Takeover Panel publicly criticises advisers
On 5 November 2015, the Takeover Panel released panel statement 2015/15 condemning the actions of four advisers involved in acquisitions by Vallar plc (later Bumi plc and now Asia Resources Minerals plc). The Panel found that:
- the conduct of the advisers in connection with those transactions gave rise to a number of separate breaches of important provisions of the Introduction to the Takeover Code;
- the respective conduct of Credit Suisse, Freshfields and Holman Fenwick Willan (HFW) was sufficiently serious to merit the issue by the Panel of a statement of public censure, and
- the conduct of JP Morgan was disappointing but not sufficiently serious to merit public criticism.
Public censure by the Panel is the highest level of censure in the Panel’s armoury, and it can have a significant impact on the reputation of those being censured.
The relevant transactions were the acquisition by Vallar in 2011 of interests in two Indonesian companies, in return for which it issued new Vallar shares in addition to paying cash. As a result of the transactions, two Indonesian entities acquired interests in shares carrying, in aggregate, more than 30% of the voting rights of Vallar. The Panel subsequently ruled that the Indonesian entities had been acting in concert. This meant there had been a serious breach of Rule 9 of the Code, as the Indonesian entities did not make a mandatory general offer for Vallar and Vallar had not applied for a whitewash dispensation from the mandatory offer requirement.
Having ruled that the Indonesian entities should reduce their aggregate shareholding to less than 30%, the Panel stated it was investigating why it was not previously made aware of the concert party between the Indonesian entities and why a whitewash dispensation had not been sought.
Vallar had been advised on the transactions by JP Morgan and Freshfields. The Indonesian entities were advised by Credit Suisse and HFW. The Panel found that all the advisers knew the transactions would trigger a Rule 9 mandatory offer if the Indonesian entities were acting in concert. They were all aware of facts or connections between the Indonesian entities which were relevant to the concert party issue, but Credit Suisse, HFW and JP Morgan were all found to have breached the requirement to consult the Panel (Freshfields could have done more, but was not found to be in breach). The obligation to consult arises once there is "any doubt whatsoever" as to whether a proposed course of conduct is in accordance with the Code: once that very low threshold has been reached, the Panel must be consulted and advisers should not rely on their own judgment or assumptions as to the conduct or judgment of others.
Following the announcement of the transactions, the Indonesian entities entered into further arrangements, and the Panel was consulted as to whether these arrangements brought them into concert. Credit Suisse, Freshfields and HFW were criticised for failing to take reasonable care that the commercial background and purpose of these arrangements was fairly presented to the Panel and for not providing the Panel with all the facts regarding connections between the Indonesian entities. The Panel accepted there was no intention to mislead it.
The Panel noted that financial advisers have a particular responsibility to ensure their clients are aware of the need to comply with the Code. It found that Credit Suisse had not made it clear to the Indonesian entities that they could not take a commercial decision as to whether Vallar needed to apply for a whitewash dispensation from the Rule 9 mandatory offer requirement. JP Morgan did not advise its client, Vallar, to consider seeking a whitewash dispensation and instead allowed it to rely on warranties from the Indonesian entities that they were not acting in concert.
The Panel concluded its statement with a reminder to advisers of the following:
- the Panel system of regulation relies on parties and their advisers consulting the Panel whenever they are in any doubt whatsoever as to the application of the Code;
- the need to consult with the Panel in cases of doubt is particularly acute where there are doubts as to whether parties may be acting in concert;
- to take legal or other professional advice as to whether parties are acting in concert, or to rely on warranties or representations from those parties to the effect that they are not acting in concert, can never be an alternative to such consultation;
- whenever the Panel is consulted, it is paramount that all relevant facts are disclosed and no relevant facts are withheld;
- whilst the Code applies to all types of advisers, financial advisers have a particular responsibility to comply with the Code and to ensure, so far as they are reasonably able, that their client and, in the case of a company, its directors, are aware of their responsibilities under the Code and will comply with them and that the Panel is consulted whenever appropriate.