• Is the information sought to be withheld commercially sensitive?

The Panel regards the Kingsgate exemption as exceptional and does not expect to have to consider similar requests in future.

PANEL INTERVENES IN TAKEOVER

Restaurant Brands Limited received a takeover notice on Friday 14 May 2004 from King Win Laurel International Limited, a company based in Auckland.

As required by rule 42 of the Code, Restaurant Brands notified the NZX that it had received the takeover notice from King Win. The same day the Panel received a copy of the takeover notice sent to Restaurant Brands Limited by King Win.

It was immediately apparent to the Panel executive and to the legal advisers to Restaurant Brands, that the takeover notice did not comply with the Code in a number of respects. Restaurant Brands included comments to this effect in its statement to the Exchange.

The Panel’s objective was to have the notice withdrawn from the market as quickly as possible, and preferably without expensive regulatory action.

The Panel wrote to King Win on the day the notice was received asking it to withdraw its notice. The following Monday (17 May) the Panel executive spoke with a representative of King Win and explained the reasons why the takeover notice did not comply with the Code. King Win was again asked to withdraw its notice. King Win was given the clear understanding that the Panel would act to restrain the offer if it were necessary to do so. On Tuesday 18 May King Win advised the Panel and Restaurant Brands that it had withdrawn its takeover notice.

The notification of the takeover notice, despite the immediate comments from Restaurant Brands, appeared to result in a temporary lift in the Restaurant Brands’ share price.

Some media commentators have said that the King Win takeover notice should not have been notified to the market because it was so obviously non-complying with the Code. The Panel does not accept this. While the short-term increase in Restaurant Brands’ share price may have been unfortunate, the Panel considers it is not for target companies to withhold from shareholders the information that a takeover notice has been received that purports to comply with the rules of the Code.

The Panel considers that Restaurant Brands was correct to add its own warning about the form of the offer in the statement it released to NZX.

The Panel believes that King Win was genuine in giving its takeover notice, but lacked understanding of the full mechanism required for a Code offer.

This incident demonstrates the importance of participants in the takeover market taking proper legal advice before embarking on a takeover transaction. It also illustrates that the Panel is prepared to achieve its regulatory objectives without undertaking heavyhanded intervention where it can reasonably do so.

EXEMPTIONS FROM RULE 22

The Panel has recently received queries about circumstances in which it might grant an exemption from the requirement for an independent adviser’s report under rule 22 of the Code.

A rule 22 report must be contained in or accompany an offer:

• if the target company has more than one class of voting securities; or
• if non-voting securities are included in the offer.

The independent adviser must certify in the report that, in its opinion, the consideration offered is fair and reasonable as between different classes. Once the independent adviser has given this certification the offer is deemed to comply with rule 8(3), 8(4) or 9(4), whichever is applicable.

The purpose of rule 22 is to:

• advise shareholders that the price offered for the securities held by them is fair and reasonable compared with the amount offered to holders of securities of a different class; and
• avoid a legal challenge to a takeover on the grounds that the consideration offered for different classes of security is not fair and reasonable as between the classes.

Consistent with the underlying purpose of rule 22, the Panel would only be likely to grant an exemption from the requirement for a rule 22 report if it is satisfied that in the particular circumstances of the relevant code company there is, in effect, only one class of voting securities under offer.

These circumstances were demonstrated by St Laurence Property & Finance Limited in its offers for parcels of shares and mortgage bonds in Capital Office Fund Limited and Mt Wellington Industrial Fund Limited.

The offers related to two classes of securities, one voting and one non-voting, which were “stapled” together. Without an exemption St Laurence would have had to obtain a rule 22 report on the fairness of the considerations offered as between these two classes. However, the shares and bonds had been issued by each of the code companies in parcels which could not be separated. The shares and bonds could not be traded separately, and the consideration offered by St Laurence related to each parcel and did not distinguish between the components of the parcel. To have done so would have been artificial.