Below is a letter Milford has sent to the Head of NZX Market Supervision regarding the Xero delisting.

30 November 2017

Mr Joost van Amelsfort

Head of NZX Market Supervision



Dear Mr van Amelsfort

We are writing to you to request that the NZX requires Xero to receive shareholder approval before delisting from the NZX. This request is being made under NZX Listing Rule 5.4.1 (b).

Milford has the following Xero holdings:

  • NZ Equities Wholesale Fund: 339,445 shares
  • Other Milford funds: 244,592 shares
  • Total: 584,037 shares

The most important holding as far as this letter is concerned are the 339,445 shares held by the NZ Equities Wholesale Fund. These 339,445 Xero shares represent 3.75 per cent of the NZ Equities Wholesale Fund, which has a total fund value of $293 million.

Milford’s NZ Wholesale Equities Fund, which is benchmarked against the NZX50 Gross Index, is 100 per cent invested in NZX listed companies.

Milford’s NZ Wholesale Equities Fund has a large Xero holding because the latter is listed on the NZX and Xero’s directors have signed an agreement that it will abide by NZX rules. We invested on the basis that this agreement offers us protection under NZX rules. The NZX regulates this contract with Xero on behalf of shareholders. Listing is at the heart of this contract and Milford’s NZ Equities Wholesale Fund has invested on the basis that Xero is an NZX listed company.

We recognise and accept the protections, opportunities and risks of the NZX. However, 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 that the NZX has the right to decide whether shareholders have been prejudiced by a delisting decision (as per Listing Rule 5.4.1(b)).

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.

Milford’s NZ Equities Wholesale Fund, as well as Milford’s other funds and their underlying investors, have also been prejudiced by the poor performance of Xero share price since the delisting announcement on 9 November. The performance has been as follows;

  • Xero’s share price performance since 8 November: (7.1%)
  • NZX50 Gross Index since 8 November: +1.3%

Milford believes that Xero’s recent material share price underperformance is primarily due to the company’s delisting decision. The NZ Equities Wholesale Fund, Milford’s other funds and their underlying investors have been prejudiced for two additional reasons:

  • The Xero waiver decision may reduce investor confidence that the NZX will fully protect investor rights. This could reduce investor participation in the NZX and the performance of the domestic sharemarket.
  • The Xero decision could encourage other NZ 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.

These two potential negatives apply to all New Zealand sharemarket investors.

Consequently, we are requesting that you require Xero to hold a meeting of shareholders to approve the company’s proposed NZX delisting because the decision has prejudiced many shareholders.

The alternative is to require Xero, under Listing Rules 5.4.1 (b), to buy back shares from prejudiced shareholders at $34.05 per share, the company’s share price immediately before the pre-delisting announcement.

We would appreciate your response to this request as soon as possible.

Yours sincerely

Sam Trethewey – Portfolio Manager – Milford NZ Equities Wholesale Fund

Brian Gaynor – Head of Investments