the Takeovers Act 1993 and the Takeovers Code




a meeting held under s 32 of the Takeovers Act 1993 to determine whether LION NATHAN LIMITED and/or LION NATHAN ENTERPRISES LIMITED may have acted or may not be acting or may intend not to act in compliance with the Takeovers Code.


16 July 2001


D O Jones (Acting Chairperson)
C Giffney
A Lawrence


A Galbraith QC, J P H Oldfield and C Spillane for Lion Nathan Limited and Lion Nathan Enterprises Limited

A Ross for Allied Domecq

R A Dobson QC as counsel assisting the Panel


P Lockey, J Smyth, D McKegg, R Ross (as representatives of Lion Nathan/Lion Nathan Enterprises Limited)
M Turnbull and J Mussared (as representatives of Allied Domecq)
K G Morrell and M R Bearsley (from Panel Executive)


16 July 2001



[1]   This determination is made pursuant to a meeting of the Panel held on 16 July 2001 under s.32 of the Takeovers Act 1993. The meeting was convened by the Panel following an earlier meeting of the Panel on 10 and 11 July 2001 which considered that Lion Nathan Limited and/or Lion Nathan Enterprises Limited (collectively referred to as "Lion") may not have acted, may not be acting or may intend not to act in compliance with the Takeovers Code ("the Code") in relation to its notice of intention to make a takeover dated 1 July 2001 ("the takeover notice") which Lion Nathan Enterprises Limited had given to Montana Group (NZ) Limited ("Montana").

[2]  The 10 and 11 July 2001 Panel meeting was convened by Mr Jones as acting Chairperson of the Panel because the Chairperson of the Panel, Mr King, had previously notified Mr Jones that he considered it not proper or desirable for him to participate in any determination required to be made by the Panel in relation to the takeover of Montana. Mr Jones directed that the powers of the Panel in relation to the meeting and any matter arising from the meeting be exercised by a division of the Panel consisting of himself, Mr C Giffney, Mr A Lawrence and Mr K J O'Connor (Mr K J O'Connor, was not available to attend the meeting of 16 July 2001 which is the subject of this determination).


[3]  Although not strictly relevant to the Panel's determination, the process under which Lion's Takeover Notice was reviewed and acted upon by the Panel in this case is explained with a view to assisting the parties and market observers and participants in understanding the process by which the Panel's s.32 meeting of 16 July 2001 was arrived at, and how the Panel operates.

[4]  The Panel meeting on 10 July 2001 was called following a series of events and actions.

[5]  On Sunday 1 July 2001, by facsimile transmission, the Panel received notice of Lion Nathan Enterprises Limited's intention to make a partial offer for 11% of the ordinary shares in Montana at $5.50 per share. This notice was given to the Panel pursuant to Lion Nathan Enterprises Limited's obligations under rules 41 and 47 of the Code. Lion's intentions were announced to the market on 2 July 2001 in a media release, a copy of which is annexed to this determination.

[6]  On Monday 2 July 2001 a member of the Panel executive was assigned the task of reviewing the takeover notice - a document containing notice of a proposed partial offer.

[7]  On Wednesday 4 July 2001 the Panel executive raised a possible question of compliance with the Code relating to the takeover notice because of the reference in the notice, at paragraph 8.10, to the prospect of a "subsequent offer" being made. Paragraph 8.10 states:

"Subsequent offer
8.10 If the offer becomes unconditional, after the offer period Lion Nathan Limited or another member of the Lion Nathan group of companies intends to make a further offer for all Montana Shares not held or controlled by Lion Nathan Limited or another member of the Lion Nathan Group of Companies ("Subsequent Offer"). That offer would be at NZ$3.70 per share less any distribution made by Montana after 1 July 2001, and would be subject to conditions to the same effect as set out in clause 5.2 of the offer.

If, as a result of the Subsequent Offer or otherwise, Lion Nathan Limited or another member of the Lion Nathan group of companies becomes entitled to acquire compulsorily Montana Shares under the Takeovers Code, it is intended that those rights will be exercised and Montana will apply for delisting from the New Zealand Stock Exchange."

[8]  Mr Jones asked the Panel executive to investigate the matter further prior to the Panel's next meeting due to be held at 8:30 am the following morning, Thursday 5 July 2001. At that meeting members were advised by the Panel executive that there were questions to be answered about the takeover notice's compliance with the Code. It was agreed therefore that the Panel should seek legal advice on the legality of the takeover notice from senior counsel, Mr Robert Dobson QC.

