On 10 May 2011, the Hearings Committee of the Panel on Takeovers and Mergers ("Committee") upheld a decision of the Panel Executive preventing CGNPC Uranium Resources Co., Ltd. ("CGNPC") from reducing the amount of its proposed offer for Kalahari Minerals plc ("Kalahari").
Background to the Hearing
On 7 March 2011, CGNPC announced a possible recommended offer for the entire issued and to be issued share capital of Kalahari of 290 pence in cash per Kalahari share. Kalahari Minerals plc is an AIM and NSX listed resource company with uranium, gold, copper and other base metal interests in Namibia. CGNPC did not reserve the right to make a lower offer in prescribed circumstances.
Following the Japanese earthquake and tsunami, and their potential impact on the uranium industry, CGNPC and Kalahari approached the Panel Executive to request that CGNPC be allowed to reduce the amount of the offer to 270 pence per share.
The Panel Executive decided that CGNPC should not be permitted to reduce the amount of its offer for Kalahari. Kalahari (rather than CGNPC) appealed against the decision to the Committee, which upheld the Panel Executive's previous ruling.
On 10 May 2011, CGNPC announced that it "no longer wishes to make an offer for Kalahari on the terms announced on 7 March 2011".
Rule 2.4: Possible Offer Announcements
Rule 2.4(c) of the Takeover Code states that, until a firm intention to make an offer has been made under Rule 2.5 of the Takeover Code, where any statement is made by or with the consent of a potential offeror in relation to the price of a possible offer to be made by the offeror, then the offeror will be bound by the statement if an offer is subsequently made, unless it reserved the right not to be so bound.
Note 5 on Rule 2.4(c) states that, except with the consent of the Takeover Panel, a potential offeror will not be allowed subsequently to make an offer at a lower level of consideration unless there has occurred an event which the potential offeror specified in the statement as an event which would enable it to set aside the level of consideration referred to. The restriction imposed by Rule 2.4(c) will normally apply throughout the period during which the offeree company is in an offer period and for a further three months thereafter.
Potential offerors often reserve the right to make a bid at a lower level of consideration if the offeree agrees to or recommends the lower offer.
The Panel Executive ruled that CGNPC was not permitted to announce a firm offer for Kalahari under Rule 2.5 of the Takeover Code at the reduced offer price during the prescribed three month period, even though it had the agreement of Kalahari to the lower offer.
Rule 2.8: Statements of Intention Not to Make an Offer
Rule 2.8 of the Takeover Code applies where a person makes a statement that he does not intend to make an offer for a company. It states that unless there is a material change of circumstances or there has occurred an event which the person specified in his statement as an event which would enable it to be set aside, the person making the statement may not, amongst other things, announce an offer or possible offer for the offeree company for a period of six months from the date of the statement.
The statement made by CGNPC on 10 May 2011 was clearly a statement of an intention not to make an offer for Kalahari.
Very unusually, a large number of events were specified by CGNPC as events that would allow it to set aside its no intention to bid statement. One of which was the commonly stipulated event that the offeree company agrees to the offer in that otherwise prohibited period. The number of exceptions to the no intention to bid statement might suggest that CGNPC is still keen to make a bid for Kalahari.
CGNPC will, with the agreement of Kalahari (which, as noted above, is one of the events that allows it to set aside its no intention to bid statement under Rule 2.8), be permitted to make a further offer, after three months have elapsed from the 10 May 2011 announcement, at the lower price Kalahari was willing to recommend i.e. 270 pence.
Prior to the expiry of this three month period, if any of the other events specified in the 10 May 2011 announcement, including an announcement being made of an offer, possible offer or approach by a third party for Kalahari, then Kalahari may make an offer at a lower price than 290 pence.
- When making a possible offer announcement, both offerors and offerees should carefully consider whether there are any circumstances that may arise (even if unlikely) which would result in the offeror seeking to reduce the terms of its offer and the offeree agreeing to such reduction. In practice, most advisers (acting for both offeror and offeree companies) are likely to include such reservations as a matter of course.
- When making a statement of an intention not to make a bid, an offeror should carefully consider whether any events (in addition to the usual events in such statements) that allow it to set aside the no intention to bid statement are justified and if so, seek to include them in the no intention to bid announcement.
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