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Investors quit Diligent to avoid tax

NZN 8/04/2016 Sophie Boot

New Zealand-based investors are selling out of Diligent Corp before the company is acquired by venture capital firm Insight Venture Partners out of fear they'll have to pay tax, analysts say.

Under the terms of the agreement, Diligent shareholders will receive $7.39 ($US4.90) in cash per share.

The shares will go into a trading halt on Monday after the market closes before a special meeting of stockholders on Wednesday morning. If the sale goes ahead, Diligent will be delisted and money will be paid to shareholders.

Diligent said New Zealand holders of the stock may be liable for tax if the merger proceeds because Diligent is a foreign company for the purposes of the foreign investment fund (FIF) tax rules.

A tax liability will arise if a New Zealand investor applies the FIF rules to their foreign company investments. However, that can be avoided if a New Zealand shareholder sells before the merger is approved.

The New Zealand Shareholders Association drew attention to the potential tax liability for New Zealand shareholders of the NZX-listed, New York-based company.

The stock has seen a sharp lift in volume since it announced the intended takeover in February, with 6.42 million shares sold in yesterday's session, beating the previous record of 880,357 shares traded in a single day.

JBWere's New Zealand equity manager Rickey Ward said questions about whether the merger would be a taxable event have spurred selling.

"There was a paragraph in the booklet that indicated it could be a taxable event because it would be deemed to be a merger, which creates a problem. We recommend individuals seek personal tax advice because we're not tax experts, but it came about through a comment in their booklet," Ward said.

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