis shareholders the benefit of NYSE-listed shares as consideration. Both sets of shareholders were required to approve the transaction.
Some of the issues that arose included:
- Selecting a jurisdiction for incorporation of the new holding company. Amcor chose Jersey as it had a regulatory system which would not cause onerous compliance issues and still gave robust protections for shareholders.
- Ensuring appropriate tax domicile. Tax domicile is different from place of incorporation. It is usually the place where the company is managed. In this instance, the new holding company became subject to taxation primarily in the UK, which was considered appropriate for Amcor’s operations.
- Ensuring the new holding company could list on NYSE with the usual US company features. This required registration with SEC, a process which was lengthy and complex, but it was largely done at the same time as the relevant shareholder approvals were sought.
- Production of an Australian scheme booklet and an SEC registration statement, which doubled as proxy statement for Bemis. This required intimate understanding of the relevant rules in each jurisdiction.
The entire process took around 9 months which was not bad for such a complex transaction, though it could have been completed sooner had the US Government shut down not occurred in late 2018 / early 2019.
Amcor chose to retain a presence on the ASX. This can be a good idea for any company that has accumulated a large number of Australian shareholders or shareholders targeting Australian companies. To facilitate this, a company can adopt a foreign exempt listing (as Amcor has), which often results in the trading of Chess Depositary Interests (CDIs), being securities traded on ASX with the legal machinery to deliver all the rights of a shareholder in the foreign company. If one of the key listing venues (NYSE, Nasdaq, LSE, HKeX, etc) is selected, then the company need only comply with a subset of the ASX Listing Rules, provided they comply with the listing rules applicable to their new primary listing overseas.
Companies adopting a structure with multiple listings will often try to predict what the ‘flow’ of shareholders will be between the listing venues — that is, will shareholders migrate from one listing venue to the other over time. In the Amcor experience, we observed that the company moved from a 70/30 ASX/NYSE split to a 66/34 split within a one month, a 56/44 split within 12 months and 52/48 split within 18 months. In other words, there has been a net flow of the shareholder register to NYSE-listed shares away from ASX-listed CDIs.
Redomiciliation transactions can be a valuable option for businesses seeking to expand their global reach or benefit from being listed on the major overseas stock exchanges and having access to the greater pools of capital found offshore. However, successfully undertaking this kind of transaction requires careful planning, execution and communication by management. Redomiciling is a major event in the life of any business so weighing up the pros and cons and making informed decisions along the way is important, as is working with experienced legal and financial advisors who can help ensure a smooth and successful transaction.