Unfortunately for him however, the Takeover Appeal Board is less interested in football and more concerned with Mr King's breaches of the City Code on Takeovers and Mergers (Code).
In its recent decision, the Takeover Appeal Board upheld the view of both the Takeover Panel Hearing Committee and the Takeover Panel’s Executive that Mr King had been a “concert party” (an investor working secretly with other investors) for the purposes of the Code. Mr King (through a company registered in the British Virgin Islands over which he had ultimate control), together with George Letham, George Taylor and Douglas Park (LTP), had acquired more than 30% of the issued share capital in Rangers.
The acquisition by Mr King triggered a requirement under Rule 9 of the Code for Mr King, as a concert party, to make a mandatory offer to purchase all the issued shares in Rangers not owned by either him or LTP, at the highest price paid in the 12 months before the offer was made (being 20p per share). Mr King is yet to make such an offer, which has resulted in the Takeover Panel Executive (Takeover Panel) taking the unprecedented step of initiating proceedings in the Court of Session, Edinburgh, seeking an order requiring Mr King to comply with its rulings.
One of the guiding principles of the Code is the protection of minority shareholders, so it is no surprise that the Takeover Panel investigated the matter and initiated proceedings at the Court of Session. The decision demonstrates the steps the Takeover Panel is willing to take to uphold the principles of the Code. It is also a warning to those who are considering a takeover of a business listed in the UK, to follow Code procedure.
Background
On 31 December 2014, LTP acquired 16.32% of the share capital in Rangers, for 20p per share (in addition to the 2.98% of shares already held by Mr Taylor). On the same day, Mr King gave instructions to an investment bank to purchase an additional 14.75% of Rangers’ shares, for 20p per share. The additional shares were purchased on 2 January 2015 by New Oasis Asset Management Limited (NOAL), a British Virgin Islands-registered company. The Takeover Panel subsequently determined that Mr King controlled the voting rights in NOAL.
Mr King and Mr Letham have repeatedly denied they were acting in concert to obtain control of Rangers. However, the evidence to the contrary is compelling. The two had previously collaborated in a potential purchase of shares in Rangers (evidenced by emails between them showing they were aware of each other’s purchasing intentions). In addition, less than three weeks after the acquisitions of the shares, NOAL requisitioned an extraordinary general meeting of Rangers’ shareholders to propose the removal of the existing Board and its replacement by Mr King and two other individuals. LTP and NOAL both supported the proposal. The proposal to replace the Board would appear to be a “board control-seeking proposal” for the purposes of Takeover Panel Statement 26.
Immediately prior to the extraordinary general meeting to appoint Mr King as a director, WH Ireland, the then Nominated Adviser to Rangers, resigned. This triggered a process that resulted in Rangers’ shares being suspended and subsequently delisted from AIM, meaning that Rangers’ shareholders no longer benefited from the AIM disclosure regime or the liquidity that being quoted on the market provides.
The Takeover Panel’s investigation
The Takeover Panel formally began investigating links between Mr King and LTP in early 2015, and ruled in June 2016 that Mr King and LTP had acted in concert for the purposes of Rule 9.1 of the Code. The Takeover Panel directed Mr King to make a mandatory offer to all other shareholders to acquire their shares in Rangers at a price of 20p per share. The Takeover Panel cited Mr Letham’s advance warning to Mr King that he would need to make an offer to all other shareholders if he acquired more than 10% of shares in Rangers, and Mr King’s failure to consult with the Takeover Panel under paragraph 6 of the introduction to the Code, as clear evidence of Mr King’s decision not to comply with the procedures under the Code.
The Hearings Committee decision
Following the decision of the Takeover Panel, Mr King requested that the Hearings Committee (the Committee) reviewed the Takeover Panel’s decision, on the grounds that he had not in fact acted in concert with LTP and that a mandatory bid was not in the interests of the shareholders or the football club (an opinion supported by the Rangers Board). However, on 5 December 2016, the Committee upheld the Takeover Panel’s ruling.
As a result of the inconsistences between Mr King's evidence and the evidence gathered by the Takeover Panel, and Mr King’s claim that he had deleted all relevant emails, the Committee found that, in addition to the breaches identified by the Takeover Panel, Mr King hd also breached his obligations in paragraph 9 of the Introduction to the Code. This requires that he deal with the Panel in an open and co-operative manner.
The ruling of the Takeover Appeal Board
Mr King made a further appeal to the Takeover Appeal Board, which was heard on 25 January 2017. He argued that it was NOAL and not him that would have acted in concert with LTP, and NOAL did not act on his instructions and he did not control the voting rights for the Rangers shares held by NOAL. However, the Takeover Appeal Board rejected this view noting that:
Furthermore, the Takeover Appeal Board endorsed the Takeover Panel’s view that Mr King should make a mandatory offer, but amended the deadline for this offer to 12 April 2017. Mr King failed to make an offer by 12 April, and on 13 April the Takeover Panel initiated proceedings in the Court of Session, Edinburgh, under section 955 of the Companies Act 2006, seeking an order requiring Mr King to comply with its rulings.
Lessons learned
The decision serves as a warning to any individual or entity who would consider ignoring or breaching the Code. Although the Takeover Panel has not cold shouldered Mr King in the same way they did with Bob Morton (see following article), they are clearly determined to force Mr King to make an offer to all other shareholders, at significant expense to him.
The Takeover Appeal Board’s decision confirms that the Takeover Panel will adopt a broad interpretation of the sort of actions that give rise to a “concert party”. The Takeover Panel’s statement in the case of Guinness/Distillers acknowledged that:
“arrangements are often informal, and the understanding may arise from a hint. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a “nod or a wink”.
This is an acknowledgement that those seeking to act in concert rarely record their understanding in writing and therefore a boarder approach to investigations must be taken by the Takeover Panel in order to police the Code.
It is also clear that the Takeover Panel will look very hard at nominee structures and all the surrounding circumstances to determine who is really in control. Not being on the board of directors or owning shares won’t necessarily rebut the presumption of influence if there is clear evidence of control relating to the person who is the subject of the investigation.
The Rangers case is a case of interested parties coming together and trying to seize control of a company, and not a case of shareholder activism, where shareholders seek to force change in the interests of all shareholders, but without taking control. There can be a fine line between the two, but if it is found that shareholders’ actions amount to the former, the concert parties could be ordered to make a mandatory offer or be forced to reduce their interest in the company below the 30% threshold. If market participants are concerned that their actions could amount to acting in concert, they should consult with the Takeover Panel and seek legal advice, so they understand their responsibilities.
If you would like further information on this topic please contact Jonathan Morris (jmorris@thrings.com) on 020 7766 5670 or Kevin McGuinness (kmcguinness@thrings.com) on 020 7766 5674, both Corporate Partners in our London office.