Transactions

BEFORE THE TAKEOVERS PANEL

Background

[1]  Trans Tasman Properties Limited (“Trans Tasman Properties”) is a New Zealand incorporated company and is party to a listing agreement with the New Zealand Exchange Limited (“NZX”). As such, Trans Tasman Properties is a code company for the purposes of the Takeovers Act 1993 (“the Act”) and the Takeovers Code (“the Code”).

[2] On 30 March 2004, SEA Holdings New Zealand Limited (“SEANZ”) a wholly owned New Zealand incorporated subsidiary of SEA Holdings Limited (a Bermudian registered company listed on the Hong Kong Stock Exchange) gave notice under rule 41 of the Code of its intention to make a full offer under the Code for all the shares in Trans Tasman Properties which it did not already hold (“the takeover offer”). On 20 April 2004, SEANZ sent its offer documents to the shareholders of Trans Tasman Properties, to Trans Tasman Properties, to the NZX, and to the Takeovers Panel (“the Panel”).

[3] On 30 April 2004, Trans Tasman Properties sent to its shareholders, to SEANZ and to the Panel, a target company statement which included an independent adviser's report (“adviser's report”) prepared by Ferrier Hodgson & Co (“Ferrier Hodgson”) dated 28 April 2004.

[4] The target company statement included, at paragraph 20, a statement that, “none of the information referred to in this target company statement refers to a valuation of any asset”.

The complaint from Latimer Holdings Limited

[5] On 6 May 2004, the Panel received a written complaint from Latimer Holdings Limited (“Latimer Holdings”) of Christchurch, a holder of approximately 3 percent of the shares in Trans Tasman Properties, alleging that Trans Tasman Properties was not complying with its obligations under clause 20(b) of Schedule 2 of the Code because it refused Latimer Holdings' request for copies of property valuations allegedly “referred to” in the target company statement.

[6] On 7 May 2004, the Panel asked Trans Tasman Properties, through its legal representatives Chapman Tripp, for comments on Latimer Holdings' complaint. Trans Tasman Properties' comments were received on Monday 10 May 2004.

[7] On 13 May 2004, prior to the Panel's first meeting to consider Latimer Holdings' complaint, the Panel wrote to Latimer Holdings to ask whether it wished to make a formal request to the Panel to convene a meeting under section 32 of the Act in order to determine the issue it had raised.

[8] Later that morning Latimer Holdings formally requested that a section 32 meeting be convened to determine the issue. Subsequently on the same day the Panel met and decided to convene a meeting under section 32 of the Act in response to Latimer Holding's formal request.

[9] At its 13 May 2004 meeting, the Panel passed the following resolution:

On or about 30 April 2004 Trans Tasman Properties issued its target company statement in response to the takeover offer dated 20 April 2004 made by SEA Holdings New Zealand Limited for all the voting securities in Trans Tasman Properties that it did not already hold or control. In its target company statement, Trans Tasman Properties stated that “none of the information referred to in this target company statement refers to a valuation of any asset”.  

On 6 May 2004 the Panel received a complaint from Latimer Holdings alleging that Trans Tasman Properties was in breach of its obligations under clause 20 of Schedule 2 of the Code by failing to release on request copies of the independent valuations of its commercial properties. On 13 May 2004 Latimer Holdings formally requested the Panel to hold a meeting under section 32 of the Takeovers Act 1993 to determine the matter. At its meeting on 13 May 2004 the Panel decided to convene a meeting for this purpose.

[10]  On 13 May 2004, the Panel gave notice of its intention to hold a meeting under section 32 of the Act on Thursday 20 May 2004 in Wellington. Trans Tasman Properties and Latimer Holdings were requested to provide written submissions to the Panel by 5.00 p.m. Tuesday 18 May 2004. On Monday 17 May 2004 Trans Tasman Properties' initial comments were provided to Latimer Holdings (with some deletions for commercial sensitivity).

[11] On 17 May 2004, SEANZ sought leave to appear and be heard at the section 32 meeting. On 18 May 2004, the Panel granted SEANZ leave to appear and be heard at the meeting under section 31V of the Takeovers Act 1993. SEANZ was requested to provide written submissions to the Panel by 4.00 p.m. Wednesday 19 May 2004.

[12] Trans Tasman Properties, Latimer Holdings and SEANZ provided their written submissions as requested. Submissions and counter-submissions were exchanged between the parties prior to the hearing.

[13] Oral submissions were received from all three parties at the Panel's meeting on 20 May 2004.

Relevant provisions of the Code

[14]  Clause 20 of Schedule 2 of the Code (“clause 20”) provides as follows:

If any information provided in the target company statement refers to a valuation of any:

(a) The date of the valuation, the identity of the valuer, and a summary of the valuation, that discloses the basis of computation and the key assumptions on which the valuation is based; and

(b) An address or addresses where copies of the valuation are available for inspection and a statement that a copy of the valuation will be sent to any offeree on request.

