• in full takeover offers the level of control percentage which the offeror obtains is determined by the level of acceptances under the offer and not by shareholder vote.

It is inherent in the Code that, as a bidder is required to include an offer for all classes of equity securities issued by a target company in a full takeover offer, it should be entitled to the benefit of the rights attached to those securities, including the future acquisition of voting rights, without further complying with the Code. In some situations exemptions may be needed to give offerors the full benefit of the rights attached to securities acquired under a takeover offer.

The issue of association was considered in the section 32 meeting concerning Dorchester Pacific Limited which was the subject of a detailed article in Code Word 14. The issue has been considered further in a section 32 meeting concerning Calgary Petroleum Limited.

Persons who act jointly or in concert are associates. If one person acts or is accustomed to act in accordance with the wishes of another person they are associates. Related companies are associates. Parties that have a business, personal or ownership relationship will not necessarily be associates for the purposes of the Code. To determine whether such parties are associated the Panel considers all facets of the relationship and all the circumstances surrounding the relationship. A relationship is likely to be considered an association for Code purposes where it concerns the future control of voting rights of the code company.

In the Dorchester case the Panel determined that Bridgecorp Capital Limited and Brent King were associates because they had an ongoing contractual relationship relating to the future control of voting rights in Dorchester. Bridgecorp acquired 19.99% of the voting rights in Dorchester from a number of parties including Brent King. Mr King retained 5.05% of Dorchester.

Bridgecorp and King considered that they did not breach the Code on the basis that they were not associates and neither held more than 20% of Dorchester. However, the Panel determined that they were associates because the agreements between them created ongoing relationships respecting the control of Dorchester. As associates their combined holdings exceeded the permitted threshold of 20%.

This was quite different from the situation in the Calgary case. In that case a number of shareholders increased their voting rights in Calgary by taking up an over-acceptance facility of a pro rata offer. Another shareholder complained to the Panel that these shareholders were associates because they had personal and business relationships, and had voted the same way on a resolution to remove a director of the company. The Panel decided that a number of shareholders agreeing to exercise their votes in a particular way does not necessarily make them associates. The Panel considered the nature of the relationship between the shareholders and determined that they were not associated. Although many of the shareholders had personal and business relationships, in contrast to the Dorchester case, their relationships did not involve the control of voting rights in Calgary.

It should be remembered that associate status of itself is not a breach of the Code. It is only if an associate becomes the holder or controller of voting rights, and together the associates hold, or will hold, more than 20% of the total voting rights in the code company, that the Code will be breached. In the case of Dorchester the fact that Bridgecorp and King were associates did not breach the Code. It was the acquisition that took their combined holding to more than 20% of Dorchester when they were associates, that breached the Code.

How to contact us

Takeovers Panel
Level 8, Unisys House
56 The Terrace
PO Box 1171
Wellington

Phone: 64 4 471 4618
Fax: 64 4 471 4619
Email: takeovers.panel@takeovers.govt.nz
Website: www.takeovers.govt.nz