Dominion Retail / Tri-City – misleading offer document
Published 1 March 2004
During December 2003 the Panel determined that a mistake in an offer document, which made the statement of the offer price ambiguous, was a breach of the Code. The Panel also determined how this mistake should be remedied in a pragmatic and efficient manner. This was the first occasion on which the Panel had to consider whether offer documents which contain errors or misstatements relating to the terms and conditions of the offer comply with the Code. The matter was determined at a meeting held under section 32 of the Act to consider whether Dominion Retail Property Fund Limited had complied with the Code in relation to its offer for Tri-City Properties Limited.
Dominion Retail made a takeover offer for all of the parcels of shares and mortgage bonds issued by Tri-City on 2 December 2003. The offer stated that it would expire on 31 December 2003. The offer document stated that anyone accepting the offer would receive $4750 for each parcel of shares and bonds plus an “additional cash amount”. In relation to the additional cash amount the offer document stated that:
- the additional cash amount would be equal to the amount of interest accrued but unpaid in respect of the bond on the later of 31 December 2003 or the date on which the acceptance was received; and
- for acceptances received on or prior to 31 December 2003 the additional cash amount would be $475.
However, these two statements were inconsistent. Under the terms of the mortgage bonds the amount of interest that would have been accrued but unpaid on 31 December 2003 was $118.75 not $475.
On 5 December 2003, Dominion Retail sent a letter to Tri-City security holders advising that the additional cash amount stated in the offer document was incorrect and that the additional cash amount payable in respect of acceptances received on or prior to 31 December 2003 would be $118.75 and not $475.
Following correspondence with Dominion Retail and Tri-City the Panel decided that the mistake in Dominion Retail’s offer raised two issues:
- whether the statement of consideration in the offer complied with the requirements of the Code; and
- whether Dominion Retail could correct the mistake in its offer in a way that complied with the Code.
Clause 5 of Schedule 1 to the Code requires that a takeover offer must contain “all the terms and conditions of the offer”. As consideration is a fundamental term of any contract, an offer document must state the consideration offered in terms such that offerees can understand the amount that will be paid to them should they decide to accept the offer.
The Panel considered that the inconsistencies between the two statements relating to the additional cash amount created a level of uncertainty such that security holders may not have understood the amount of consideration payable to them should they accept the offer on or prior to 31 December 2003. Although the reference to a payment of $475 for accrued interest to 31 December 2003 was a mistake, it was misleading and confusing. Accordingly, the Panel considered that Dominion Retail’s offer document did not correctly state all of the terms and conditions of the offer as required by clause 5 of Schedule 1 to the Code. The Panel determined that Dominion Retail had breached the Code. If a takeover offer does not correctly state all of the terms and conditions of that offer, it does not comply with the Code.
The Panel also determined that although Dominion Retail had attempted to correct the mistake by subsequently writing to security holders, that letter had no status under the Code. The letter did not constitute a variation of the offer and did not correct the defect in the offer document.
In considering what remedy might be appropriate the Panel did not consider that it would be in the interests of Dominion Retail or Tri-City security holders for the offer to be withdrawn and a new offer made. This would have been time consuming and costly.
The Panel considered that the most practical solution would be for the terms of the offer to be clarified and for all security holders who had accepted the offer to be given the right to withdraw their acceptances. This would in effect put shareholders in the same position they would have been in had Dominion Retail’s offer contained all of the information required by the Code. In order to give security holders the opportunity to consider the offer as clarified the Panel considered that it would be necessary for the offer to be extended beyond the initial expiry date of 31 December 2003.
The Panel decided that it would accept an undertaking from Dominion Retail under section 31T of the Act, that Dominion Retail would:
- extend the period of its offer to 30 January 2004;
- give all security holders of Tri-City who accepted the offer prior to receipt of notification of the Panel’s determination the right to revoke that acceptance at any time up to the closure of Dominion Retail’s offer; and
- send immediately to all security holders of Tri-City a letter to be approved by the Panel explaining the correct terms of the offer, the rights of security holders to revoke their acceptance, and related matters.
Such an undertaking was provided before the Panel released its determination. A letter clarifying the terms of the offer and advising security holders of their right to withdraw their acceptances was sent to security holders on 19 December 2003. The Panel has been advised that a small number of security holders withdrew their acceptances.