CODEWORD

Restaurant Brands Limited received a takeover notice on Friday 14 May 2004 from King Win Laurel International Limited, a company based in Auckland.

As required by rule 42 of the Code, Restaurant Brands notified the NZX that it had received the takeover notice from King Win. The same day the Panel received a copy of the takeover notice sent to Restaurant Brands Limited by King Win.

It was immediately apparent to the Panel executive and to the legal advisers to Restaurant Brands, that the takeover notice did not comply with the Code in a number of respects. Restaurant Brands included comments to this effect in its statement to the Exchange.

The Panel’s objective was to have the notice withdrawn from the market as quickly as possible, and preferably without expensive regulatory action.

The Panel wrote to King Win on the day the notice was received asking it to withdraw its notice. The following Monday (17 May) the Panel executive spoke with a representative of King Win and explained the reasons why the takeover notice did not comply with the Code. King Win was again asked to withdraw its notice. King Win was given the clear understanding that the Panel would act to restrain the offer if it were necessary to do so. On Tuesday 18 May King Win advised the Panel and Restaurant Brands that it had withdrawn its takeover notice.

The notification of the takeover notice, despite the immediate comments from Restaurant Brands, appeared to result in a temporary lift in the Restaurant Brands’ share price.

Some media commentators have said that the King Win takeover notice should not have been notified to the market because it was so obviously non-complying with the Code. The Panel does not accept this. While the short-term increase in Restaurant Brands’ share price may have been unfortunate, the Panel considers it is not for target companies to withhold from shareholders the information that a takeover notice has been received that purports to comply with the rules of the Code.

The Panel considers that Restaurant Brands was correct to add its own warning about the form of the offer in the statement it released to NZX.

The Panel believes that King Win was genuine in giving its takeover notice, but lacked understanding of the full mechanism required for a Code offer.

This incident demonstrates the importance of participants in the takeover market taking proper legal advice before embarking on a takeover transaction. It also illustrates that the Panel is prepared to achieve its regulatory objectives without undertaking heavy-handed intervention where it can reasonably do so.