[9]  Mr Dobson's advice, contained in a letter dated 6 July 2001, was received by the Panel at approximately 4.15 p.m. on that day. The Panel took time out from that meeting (the s.32 meeting convened to consider the actions of Allied Domeqc Plc in relation to an irrevocable promise made on 29 June 2001 to acquire Montana shares) to review and discuss Mr Dobson's advice. Mr Dobson joined the meeting by telephone and discussed his advice with members.

[10]  Mr Dobson's written advice to the Panel included:

"Whilst a conforming offer must be in writing (Rule 44(1)(a)), that does not prevent the Panel taking into account, in any assessment of the character of conduct by a prospective acquirer, other representations that might affect the status of any commitments set out in formal documents. I have not been able to consider all comments on behalf of Lion, in respect of its partial bid documentation. Lion's announcement of the partial bid has warned that acceptances under the partial offer would be scaled so as to acquire 11% of Montana's shares, and that "shareholders will then have the opportunity to divest any remaining shares in the subsequent offer. If all shareholders, except Allied Domecq plc accept both offers for all their shares, accepting shareholders will receive an average of no less than $4.38 per share." I understand that Mr Warwick Bryan, Investor Relations Director for Lion, has been quoted as making comments more recently, to similar effect.

It is arguable that these pronouncements by Lion transform what is cast in para 8.10 as an expression of intent, into a commitment to proceed, conditional only on the prior success of the partial bid. For Montana shareholders considering the future of their holding, it must be material in evaluating their response to the partial bid, to know that they have a committed means of exiting the balance of their shareholding, if they commit to the partial bid and it proceeds. The prospect of such reliance arguably deprives Lion of any entitlement to resile from the expression of intent articulated in para 8.10 of the partial bid document.

Accordingly, if the Panel were to find on the evidence available that Lion's other communications to the market have transformed the expression of intent into a conditional offer, then I consider that what is classified as "the subsequent offer" in para 8.10 does itself constitute an offer in terms of the Code."

[11]  The Panel decided that the Panel executive should give Lion's representatives an opportunity to comment on Mr Dobson's advice. Accordingly, at approximately 8.00 p.m. on Friday 6 July 2001, a letter was sent to Russell McVeagh enclosing Mr Dobson's letter and seeking Lion Nathan's comments by 9.00 a.m. on Monday 9 July 2001.

[12]  Russell McVeagh's response to the Panel executive's letter was received at 9.00 a.m. on Monday 9 July as requested. That letter concluded:

"In the present case, before Lion Nathan becomes the holder or controller of any voting rights other than pursuant to the partial offer, Lion Nathan will make a full offer in compliance with the Code. Accordingly, there will be no question of non-compliance with the Code. In terms of section 32(3) of the Takeovers Act, it must be that Lion Nathan has acted, is acting, and intends to act, in compliance with the Code."

[13]  The Panel met by teleconference at 6.00 p.m. on Monday 9 July 2001 to consider Russell McVeagh's letter of 9 July 2001. Due to the unavailability of Mr Dobson, who was overseas, the Panel retained Mr Paul Heath QC as counsel assisting. The Panel decided to seek further comment from Russell McVeagh on certain aspects of its letter of 9 July 2001. The Panel executive wrote to Russell McVeagh on 10 July 2001. The letter, despatched at 10.58 a.m., asked for further comments from Russell McVeagh by 1.00 p.m. that afternoon. The firm was also advised that the Panel would be meeting to consider this matter at 6.00 p.m. that evening.

[14]  A response to the Panel's request for further comment was received from Russell McVeagh at 2.30 p.m. on 10 July 2001 along with a request that representatives of Russell McVeagh have the opportunity to address the Panel.

[15]  The Panel and executive met by teleconference at 6.00 p.m. on 10 July 2001 with Mr Heath also in attendance to discuss this and another matter. The meeting was adjourned at 6.45 p.m. and resumed at 8.00 p.m. Mr Oldfield and Mr Harmos both of Russell McVeagh joined the meeting at around 8.15 p.m. for approximately 30 minutes. Mr Heath remained in attendance. Members discussed this and another issue. The meeting was adjourned at 9.30 p.m.

