Toll's Agreement with the Crown is Outside Code Constraints


6 August 2003

The Takeovers Panel met on Monday 4 August 2003 at the request of Infratil Limited to consider whether Toll Group (NZ) Limited (Toll) complied with rule 38 of the Takeovers Code by entering into an agreement (Toll/Crown agreement) with the Crown in relation to Tranz Rail Holdings Limited (Tranz Rail) on 7 July 2003. Representatives of Toll, Tranz Rail and Infratil attended the meeting.

Rule 38 of the Code is concerned with defensive tactics by the directors of a code company which has received a takeover offer or who believe a bona fide offer is imminent.

Under the Toll/Crown agreement the parties agreed that:

  • neither party would enter into any negotiations or arrangements which were inconsistent with the Toll/Crown agreement until Toll's current offer for Tranz Rail is withdrawn or lapses. In particular they agreed that no alternative Heads of Agreement would be negotiated or entered into by either party;
  • in the event that Toll's current offer for Tranz Rail becomes unconditional, the Crown would enter into a Heads of Agreement with Tranz Rail and Toll relating to the rail tracks and certain other assets of Tranz Rail;
  • Toll would use its best endeavours to procure Tranz Rail to enter into the Heads of Agreement with the Crown as soon as practicable after Toll declares its offer unconditional.

Infratil Limited, a Tranz Rail shareholder alleged that, in contravention of rule 38:

  • the exclusive nature of the Agreement could effectively result in an offer for Tranz Rail being frustrated and/or the shareholders of Tranz Rail being denied an opportunity to decide on the merits of an offer;
  • in respect of the Agreement, Toll was acting on behalf of the directors of Tranz Rail or is a director of Tranz Rail itself for the purposes of the Code. 

Rule 38 of the Code refers specifically to action taken or permitted by the directors of the target company, in this case Tranz Rail. The Panel decided that Toll was not acting as or on behalf of the directors of Tranz Rail, by entering into the Agreement with the Crown. As the Toll/Crown Agreement did not result from any action taken or permitted by the directors of Tranz Rail, it could not be considered a defensive tactic under rule 38.

Accordingly the Panel determined that Toll had not breached rule 38 of the Code by entering into the Toll/Crown agreement.

The full text of the Panel's determination is available on the Panel's web-site