[15] The information required in a target company statement is set out under Schedule 2 of the Code. The information provided in the accompanying independent adviser's report is part of the target company statement. Under the Code, “target company statement” is defined as “the statement referred to in rule 46” of the Code. Rule 46 states that the target company must send to the offeror “a statement containing, or accompanied by, the information specified in Schedule 2” of the Code.

[16] Subclause 19(1) of Schedule 2 of the Code requires that the target company statement must include:

The identity of the independent adviser who has provided a report under rule 21 and a copy of the adviser's full report or a summary of the full report prepared by the adviser.

[17] The linkage between the information disclosed in the target company statement and the information disclosed in the independent adviser's report is evidenced in the certification requirement. Clause 26 requires that the target company statement be certified as “true and correct and not misleading”. In certifying the target company statement, the certification extends to the information “contained in or accompanying” the target company statement.

[18] While the independent adviser's report is part of the target company statement the target company's annual report is not. Subclause 18(1) of Schedule 2 requires only that the target company makes available to offerees, on request, its most recent annual report.

Alleged references in the target company statement

[19] Latimer Holdings alleged that the target company statement had provided a number of references to a valuation of Trans Tasman Properties' assets. These references included:

(a) Section 6.2.2 of Ferrier Hodgson's adviser's report concerning the properties owned by Trans Tasman Properties. The section states that Ferrier Hodgson had “reviewed and factored into” their analysis:

“(i) The 31 December 2003 audited financial statements, underlying assumptions and documentation;

(ii) Information with respect to Trans Tasman's assets provided to their auditors and financiers; and

(iii) The procedures adopted in determining asset value.”

(b) Table 6.5 of the adviser's report shows Trans Tasman Properties' 23 properties at their “combined book values”;

(c) Table 6.6 of the adviser's report lists the 23 properties that were referred to in Table 6.5.

Parties' submissions

Latimer Holdings' submissions

[20]  The submissions presented on behalf of Latimer Holdings included:

(a) Although Trans Tasman Properties' target company statement had not expressly referred to the property valuations it had incorporated the values of the properties as set out in the 31 December 2003 accounts;

(b) A reference to the value of Trans Tasman Properties' properties would be understood to mean a reference to, and reliance upon, the independent property valuations supporting the values in the financial statements of Trans Tasman Properties;

(c) Clause 20 does not require that an express reference to a specific valuation be included in the target company statement. The natural and ordinary meaning of the word “refer” includes statements that attribute a source or origin or author of information;

(d) In this instance, Trans Tasman Properties has a finite number of properties which are individually identified. Consequently, references to value made in the target company statement are in effect references to all of the specific property components that make up the value of the company;

(e) Knowledge of the underlying development property valuations is essential for a shareholder to gain a better understanding of the true net asset backing of Trans Tasman Properties and to establish whether the inclusion of development properties “at cost” is an accurate assessment of the true potential of the target company;

(f) It is inevitable that all property companies will have to provide property valuations to their shareholders because such companies will have to make references to the value of their properties as part of their Schedule 2 obligations;

(g) Under the Code the onus is on the shareholder to assess the merits of a takeover offer. The Code is established in a manner where once a reference to a valuation of any asset is made, a right arises for shareholders to inspect such a valuation. This right cannot be delegated to a third party, for example, the independent adviser; and

(h) As a significant shareholder it is entitled to vet all the information that was provided to Ferrier Hodgson to form its own views on the value of the company. Shareholders should have the opportunity to determine whether the property valuations were material to the assessment of the merits of the offer.

Trans Tasman Properties' submissions

[21] The submissions presented on behalf of Trans Tasman Properties included:

(a) The target company statement does comply with Schedule 2 of the Code. There is no reference in the target company statement to a valuation of any asset which would require disclosure under clause 20;

(b) The plain meaning of clause 20 is that a reference to a valuation of any asset is not the same as a reference to the value of assets;

(c) The scheme of Schedule 2 suggests that clause 20 does not include references by implication. If the clause were intended to require the disclosure of valuations as a matter of course, the clause would have been drafted in unequivocal terms;

(d) Individual property valuations are not material to the offer. The Code should not require disclosure of valuations because of an oblique reference to either book value or general information;

(e) The broad interpretation of clause 20 sought by Latimer Holdings is not commercially tenable. Disclosing its asset valuations would be commercially disadvantageous and would prejudice the interests of Trans Tasman Properties' shareholders;

(f) The policy of clause 20 supports a literal interpretation. Disclosures should not be required where there is no issue in respect of the integrity of a valuation. Just because an asset has a valuation, it does not follow that the valuation must be disclosed;

(g) The list of 23 properties identified in a table in the adviser's report does not include or contain any reference to a valuation of any asset;

(h) References in the annual report do not form part of the target company statement;

(i) If the broad interpretation sought by Latimer Holdings were permitted for clause 20, then the cost of compliance would be onerous. The request of a specific shareholder should not overshadow the interests of shareholders in general (who are satisfied with the disclosures made); and

(j)The policy underlying clause 20 is to ensure that where a specific valuation is considered by the target company or the independent adviser, then the disclosure requirements under clause 20 would be triggered. However in the present instance, neither the target company nor the independent adviser placed any focus on any particular properties in Trans Tasman Properties' portfolio.

