Exemptions Relating to Upstream Acquisitions

Published 1 December 2002

ABN Amro Capital (Belgium) N.V. (2002/203)

A wholly-owned subsidiary of ABN AMRO Capital (Belgium) N.V. was making a takeover offer in Australia for AUSDOC Group Limited. AUSDOC owns all the ordinary shares in Freightways Express Limited. Freightways also has on issue non-voting preference shares which are listed on the New Zealand Stock Exchange. Because Freightways is a party to a listing agreement it is a Code company. As a result of its takeover in Australia, ABN AMRO would, if the offer was successful, obtain indirect control of Freightways’ voting rights. Accordingly ABN AMRO sought an exemption to enable its offer for AUSDOC to proceed without breaching the fundamental rule.

An exemption was granted to ABN AMRO and every wholly-owned subsidiary from the fundamental rule in respect of any increase in their voting control in Freightways as a result of their acquisition of shares in AUSDOC. The exemption was subject to the condition that the offer for AUSDOC is made in accordance with the Australian Corporations Act 2001 and the listing rules of the Australian Stock Exchange.

The Panel considered the exemption was appropriate because:

  • there is a single corporate shareholder of Freightways Express Limited holding all of the voting securities of the company and the Code mechanisms for effecting a change of control of a Code company are, in this case, either impractical or unworkable; and
  • the possible change in voting control will be made in accordance with the Australian Corporations Act 2001 and the Australian Stock Exchange’s Listing Rules.

The exemption is consistent with the objectives of the Code because it maintains a proper relation between the costs of complying with the Code and the benefits resulting from it.

Brunel Holdings Plc (2002/348)

Brunel Holdings plc proposed to merge with Guinness Peat Group plc (“GPG”) by acquiring all of the shares in GPG by way of a scheme of arrangement under section 425 of the UK Companies Act 1985. The shareholders of GPG would be offered shares in Brunel in exchange for their GPG shares.

GPG held 46% of the total shares in Turners & Growers Limited and 46% of the total shares in Turners Auctions Limited. As a result of this merger Brunel would become the controller of the voting securities GPG held in Turners & Growers and Turners Auctions.

In addition GPG had made a partial takeover offer for Rubicon Limited which if successful would result in GPG becoming the holder or controller of just over 50% of the voting rights in Rubicon. As the effective date of the Brunel/GPG merger was likely to be after any acquisition of Rubicon shares pursuant to the partial takeover offer, the merger could result in Brunel becoming the holder or controller of more than 20% of the voting rights in Rubicon.

The Panel granted an exemption to Brunel from rule 6(1) of the Code in relation to Brunel’s acquisition of control of more than 20% of the voting securities in each of Turners & Growers, Turners Auctions and Rubicon as a result of the merger of Brunel and GPG.

The Panel considered that it was appropriate and consistent with the objectives of the Code to grant the exemption because:

(a) the merger transaction between Brunel and GPG would not result in a change of effective control of the voting rights in Turners & Growers, Turners Auctions, and Rubicon held by GPG because the ultimate shareholding structure of the merged group will not be materially different from the structure and control of GPG prior to the merger;

(b) the achievement of an increase in the percentage of voting rights controlled by Brunel in Turners & Growers, Turners Auctions, and Rubicon was incidental to a significant merger transaction between Brunel and GPG, which itself was not directed at the attaining of control of voting rights in those companies;

(c) it would be inappropriate to give the non-associated shareholders of Turners & Growers, Turners Auctions, and Rubicon the opportunity to approve the merger when there would be no effective change in the control of rights held by GPG interests; and

(d) the merger transaction was to be by way of a scheme of arrangement of GPG under section 425 of the United Kingdom Companies Act 1985.

Pacific Retail Group Limited and Eldercare New Zealand Limited [not yet gazetted]

Mr Eric John Watson, who held or controlled all of the shares in Cullen Investments Limited, proposed to reorganise his shareholdings and to transfer all of the shares in Cullen to Cullen Group Limited (“CGL”). All of the shares in CGL were held by Victoria Equities Limited as trustee of the Valley Trust which is controlled by Mr Watson.

As Cullen held or controlled more than 20% of the voting rights in Pacific Retail Group Limited (“PRG”), the proposed reorganisation would result in CGL, Victoria Equities and the current shareholders of Victoria Equities becoming the holders or controllers of more than 20% of the voting rights of PRG.

Cullen also held convertible notes issued by ElderCare New Zealand Limited. The future conversion of the convertible notes into ElderCare shares would be a breach of the fundamental rule if at the time of conversion Cullen’s associates held more than 20% of the voting rights in ElderCare, unless one of the exceptions in rule 7 was utilised. The Panel had previously granted an exemption to Cullen in respect of the conversion of these notes (see summary of ElderCare exemption above) but that exemption did not extend to CGL, Victoria Equities or its shareholders.

The Panel granted an exemption from rule 6(1) of the Code to CGL, Victoria Equities and the current shareholders of Victoria Equities in respect of: (a) any increase in the percentage control of voting rights in respect of:

(a) any increase in the percentage control of voting rights in PRG resulting from the acquisition of the shares in Cullen by CGL; and

(b) any increase in the percentage control of voting rights in ElderCare resulting from the conversion of ElderCare convertible notes after the acquisition of the shares in Cullen by CGL.

The Panel granted the exemption subject to the following conditions:

(a) the shareholder of CGL is Victoria Equities as the trustee of the Trust;

(b) the trust deed of the Trust provides that –

(i) Mr Watson alone is the “appointer”,

(ii) the beneficiaries of the trust deed are Mr Watson and individuals and charities appointed by Mr Watson, and

(iii) the trust deed can only be amended with the prior approval of Mr Watson; and 

(c) the exemption is specific to the trust deed in force as at 31 October 2001.

The Panel considered that it was appropriate to grant the exemption because:

(a) although the rearrangement would result in an indirect change in the form of control of PRG and ElderCare, there would be no effective change in control of the voting rights in these companies;

(b) shareholders will not be disadvantaged in not having the opportunity to vote on the rearrangement at a meeting of shareholders, as the rearrangement will have no real effect on PRG or ElderCare shareholders.

The Panel considered that the exemption was consistent with the objectives of the Code because, as the rearrangement of Mr Watson’s affairs will not result in an effective change in control or disadvantage shareholders of PRG or ElderCare, it avoids unnecessary compliance costs that would be incurred if the exemption were not granted.