Takeover Panel issues legal proceedings to compel Rule 9 mandatory offer to acquire Rangers International Football Club Plc
On 13 April 2017, the Takeover Panel took the unprecedented step of issuing legal proceedings against Mr David King, a shareholder in Rangers International Football Club Plc ("Rangers") in order to enforce the ruling published by the Takeover Appeal Board on 13 March 2017 for him to make a mandatory offer by 12 April 2017 to acquire the remaining shares in Rangers pursuant to Rule 9 of the City Code on Takeovers and Mergers (the "Code").
On 31 December 2014, Mr George Letham, Mr George Taylor and Mr Douglas Park (collectively known as the "Three Bears") acquired interests in Rangers' shares at 20p per share. Mr Letham admitted that in acquiring interests in Rangers' shares he acted in concert with Messrs Taylor and Park. Together, the Three Bears held 19.48% of the issued shares in Rangers (taking into account shares already owned by Mr Taylor).
On 2 January 2015, Mr David King acquired 14.57% of Rangers' shares from three institutional investors at 20p per share through New Oasis Asset Limited ("NOAL"), a company incorporated in the British Virgin Islands and owned by a Gibraltar company, Sovereign Trust International Limited ("Sovereign Trust"). Sovereign Trust was also a trustee of a trust established by Mr King for the benefit of himself and members of his family and NOAL's sole corporate director was a sister company of Sovereign Trust. The assets of Sovereign Trust also included the sole share in NOAL held by Sovereign Trust.
The combined shareholding of NOAL and the Three Bears was 34.05%, representing more than 30% of the voting rights of Rangers.
Mr King had previously been involved in a consortium with the Three Bears which made funding proposals to Rangers in October 2014 which would have resulted in them collectively holding 33% of Rangers' shares. The proposals were ultimately rejected by the Rangers board. Mr Letham was aware of Mr King's intention to acquire Rangers' shares and Mr King was aware of Mr Letham's plan to acquire Rangers' shares. The Takeover Panel Executive found that the share purchases were not co-incidental or unconnected - they were co-ordinated. Whilst it was correct that the consortium funding proposal differed from the acquisitions of the Rangers' shares, it did not follow that the events with respect to the consortium funding were irrelevant when determining whether Mr King and Mr Letham were acting in concert. There was no evidence that the agreement or understanding to co-operate in acquiring the Rangers' shares ceased to have effect before the acquisitions on 31 December 2014.
Under Rule 9 of the Code, when persons who are “acting in concert” acquire shares and, as a result, hold 30% or more of a company’s issued shares, they (or one of them) must make an offer to acquire the remaining shares in the company. The offer must be in cash or carry a cash alternative. The offer price may not be lower than the highest price that the offeror paid for shares in the company during the previous 12 months.
People are “acting in concert” if, pursuant to an agreement or understanding, they co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company.
The Code states that a person is deemed to be acting in concert with his close relatives and any of his or his relatives’ related trusts.
In this instance the Executive found that Mr King had given instructions for NOAL to acquire Rangers' shares and had also requisitioned a general meeting of Rangers using the NOAL Rangers' shares. As such, Mr King, by virtue of his interest in the NOAL Rangers' shares, qualified as the person upon whom the Rule 9 obligation fell.
The Executive ruled that in the circumstances of the case it was for Mr King alone to incur the obligation to extend a Rule 9 offer. Mr King was required to make an offer for the remaining shares in Rangers under Rule 9 of the Code as a result of NOAL's acquisition of shares in Rangers in January 2015. The Executive regarded NOAL as a concert party of Mr King and further that Messrs Letham, Taylor and Park were an extension of that concert party.
Mr King appealed against the Executive's decision. The Takeover Appeal Board re-examined the circumstances and upheld the Executive’s ruling. It stated that:
- There was sufficient evidence, in the form of emails between Mr King and Mr Letham, to demonstrate that the parties had been acting in concert.
- Even though NOAL purported to be a company that was independent of Mr King and his family, it was nevertheless owned through a Gibraltar company which was the trustee of Mr King's family trust. Mr King was at pains to stress that he did not control or direct NOAL, and that any actions it took were independent of him. However, the Appeal Board re-iterated that it may look through corporate structures, noting that Mr King had procured the purchase of Rangers' shares by NOAL and that he had an interest in them. He had a beneficial interest as a beneficiary under his family trust. He also had general control over the voting rights attaching to those shares which was evident from the requisitioning of a general meeting of Rangers on 6 March 2015 and the deployment of votes attaching to the shares at that meeting.
- Mr King was accordingly acting in concert with NOAL and also Messrs Letham, Taylor and Park.
On 13 March 2017, the Takeover Appeal Board directed that Mr King be placed under an obligation to make an offer to acquire the remaining shares in Rangers in accordance with Rule 9 of the City Code on or before 12 April 2017.
As no such offer was forthcoming on or before 12 April 2017, the Takeover Panel has now issued proceedings against Mr King seeking an order requiring him to comply with these rulings.
The Panel's ruling comes after a prolonged shareholder activism campaign at Rangers including (as indicated in the Executive ruling) actions instigated by Mr King. If you are interested in further details on activist investment strategies then please contact Christine Phillips.