Over the last 12 months we have seen two large ASX listed entities – Telstra and ANZ – take steps to restructure their groups and replace their head entities with non-operating holding companies (or NOHCs). While NOHC structures are not new or novel, it has been a few years since we had last seen a large ASX listed entity adopt one. In this note we explain some key features of NOHCs and things to keep in mind if you are looking to implement one.
What is a NOHC?
A NOHC is a company that owns or controls other companies but does not carry on an operating business itself.
Why implement a NOHC?
There is no ‘one size fits all’ answer to that question.
Historically, NOHCs have been more common in the financial services sector, but not exclusively so. They have also been used in other sectors, including to move away from a stapled structure and to make it easier for investors to value the different businesses within a group.
A range of different factors can drive a decision to implement a NOHC, including:
- the efficiency of the group’s current corporate structure;
- the nature of the group’s businesses (e.g. is it a conglomerate?);
- geographic considerations;
- applicable regulatory frameworks; and
- the group’s strategy moving forward.
The stated rationale for Telstra’s and ANZ’s NOHC restructures are set out in the scheme booklets they each published and lodged on ASX.
How do you implement a NOHC?
NOHCs are typically implemented through a scheme of arrangement under the Corporations Act.
Broadly, under the scheme, shareholders in the existing listed head entity exchange their shares in that entity for shares in the newly created NOHC, which will then be listed on ASX as the new head entity of the group.
A scheme needs approval by both shareholders and the court before it can be implemented.
How much work is involved in implementing a NOHC?
In short, quite a bit.
Although the scope of work involved will vary depending on the relevant group, it will include (among other things):
- determining the preferred corporate structure under the NOHC and where entities and services will sit within the new structure;
- determining the specific restructuring steps to establish the new structure (not all of the restructure will necessarily occur under the scheme itself);
- considering, and potentially redesigning, the governance framework for the new structure;
- diligence to determine how (if at all) the restructure will impact on third parties (e.g. customers, suppliers, financiers etc) under material contracts;
- engagement with regulators in Australia and overseas (including to obtain consents where necessary) and other key stakeholders, including governments;
- the preparation of a ‘scheme booklet’ containing all information that is material to a shareholder’s decision to vote on the scheme and the associated due diligence process supporting the preparation of that booklet;
- preparation for the court hearings required in connection with the Scheme; and
- engagement with ASX in connection with the listing of the NOHC and delisting of the existing head entity.
As a result, good and early planning is essential if you do think there are benefits in pursuing a NOHC.
If a NOHC seems like a good idea, what is the first step I should take?
Closely consider why you think it is a good idea, where you see the benefits and how you would explain those to your key stakeholders, including your shareholders. As noted above, the process takes time and you want to have those key points bedded down before you get too advanced in the process.
Speaking to us is not a bad second step.
