A ‘low ball’ offer is an unsolicited offer to buy an investment from you at significantly below the market price and/or where payment is spread over a long period of time.
‘Unsolicited’ means that you do not know the person making the offer, and the offer is not part of an offer process such as a share buyback from the company whose shares you hold, or a takeover.
It is not illegal to make an unsolicited offer to buy someone’s investments, or to offer to buy them at a price below their current market value. However by law these offers must be worded and presented in a clear, concise and effective way and include a formal disclosure document that gives you important information about the offer.
In most cases, if you have accepted a 'low ball' offer and then change your mind, you have a right to cancel the agreement within 10 working days of accepting the offer.
What to do before accepting the offer
- If you receive a ‘low ball’ offer to buy your investment, make sure you read the offer carefully. Understand all of the terms of the offer and forms relating to the offer. The questions you should ask before deciding whether or not to accept are:
- Are you receiving the market price or a fair value for your investment?
- The disclosure document must clearly spell out the offer price and either the current market price, or a fair estimate of the value of your investment. The current market price will be based on an average market price calculated over a 20 day period. Compare this to up-to-date price data in a newspaper or on a stock exchange website to check it still looks fair. Most listed shares and other securities issued by New Zealand or Australian companies will be listed by the NZX or the ASX. If the investment is not traded, the disclosure document will give you a fair estimate of value. It will tell you the assumptions this is based on and whether or not they have been reviewed by an independent third party. You should check whether this seems fair by talking to an authorised financial adviser, or the company or entity that originally made you the offer.
When will you receive payment?
The disclosure document will tell you how and when the payments will be made. Some offers spread payment of the price in instalments over a number of years. In this case the true value of the offer could be much less than it appears, because you will have to wait a long time for your money. There is also a risk that, if your payment instalments are spread over a long time, the offeror might go out of business and you will not receive all of the promised payments. As a benchmark, if you sell your investment through a sharebroker you are likely to receive payment within just three working days.
Will you have to pay brokerage fees?
If you sell your investment through a sharebroker directly you will receive the full market price for your investment, less any brokerage fees. Different sharebrokers charge different fees, but generally you should expect to pay between $30 and $75 as a minimum brokerage fee.
- The website of the company you have invested in.
- The offer documents for your investment. If you have a New Zealand investment you can access these online by searching under the company’s name at the Companies Office website: companies.govt.nz.
- Unregistered securities trading facilities, such as the Unlisted website (unlisted.co.nz) which includes price information on some shares and other securities issued in New Zealand.
- If the company you invested in is in receivership, the receiver’s reports may also give you a good indication of how much you are likely to receive for your investment. Copies of the receiver’s reports (if it is a New Zealand company) can be found by searching the company’s name at companies.govt.nz. You can also contact the receiver to find out how much you are likely to receive for your investment and when you can expect payment.
You have the right to cancel during the ‘cooling off’ period
In most cases, if you have accepted a ‘low ball’ offer, and then change your mind, you have the legal right to cancel the agreement under the Financial Markets Conduct Regulations 2014. You must cancel the agreement during the 10 working day ‘cooling off’ period.* You can cancel the agreement by:
- repaying all money paid to you under the agreement within 10 working days after the date on which you accepted the offer (if you’ve already been paid), or
- contacting the offeror in writing within 10 working days from the date you accepted the offer to say you want to cancel or withdraw from the agreement. You must also repay any money already paid to you under the agreement, within 20 working days from the date you accepted the offer.
* A ‘working day’ does not include a Saturday or a Sunday, public holidays (and if Waitangi Day or Anzac Day falls on a Saturday or a Sunday, the following Monday), the period between 25 December and 2 January (and if 1 January falls on a Friday, the following Monday or, if 1 January falls on a Saturday or a Sunday, the following Monday and Tuesday).