[16]  The meeting of the Panel resumed at 8.30 a.m. on Wednesday 11 July 2001. Mr Heath was unable to be present as he was involved in a Court fixture. After careful consideration of the issues and the submissions of Mr Oldfield and Mr Harmos, the Panel made inter alia, the following resolutions:

"On 1 July 2001 Lion Nathan Enterprises Limited notified its intention to make a takeover offer for 11% of the ordinary shares in Montana Group (NZ) Limited at a price of $5.50 per share. The takeover notice stated that "if the offer becomes unconditional", Lion Nathan Enterprises Limited (or another member of the Lion Nathan group of companies) "intends to make a further offer" for all the outstanding shares in Montana Group (NZ) Limited at a price of $3.70 per share. The Panel considers that recipients of the takeover notice would, having regard to the circumstances in which the offer is to be received, particularly in respect of the statements reported in the media as made by Lion Nathan in the document titled "MEDIA RELEASE" and "LION NATHAN TO MAKE TAKEOVER OFFERS FOR MONTANA" (made on Lion Nathan letterhead, and therefore having authority), believe that Lion Nathan intends to make a full takeover offer for Montana with a two-tier structure and price.

As a consequence of the above, the Panel considers that Lion Nathan Enterprises Limited and/or Lion Nathan Limited "may not have acted or may not be acting or may intend not to act" in compliance with the Takeovers Code.

On the information available to the Panel it is not currently satisfied that the takeover notice complies with the Takeovers Code. The Panel decided to hold a meeting under section 32 of the Takeovers Act at 10.00 a.m. on Monday 16 July 2001 for the purpose of determining whether to exercise any of its powers under that section, and to issue a notice of meeting to Lion Nathan Enterprises Limited and to Lion Nathan Limited for that purpose.

The Panel decided to make an order under section 32(2) of the Takeovers Act restraining Lion Nathan Enterprises Limited from acquiring securities or any interest in or rights relating to securities in Montana Group (NZ) Limited, unless in compliance with the Takeovers Code."

[17]  Notice of the proposed meeting was given to both Lion Nathan Limited and Lion Nathan Enterprises Limited through their Auckland solicitors, Russell McVeagh, at 1.00 p.m. on 11 July 2001. The formal notice of the section 32 meeting advised both Lion Nathan Limited and Lion Nathan Enterprises Limited that the meeting would be held at 10.00 a.m. on 16 July 2001 at a venue in Auckland set out in the notice. The Panel invited both Lion Nathan Limited and Lion Nathan Enterprises Limited to present information to the Panel which would enable the Panel to make a determination after the meeting whether it was or was not satisfied that Lion Nathan Limited or Lion Nathan Enterprises Limited had acted, were acting, or intended to act in compliance with the Code. Formal notice of the restraining order made under section 32(2) of the Act was given contemporaneously, specified as expiring at 5.00p.m. on Wednesday 18 July 2001.

[18]  The decisions of the Panel were communicated to the New Zealand Stock Exchange, the Australian Stock Exchange, other interested parties, and the news media, shortly after 1.00 p.m.

Subsequent Events

[19]  Later on 11 July 2001 the Panel received from solicitors for Allied Domecq an application for leave to appear at the section 32 meeting. That application was made in reliance on section 10(2) of the Act. On 12 July 2001 the Panel forwarded a copy of that letter to Lion Nathan Limited and Lion Nathan Enterprises Limited through their solicitors and gave to them an opportunity to comment on the request.

[20]   Lion Nathan Limited and Lion Nathan Enterprises Limited did not object to the granting of leave to Allied Domecq. Accordingly, at a meeting of the Panel held at 8.30 a.m. on Friday 13 July 2001 the Panel granted leave to appear at the section 32 meeting to Allied Domecq.

Meeting on 16 July 2001

[21]  The meeting was held in Auckland on 16 July 2001.

[22]  At the meeting the Panel heard from counsel for the parties who spoke to written submissions previously received, and answered questions from the Panel. Representatives for the parties also provided factual information, copies of certain documents, and answered questions from the Panel.

Relevant Conduct

[23]  Three factors compete in this issue. First, Lion is required by a standing committee of the New Zealand Stock Exchange to divest 19.9% of its issued shares in Montana as a consequence of a breach of New Zealand Stock Exchange listing requirements. Secondly, Lion also seeks to regain control of Montana with a partial offer at $5.50 and a full offer at $3.70 with an intention notified on 1 July. Thirdly, On 4 July 2001, Allied Domecq Plc, which currently holds 27.03% of Montana, notified its intention to make a full takeover offer at $4.80 per share.

