ASX dilution reforms: recalibrating governance for scrip-funded M&A

The Australian Securities Exchange (ASX) last week released its response to the public consultation on shareholder approval of dilutive acquisitions and changes in admission status, together with an exposure draft of proposed Listing Rule amendments. The response follows a consultation paper published on 20 October 2025, prompted by growing investor pressure after several high-profile transactions – most notably the James Hardie Industries/AZEK merger - brought into sharp focus the tension between technical Listing Rule compliance and investor expectations around shareholder approval.

In our view, the proposed reforms should not be seen as a brake on dealmaking. Rather, these are a logical recalibration and a move towards international market practice. By requiring shareholder approval only where dilution is meaningful, while avoiding a blanket approval requirement for all transactions, the ASX has struck the right balance: shareholders get a say on materially dilutive transactions, and listed bidders retain sufficient flexibility to pursue strategic, scrip-funded M&A.

Proposed changes to ASX Listing Rules

Securities issued in a regulated takeover or a scheme of arrangement

The centrepiece of the proposed reforms is a change to exceptions 6 and 7 in Listing Rule 7.2, which currently allow a listed bidder to issue securities as consideration or to fund the cash consideration under a takeover or scheme of arrangement without shareholder approval under Listing Rule 7.1 (provided the transaction is not a reverse takeover, i.e. effectively a 100 per cent per cent limit on the number of securities which can be issued). 

Under the proposed changes, companies in the S&P/ASX 300 will be able to issue scrip consideration of up to 25 per cent of their ordinary shares on issue in connection with a takeover or scheme without shareholder approval under Listing Rule 7.1. Any issue above that threshold will require shareholder approval. Companies outside the S&P/ASX 300 will remain subject to the existing regime.

This is the reform that has attracted the most attention and responds directly to institutional investor concerns about significant dilution in public takeovers. ASX's analysis of transactions over the past five years indicates that 19 deals would have been captured by the 25 per cent threshold.

The reforms move the ASX closer to international market practice. In the United States, both the NYSE and Nasdaq require shareholder approval for certain transactions involving the issue of 20 per cent or more of a company's outstanding shares. Against that backdrop, the ASX's proposed 25 per cent cap does not seem unduly restrictive.

Further, under the proposed Listing Rule amendments: 

• exceptions 6 and 7 would apply to issues made under (or to fund cash consideration payable under) a ‘regulated takeover or merger’ (as defined), rather than being limited to Australian takeovers and Part 5.1 schemes;
• a listed entity will have up to 12 months from the date of the shareholder approval to issue the securities in connection with a regulated transaction; and
• a listed entity may, by amending its constitution or by ordinary resolution applying for a period of up to three years, increase or decrease the 25 per cent cap (not to exceed the 100 per cent reverse takeover cap).

The policy objective is clear: shareholders should have a vote before being materially diluted in a major scrip-funded transaction. However, the proposal should not be seen as a constraint on all dealmaking. The 25 per cent threshold is targeted, applies only to larger listed companies, and preserves flexibility for companies to seek approval for higher limits in advance. That should make the reform manageable in practice, particularly for bidders that plan early and actively engage with key shareholders.

Changes in admission status: Foreign Exempt Listings

The ASX proposes to require shareholder approval by ordinary resolution before a listed entity changes its admission category from a standard ASX Listing to an ASX Foreign Exempt Listing^[1]. Currently, such a change requires only ASX's consent under Listing Rule 18.9 and does not require a shareholder vote. 

A Foreign Exempt Listing subjects an entity to only a limited subset of ASX Listing Rules, with primary reliance placed on compliance with its home exchange's regulations. The ASX considers that such a change can significantly affect shareholder rights and occurs infrequently enough that a voting requirement will not create an undue burden^[2]. In our view, this is a proportionate response.

Voluntary delisting by dual-listed entities

ASX also proposes to codify its delisting framework by requiring shareholder approval by ordinary resolution before a dual-listed entity may delist from ASX, unless its securities will be readily tradeable on the other exchange and one of the following applies: the entity has an ASX Foreign Exempt Listing; it was listed on the other exchange before obtaining its ASX listing; or less than 25 per cent of its ordinary securities are held by holders with a registered address in Australia at the date of the delisting request.

ASX will also continue to permit removal by special resolution of shareholders in certain circumstances, including where the removal occurs as part of a scheme of arrangement or takeover. 

No change to the significant transactions framework

Importantly, the ASX has not proposed any changes to the broader significant transactions framework under Listing Rule 11.1. That restraint is welcome. The original consultation paper had canvassed whether shareholder approval should be required for any transaction that materially alters an entity's nature or scale, regardless of whether it involves an issue of securities. A blanket approval requirement of that kind would have been a much heavier intervention, with real potential to add regulatory burden and transaction uncertainty. In our view ASX's decision not to proceed with that broader change keeps the reforms proportionate.

What's next

An exposure draft of the proposed Listing Rule amendments has been published alongside the response paper. Submissions are due by 5.00pm AEST on Wednesday 29 July 2026 (to ListingsPolicy@asx.com.au), with final rule changes expected to take effect in October 2026.

Listed companies in the S&P/ASX 300 should begin considering the practical implications of the proposed reforms now. For scrip-funded acquisitions, the reforms may introduce a new approval hurdle that affects deal timetables, shareholder engagement strategy and transaction structuring. Bidders may need to engage more proactively with key shareholders before announcing transactions, structure deals to stay below the 25 per cent threshold, or seek pre-approval from shareholders for potential future issuances.

Overall, these changes should not be seen as unduly restrictive. They are a targeted governance alignment: giving shareholders of larger entities a vote where dilution is meaningful, without closing off workable pathways for boards to execute strategic transactions.

This article was written with the assistance of Ynan Zhou (Associate).

^{[1] ASX will retain a narrow exemption for qualifying NZ listed entities. 
[2] ASX records indicate that since 2020, only three listed entities have changed their admission category from an ASX listing to a Foreign Exempt Listing.}