The Oyster Bay Case

Code Word No. 15 (November 2005) reported the first part of the protracted process for control of Oyster Bay Marlborough Vineyards Limited.

TO RECAP

The competitive takeover for Oyster Bay started in May 2005. It was initiated by Peter Yealands Investments Limited, the holder of some 6.7% of the shares in Oyster Bay. On 7 June 2005 Yealands made a partial offer to obtain enough shares to hold 51.1% of the shares of Oyster Bay. Delegat’s Wine Estate Limited, who already held 32.58% of Oyster Bay, made a counter-bid on 7 July 2005 to attain 50.1% of the voting rights. As well as being a shareholder, Delegat’s was party to very long-term contracts with Oyster Bay for the development and management of the vineyards and for the purchase each year of Oyster Bay’s entire grape harvest.

The Delegat’s bid reached the minimum acceptance level. However, Yealands and another Oyster Bay shareholder, Mr David Rankin, made complaints to the Panel relating to valuations of the vineyards, in particular the omission of reference to the value of the land excluding the effect of the various contracts with Delegat’s (the unencumbered value).

At a section 32 meeting the Panel determined that it was not satisfied that Oyster Bay had complied with the Code by issuing its target company statement without the unencumbered valuation information. The Panel restrained Delegat’s from declaring its offer unconditional and from acquiring any shares of Oyster Bay pursuant to its offer.

The Panel put forward a “preferred solution” which was to issue an agreed correcting statement and give accepting shareholders the right to cancel their acceptances of the Delegat’s offer.

Delegat’s initiated action in the Wellington High Court seeking to have the Panel’s restraining orders set aside. Delegat’s also wrote to all accepting shareholders giving its version of the land valuation issue, and inviting them to withdraw their acceptances or express support for the bid proceeding.

The Panel initiated proceedings against Delegat’s and Oyster Bay seeking new interim restraining orders from the Court. After a hearing on 7 October 2005 Justice Miller said “… I am satisfied that Oyster Bay has failed to comply with R46 of the Code and that the interim orders that the Panel seeks should be granted.”

OYSTER BAY PART 2

At the High Court proceedings Yealands and Rankin supported the Panel’s request for the extension of interim restraining orders but asked the Court to void Delegat’s bid and require the takeover process to start again.

The Court held the final hearing on 28 November 2005 after a hearing on 9 November to deal with a number of procedural issues. From the exchange of documents ahead of the 28 November fixture all parties were aware that Logan Stone had provided new 2005 vineyard valuations to Oyster Bay on 10 July 2005 but these had not been provided to Ferrier Hodgson or the directors of Oyster Bay before the target company statement was finalised on 19 July 2005.

Before the hearing Ferrier Hodgson told the Panel that, had it known of the 2005 valuations, it would have calculated a higher NTA valuation of Oyster Bay ($3.98 as against $3.26) and could have revised its primary valuation (on a DCF basis) upwards. This would have meant that the final offer price of $4 per share would no longer have appeared to be at a premium above valuation.