September 2011
29
ISSN 1175-5040
ISSN 1178-2722
(online)
IN THIS ISSUE
The unsuccessful partial offer for Horizon Energy Distribution Limited (Horizon) made by Marlborough Lines Limited (Marlborough) in September 2009 resulted in the Panel holding a meeting under section 32 of the Takeovers Act 1993 and, subsequently, in judicial review proceedings in the High Court.1
A number of developments in takeovers law and the Panel's practice arose from the Horizon matter. These are discussed below.
Horizon was an electricity lines company based in the Bay of Plenty. The Eastern Bay Energy Trust (EBET) held 77% of Horizon's shares.
On 14 September 2009, Marlborough, another electricity lines business, based in the Marlborough region, gave notice that it would make a partial offer for 51% of the ordinary shares in Horizon.
On 28 September 2009, Horizon issued a revised profit outlook, which forecasted that Horizon's after tax profit for the 2009/2010 financial year would increase from $4.5 million to about $6 million.
The company gave a number of reasons for the change in forecast.
Under the Code, Horizon was required to issue a target company statement in response to Marlborough's offer. Horizon did this on 13 October 2009.In the target company statement, the directors of Horizon recommended that the shareholders reject Marlborough's offer. The directors stated, among other things, that the offer did not adequately reflect the Board's view of the full value of Horizon (the undervalue statement).
The target company statement included a report from an independent adviser, Simmons Corporate Finance Limited (Simmons), on the merits of the Marlborough offer. Simmons gave a valuation range for Horizon of $3.96 to $4.68 per share. The Marlborough offer was for $3.96 per share.
EBET did not support the offer. It made an announcement to this effect on 19 October 2010. Marlborough's offer could not succeed without EBET's support, given the size of EBET 's shareholding in Horizon. Accordingly, Marlborough's offer failed when the offer period expired on 30 October 2009.
Section 32 meeting in March 2010
On 22 February 2010, Marlborough requested the Panel to hold a meeting under section 32 of the Takeovers Act to consider a number of allegations relating to various parties involved in Marlborough's takeover offer. On 9 March 2010, the Panel gave notice to Marlborough and Horizon, and to Horizon's adviser Cameron Partners Limited (Cameron Partners), that it would hold a section 32 meeting to consider two issues:
On 11 and 12 March 2010, the Panel received summonsed documents from Marlborough, Horizon and Cameron Partners. After reviewing these documents, the Panel added a further issue for consideration at the section 32 meeting, with the consent of Horizon:
The meeting was held on 22 March 2010 in Wellington. The Panel engaged the services of an expert in the electricity industry to assist it to understand the issue regarding the undervalue statement made by the directors of Horizon.
The Panel delivered its determination and statement of reasons on 10 May 2010. The Panel determined that Horizon had not acted in compliance with rule 64 in respect of the third issue (the omission from the revised profit announcement of any mention of the change in accounting treatment). The Panel found no other breaches of the Code by Horizon. The Panel considered that any mischief arising from the breach of the Code by Horizon was remedied by the disclosure about the change in accounting treatment, contained in the determination.
Panel's fees and costs decision
Under the Takeovers (Fees) Regulations 2001, the Panel is able to recover certain of its expenses and costs that arise from holding a section 32 meeting.
On 20 May 2010, the Panel made its fees and costs decision for the section 32 meeting. The Panel allocated the costs between Marlborough and Horizon based on how the issues that were considered at the section 32 meeting were decided. Accordingly, Marlborough bore the costs attributable to the issues on which the Panel found no breach of the Code (two issues out of the three), and Horizon bore the costs attributable to the one issue on which the Panel found that there was a Code breach. The fees of the independent expert were not attributable to the issue in respect of which a breach of the Code was found by the Panel. Accordingly, the expert's fees were allocated to Marlborough as well.
Rule 49 - Target company reimbursement
Under rule 49 of the Code a target company may recover its properly incurred takeover-related expenses from the offeror.
On 21 May 2010, the Panel received a request from Horizon for a further section 32 meeting. Horizon's claim to Marlborough for the expenses that Horizon had incurred as a result of the takeover offer had not been paid. Horizon asked the Panel to consider whether Marlborough had failed to comply with the Code by not reimbursing the takeover expenses. On 4 June 2010, the Panel advised Marlborough and Horizon that it intended to hold the meeting.
Judicial review
The meeting, however, did not take place. On 23 June 2010, Marlborough commenced judicial review proceedings in the High Court, naming Horizon and the Panel as defendants. Marlborough sought review of three decisions taken by the Panel, and a fourth allegation, regarding the Panel's processes, in relation to the March section 32 meeting, as follows:
The hearing was held from 9 to 11 August 2010, and the Court gave its judgment on 12 October 2010. It found that the Panel had made an error of law in not considering at the section 32 meeting the issue of whether the Cameron Partners draft report should have been disclosed by Horizon. The Court did not, however, make a determination of the issue itself, nor order the Panel to do so. It was left open for the Panel to hold a further section 32 meeting on the matter (however, no section 32 meeting was convened by the Panel, nor requested by Marlborough).
On the second ground, the Court found that the Panel was entitled to make its costs orders, but ordered it to reconsider the decision with the benefit of submissions from Marlborough and Horizon, and guidance from the judgment.
Thirdly, the Court held that the Panel did not have jurisdiction to consider at a section 32 meeting a dispute over the recovery of expenses incurred by a target company.
Finally, the Court found that the Panel had not shown any bias. The Court considered that the Panel executive had a legitimate and beneficial role in reviewing draft takeover documents.
The Panel subsequently reconsidered its fees and costs decision, in accordance with the judgment, and made new costs orders against Marlborough and Horizon.
Footnotes