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10 July 2003
The Takeovers Panel met on 9 July 2003 to consider certain matters arising from an underwriting agreement (the agreement) between Tower Limited and Guinness Peat Group plc.
The agreement forms part of a recapitalisation plan by Tower, being undertaken through a pro rata 4 for 3 rights issue. The Panel had also received a complaint from Hanover Group Limited in relation to this matter.
Under the agreement, and as a result of decisions or rulings made by the Market Surveillance Panel of New Zealand Exchange Limited, GPG may not retain more than 15.6 million shares obtained by virtue of fulfilling its underwriting obligations (representing approximately 3.75% of Tower's total share capital following completion of the rights issue).
However, GPG may have to acquire a greater number of shares pursuant to its underwriting obligations. The agreement provides that GPG must subsequently divest any shares allotted in excess of the prescribed maximum of 15.6 million shares within six months of the closing date of the rights issue.
The allotment of shares to GPG pursuant to the agreement may result in GPG holding or controlling, albeit on a temporary basis, in excess of 20% of the voting rights in Tower. Any holding in excess of 20% would result in GPG exceeding the threshold set out in the fundamental rule of the Takeovers Code.
GPG indicated to the Panel that it would seek to rely on the class exemption for underwriters set out in clause 19 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 if, as a result of its underwriting obligations, it breaches the 20% threshold.
The Panel is of the view that GPG is unlikely to be able to rely on this class exemption. In particular, the Panel's preliminary view is that GPG's ordinary business does not include that of "entering into bona fide underwriting or sub-underwriting contracts in respect of offers of equity securities" as required by clause 19.
The Panel was mindful of the timing requirements for Tower's rights issue. The Panel was also conscious that the entry into the agreement has been the subject of rigorous scrutiny from the Market Surveillance Panel. As a consequence the Panel decided that GPG should be invited to apply for a specific exemption so that any regulatory doubts over this aspect of Tower's recapitalisation would be removed.
In response GPG has applied to the Panel for a specific exemption in respect of the agreement, on terms similar to those set out in the underwriter class exemption. This exemption would be subject to the following conditions:
Any conditions imposed by the Panel's exemption would be in addition to the specific terms and conditions of the agreement. The Panel's exemption would not affect the existing arrangements between GPG, Tower and the Market Surveillance Panel.
The Panel notes that, although GPG has made an exemption application, GPG does not necessarily agree with the Panel's interpretation in respect of its ability to rely on the class exemption for underwriters.
The Panel is currently seeking comments from interested parties in relation to the application. Submissions must be received by 9.00 a.m. on Monday 14 July 2003 and may be sent to the Takeovers Panel, by post, fax or email for the attention of Kerry Morrell (email@example.com).