[24]  Concurrently with its notice of intention to make an offer on 1 July, Lion made a media release. The Panel finds a consistent feature of the 2 July media release and later statements by senior Lion representatives, was that they conveyed, and it was intended by Lion to convey to the market, a commitment to proceed with the offer to purchase all remaining Montana shares at $3.70 after its partial offer at $5.50. This was subject only to the satisfaction of the condition that the partial bid gives Lion more than 50% of Montana shares. The effect of Lion's media releases and comments by its senior representatives and answers to interviews repeatedly focussed on the averaged realisation for all of a Montana Shareholder's holding, most particularly assuming that all shareholders other than Allied accepted Lion's offer(s). The fairness of the outcome overall is repeatedly emphasised. Examples include:

24.1  In the 2 July press release Lion Nathan's Chief Financial Officer, Mr Paul Lockey, said the move is positive for Montana and Lion Nathan shareholders. "Lion Nathan's offers provide Montana shareholders with an opportunity to sell all their Montana shares at fair value."

24.2  In a television interview on 3 July, the Chief Executive of Lion Nathan, Gordon Cairns said: "Well we think if you take the average, the weighted average of the $5.50 and the $3.70, that the price is fair and not only that the $5.50 is above, is about 16% above the highest price in the PWC report. So we think it's both fairly priced at the 11% level and on the weighted average level we think it's fairly priced as well for institutions to make a significant return …. I think it's more than realistic. I think it's, I mean they'll be able to judge for themselves. I think it's a, I think it's a very fair offer.

24.3  On 3 July 2001, Mr Warwick Bryan, Lion Nathan's Investor Relations Director, was quoted in The Press as saying: "If shareholders accepted both offers, they would receive an average price of not less than 438c. Mr Bryan said this formula meant that the buyer of the 19% defaulter stake had a basis on which to value the stock, for both buying and eventually selling."

[25]  Lion has repeatedly referred to its proposals as "offers" to acquire all Montana shares. Both proposals are, in effect, notices of intention to make offers but on the basis of the media commentaries before it, the Panel observes that market commentators have accepted Lion's statements as foreshadowing two bids that are parts of one offer. The two offers have to be seen as one and the partial bid with a conditional full offer is merely a mechanism to give effect to one offer. Simultaneously with the announcement of the partial offer was the announcement of the subsequent offer. There are no statements about the partial offer in isolation, but only statements referenced to the subsequent offer and overall outcome.

[26]  The Panel is satisfied that a significant motivation in specifying terms for acquisition of the balance of Montana shares, after completion of the partial bid, is to enable Institutions invited to tender for the 19.9% being sold by Lion to evaluate (with relative certainty), the financial outcome on resale of all of the shares that such Institutions might purchase.

[27]  The divestment of the 19.9% is being managed by MacQuarie Equity Capital Markets Limited ("MacQuarie") for Lion. The terms of the information sheet prepared by MacQuarie, and provided to the institutions invited to participate in the tender are revealing. The section titled "Pricing of Divestment" is focused explicitly on the average realisation the institutions would achieve if they bought from Lion and then accepted Lion's offer(s) for their Montana shares. All scenarios require the partial offer at $5.50 and the $3.70 offer.

[28]  In commercial terms, it is clearly very important to Lion in minimising the financial penalty on sale of the 19.9%, that the tenderers be able to assess a resale value for any shares purchased in the tender. Certainty of price for repurchase of all shares by Lion would increase the price tenderers are prepared to offer to purchase the shares Lion is required to sell.

[29]  The propriety of the mode of divestment of 19.9% of its shares by Lion is not a matter of concern to the Panel. However, the imperatives of the sell down have obviously influenced Lion in relation to the statements on its takeover bid for Montana.

[30]   On behalf of Lion, Mr Galbraith QC argued that the Panel could only measure the prospect of compliance with Code requirements, by considering the contractual effect of the terms of the partial bid, and distinctions that Lion would draw, most particularly in terms of timing and price, between that partial bid and a subsequent full bid that might or might not proceed at a later date.

[31]  Without defining what will constitute an offer in all circumstances for the purposes of the Code, the Panel is satisfied in the present, most unusual circumstances, that the clear effect of announcements on behalf of Lion is that offers will be made, for 11% at $5.50 and thereafter for the remainder of Montana shares at $3.70. Both aspects of the offer are subject to the same condition, namely that, when added to Lion's existing holding (after forced divestment of 19.9%), Lion has more than 50% of Montana's shares. The Panel sees no substantive difference between the conditionality in this respect of the "partial bid", and the conditionality of the "full bid".

