The shareholders who reportedly forced the ASX board to install Robert Elstone in place of Tony D'Aloisio as chief executive of the combined entity were, in fact, SFE shareholders. This is because only its shareholders get to vote on the merger. ASX shareholders stand to be diluted by between 35 and 40 per cent if the merger is implemented.

That they aren't getting to vote on the deal appears to be inconsistent with the long-standing ASX listing rule that puts a cap on dilution by requiring shareholder approval if a board wishes to increase the equity on issue by 15 per cent or more in any 12-month period.

The reason why no meeting of ASX shareholders is required is a long-standing exception in the listing rules for shares issued under an off-market takeover bid or under a merger by scheme of arrangement. The ASX-SFE deal is a merger by scheme of arrangement. There is also an exception for shares issued (for example, under a placement) to fund the cash consideration for a takeover bid or a merger by scheme of arrangement.

What is the justification for denying the bidder's shareholders the right to vote on a scrip bid or merger that materially dilutes their equity holdings? The answer is not obvious.

Why should a dilutionary issue of shares to facilitate a full takeover or merger by scheme of arrangement receive special treatment, compared to a dilutionary issue of shares to acquire a major asset?

To take an extreme example, Alinta's proposed bid for AGL would have resulted in Alinta shareholders being diluted to about 25 per cent of the merged entity - without any opportunity to approve this massive dilution. Alinta's management wanted to structure the bid as an AGL scheme of arrangement, voted on solely by AGL's shareholders.

In the context of the ASX and the SFE, it could be argued that, at the same time their percentage shareholding is diluted, ASX's shareholders become investors in a larger enterprise.

The transaction results in them having a smaller percentage of a larger pie - which in an ideal world will leave them no worse off.

But that still leaves unanswered why SFE shareholders get to vote while ASX shareholders get no say on an equity issue that dilutes them by up to 40 per cent - and which will have major consequences for the value of their shares.

Some may point to the fact that institutional investors are often shareholders in both the bidder and the target. And some may argue that an extra meeting is an unnecessary extra expense although, given the costs of most mergers, any extra costs are unlikely to be material.

Requiring shareholder approval for scrip bids or for equity raisings made to fund scrip bids may reduce the attractiveness of such types of bids. Critics may say it would simply lead to an expansion in the use of debt-funded takeovers (given few companies are in the position to make major acquisitions from existing cash reserves) that require no shareholder approvals. But the credit rating implications of overreliance on debt would probably act as a brake on any such trend.

The fundamental issue is whether shareholders get to approve dilutionary share issues, a principle already firmly (if, it seems, only partially) embedded in the listing rules. After all, if a merger or acquisition is likely to increase shareholder wealth, there would appear to be no reason for the bidder company's board to fear putting it to shareholders. The listing rule exception should be removed.