The ASX governance overhaul marks one of the most consequential shifts in Australian market rules in over a decade, with proposed listing rule changes that could materially alter how large companies pursue mergers, acquisitions and capital raisings from 2026 onward. At the heart of the reform is a long-running tension between boards seeking deal flexibility and shareholders pushing back against unchecked dilution. After years of mounting frustration from super funds and institutional investors, the balance of power is tilting decisively back toward owners.
Over the past five financial years, between FY21 and FY25, 19 of 55 major regulated takeovers by large ASX-listed entities involved equity issuance exceeding 25 percent of pre-deal share capital. In many cases, shareholders absorbed dilution without a direct vote, even when value creation was debatable. Heavyweights including AustralianSuper, Vanguard and HESTA have openly criticised the practice, arguing it has eroded returns and weakened accountability. The ASX’s consultation is a direct response to that pressure.
Dilution Explained, Why It Matters for Shareholders
Dilution sounds abstract until it hits your portfolio. Imagine owning 10 percent of a business valued at $100. If the company issues a large block of new shares to fund an acquisition without asking you, your ownership might fall to 5 percent overnight. Even if the business is no worse off, your economic claim has halved.
This is precisely what has occurred in several high-profile ASX deals, where scrip funded acquisitions allowed boards to bypass shareholder approval thresholds. Scrip remains attractive because it conserves cash and limits debt, especially when credit markets tighten. But for shareholders, particularly long-term funds measured on per-share outcomes, dilution directly undermines earnings per share, return on equity and ultimately valuation multiples.
Cases such as James Hardie’s US expansion, which diluted shareholders by more than 20 percent, crystallised the backlash. Retail investors felt sidelined, while institutions questioned whether boards were incentivised to grow empires rather than per-share value.
The Three Options on the Table, and Why Option Two Dominates
The ASX consultation outlines three reform pathways, but Option Two, the bright-line test, has emerged as the clear favourite among investors.
Under Option Two, any large listed entity, defined as ASX 200 members or companies with a market capitalisation above $1 billion, would require mandatory shareholder approval before issuing more than 25 percent of pre-transaction equity. This rule would have captured many of the most contentious deals of the past five years.
Option One proposes tightening existing exceptions but leaves room for interpretation, while Option Three lowers the threshold to 15 percent, a move critics argue could stifle legitimate growth and force excessive voting on routine capital management.
A secondary but important reform targets dual-listed companies. Firms listed on both the ASX and overseas exchanges would no longer be able to quietly slip into “Foreign Exempt” status without shareholder approval. This loophole has long frustrated domestic investors who felt sidelined by reduced disclosure standards.
Public submissions remain open into early 2026, but early signals suggest strong institutional backing for Option Two as the most balanced outcome.
Immediate Market Impact, Boards Under Pressure
If adopted, the new rules will change behaviour quickly. Boards face longer deal timelines, with shareholder votes adding 30 to 50 days to execution. In fast-moving sectors such as resources, technology and healthcare, that delay could kill marginal deals or force bidders to sharpen terms.
Investment banks will also need to rethink playbooks. Equity-heavy deal structures become less attractive, shifting emphasis toward cash bids, staged acquisitions, private equity partnerships and convertible instruments. Targets, meanwhile, gain leverage, knowing acquirers must convince shareholders as well as boards. For investors, particularly retail and super funds, the upside is clear. Voting rights over dilution restore accountability and should reduce value destructive acquisitions dressed up as “strategic.”
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The 2026 Investor Playbook, Who Wins and Who Loses
If the ASX governance overhaul is implemented, short-term M&A volumes may soften, but governance premiums are likely to rise. Companies with strong balance sheets and cash generation stand to benefit, while serial equity issuers face higher hurdles.
Mid-caps reliant on placements to fund growth could struggle, particularly in capital-intensive sectors. Conversely, disciplined acquirers with a history of per-share value creation may trade at higher multiples.
For active investors, volatility around consultation milestones and final rule announcements may create trading opportunities. Longer term, clearer shareholder protections improve the ASX’s appeal to global capital, especially relative to markets where dilution risk remains opaque.