[32]  Lion produced at the hearing a media release dated 12 July 2001 in which the absence of a present commitment to proceed with the full bid was, for the first time, emphasised. The Panel was also provided with a provision Lion would be minded to include in the partial bid documentation, effectively disclaiming any commitment to proceed with a full offer. Those items introduce a different emphasis from the clear and consistent theme of Lion's pronouncements up to 12 July.

[33]  For its part, Allied argued that any corrective effect that such statements might have was "too little and too late", and that any disclaimer accompanying the partial bid documentation which emphasised the absence of a commitment to proceed with the full offer at $3.70 would have little impact on the market, and be seen as a formal requirement imposed on Lion merely because of the Panel's concerns. Allied did not believe the statement would substantively alter Lion's ability or intention to subsequently honour its effective assurance to institutions bidding for the 19.9% that Lion must divest, by affording a takeout for the balance of their holdings at $3.70.

[34]  In answer to questions from the Panel, Lion representatives confirmed that Lion would not resile from their intention to make a full offer at $3.70. The Panel is not satisfied that the clear signals sent previously would be countered by the qualifications described in paragraph 32.

[35]  It is clear that Lion intends Montana shareholders to rely on its statements that it will proceed with a full bid at $3.70, subject only to achieving control (ie. more than 50%) as a result of its partial bid. Its comments as to the overall fairness of the offers and its comments that shareholders should evaluate the averaged outcome of participation in both aspects of Lion's proposed acquisitions, must be seen as encouraging Montana shareholders to be influenced in their decision in respect of the partial bid, by the existence of Lion's bid for the balance. To exclude that subsequent bid from assessment of Lion's conduct for the purposes of measuring compliance with the Code would be uncommercial, and frustrate the objectives of the Code.

[36]  The subsequent bid is specific as to price ($3.70), is subject to the same conditions in respect of dividend distributions or subdivision of Montana shares as the partial bid, and, most importantly, is subject to precisely the same condition in respect of Lion achieving control of more than 50% of the voting rights in Montana, as the partial bid is.

[37]  In summary, in terms of Rule 20, the Panel considers that Lion's intentions put all Montana shares under offer, for the following reasons:

37.1  The imperative to make the tender of Lion's 19.9% of Montana's shares attractive to the institutions invited to bid for those shares;

37.2  The resulting pressure to provide a practical assurance of a takeout price for all shares that such institutions may buy in the tender;

37.3  The concurrent announcement of all aspects of Lion's offers;

37.4  The repeated reliance by Lion on the averaged outcome for shareholders participating in both bids;

37.5  Lion's clear intention that Montana shareholders should rely on its statements that, subject to similar conditions, both bids would proceed;

[38]  If Lion proceeded consistently with the intentions that it has conveyed and invited the market to rely on, then it would be making an offer for all Montana shares, staged as to the first 11% at one, higher price and with a second stage for the balance, at a lower price. Whilst that offer does not discriminate between shareholders, it would constitute an offer at different prices and the Panel is not satisfied that such conduct would comply with Rule 20 of the Code.

[39]  In the particular circumstances of this contested takeover, the Panel is of the view that Lion cannot comply with the Code if it conveys with the terms of a partial bid, the conditions of a full bid, including price, which it intends making.

[40]   This decision is necessarily produced under time constraints. The Panel has considered all arguments advanced on behalf of Lion, and intends no discourtesy to Lion or its Counsel for not acknowledging them in this determination.


[41]  Under section 32 of the Act the Panel may make a determination after the section 32 meeting that it is satisfied or not satisfied that a person has acted, is acting, or intends to act in compliance with the Code. For the reasons set out above, the Panel is not satisfied that the intended conduct of Lion as analysed, above would comply with the Code.

[42]  Pursuant to its determination, the Panel makes the following Restraining Order:

Restraining Lion Nathan Enterprises Limited from acquiring securities or any interest in or rights relating to securities in Montana Group (NZ) Limited unless in compliance with the Takeovers Code.


[43]  Counsel's attention is drawn to the Takeovers (Fees) Regulations 2001 (SR 2001/60). Having regard to its findings, the Panel is minded to make an order for costs against Lion Nathan Enterprises Limited/Lion Nathan Limited. The Secretary to the Panel will make available to the solicitors for Lion Nathan Enterprises Limited/Lion Nathan Limited a schedule of relevant costs as soon as possible. Once that schedule has been prepared and provided, the Panel will request submissions from the solicitors for Lion Nathan Enterprises Limited/Lion Nathan Limited on whether, and if so to what extent, costs should be ordered.


DATED at Auckland this 16th day of July 2001

SIGNED for and on behalf of the Panel by the Acting Chairperson

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