SEA Holdings New Zealand Limited's submissions

[22] The submissions presented on behalf of SEANZ included:

(a) It considers Trans Tasman Properties' target company statement to be compliant with Schedule 2 of the Code;

(b) Latimer Holdings has sought the property valuations for some ulterior motive not related to the offer. The Panel should not allow its procedures to be used by a shareholder seeking to obtain documents for such an ulterior motive.

Panel analysis

[23] This complaint requires consideration of the interpretation of the phrase “refers to a valuation of any asset …” as it appears in clause 20. Latimer Holdings urges that an indirect reference would be sufficient, arguing that a dictionary definition of “refers” which extends to the attribution of a source or origin is apposite. It would follow that where a part of the independent adviser's advice or the target company directors' recommendation relies upon valuations (here of various commercial properties), then the reliance on the valuations constitutes a reference to them, triggering the obligation for them to be disclosed. In this case the source is the audited financial statements of Trans Tasman Properties contained in the annual report, so that the argument is that the valuations contained in the annual report are being “referred to” by the independent adviser.

[24] This relatively broad interpretation of the phrase was said to advance the objective of the Code provided for in section 20(1)(e) of the Act, namely to enable the holders of securities to ultimately decide for themselves on the merits of a takeover offer.

[25] On being invited by the Panel to specify those parts of the adviser's report that referred to a valuation or valuations of assets, the complainant cited paragraph 6.2.2 of the Ferrier Hodgson adviser's report. That paragraph dealt with the target company's properties globally, reflecting their combined book value, and dividing the portfolio into:

(a) investment properties;

(b) properties intended for sale;

(c) current development properties; and

(d) non current development properties.

It then attributed part of the total value to each category. The paragraph also included a list of all the individual properties, specifying location, lettable area and type, but without a separate value being attributed to each of them.

[26] The Panel does not consider the interpretation contended for by Latimer Holdings can be sustained. The natural and ordinary meaning of clause 20 requires reference to a valuation in the target company statement, which includes the independent adviser's report. There is no such reference here. The Panel does not accept that the reference by the independent adviser to the financial statements contained in the annual report amounts to a reference to “a valuation” in terms of clause 20. The clause requires a reference “to a valuation of any asset”. In some situations, the reference may be to more than one valuation and more than one asset. Nevertheless the valuation or valuations and the asset or assets need to be identified specifically.

[27] Where the target company statement identifies a valuation of an asset as part of the information provided in respect of that asset, then the Code requires that the details mentioned in subclause (a) of clause 20(1) are provided and that the valuation can be inspected. Where, for instance, all but one of the assets of the target company are included in the independent adviser's report at the value attributed to them in the last published financial statements, and that one asset and a valuation relating to it is discussed in the report in the course of attributing a different value to it, then the particularity of that treatment triggers the requirement to also provide the details of that valuation and to allow inspection of it.

[28] In the present case there was no focus on a particular valuation of a particular asset. The independent adviser was content to deal with property values on a global basis, consistent with the last published financial statements.

[29] Clause 20 is not to be considered in isolation. The obligations under Schedule 2 of the Code as to the information to be conveyed in a target company statement include the requirements of clause 18(5), which as an aspect of financial information requires disclosure of :

Any other information about the assets, liabilities, profitability, and financial affairs of the target company that could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer.

[30]  In addition, clause 24 requires disclosure of:

Any other information not required to be disclosed by the schedule that could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer.

[31] The effect of these provisions is to require target company directors to consider matters such as asset valuation issues where they may be material, irrespective of whether there are valuations to be referred to under clause 20.

[32] The policy of the Code in this regard is to ensure that all offerees have sufficient information to assess the merits of the offer. The various components of the requirements in Schedule 2 need to be looked at together. There is no need to strain the clear wording of clause 20 in an effort to obtain access to valuations which have clearly not been referred to.

[33] As a matter of completeness, we refer to Latimer Holdings' submission that section 20(1)(e) of the Act supports the interpretation of clause 20. This section includes as an objective of the Code “recognising that the holders of securities must ultimately decide for themselves the merits of a takeover offer”. There are numerous provisions in the Code and the Schedule aimed at fulfilling this objective. However, section 20(1)(e) of the Act provides no basis for modifying or ignoring the clear meaning of the provisions of the Code, and in this case clause 20.

Determination

[34] The Panel determines that it is satisfied that the target company statement issued by Trans Tasman Properties Limited on 30 April 2004 in response to a takeover offer from SEA Holdings New Zealand Limited does comply with the Takeovers Code in respect to the disclosure requirements under clause 20.

[35] The Panel decided to advise the parties and the market of its decision to reject Latimer Holdings' complaint on 20 May 2004 because the date of the section 32 meeting was also the date on which SEANZ's takeover offer closed.

Costs

[36] The Panel will deal with costs separately in terms of the Takeovers (Fees) Regulations 2001.

DATED at Auckland this 24th day of May 2004

SIGNED for and on behalf of the Panel by the Chairman

J C King