TP03/036
The Panel advises that it has declined an application in relation to the affairs of Austar United Communications Limited (Austar). The application was made on 28 February 2003 by a shareholder in Austar, Pondale Properties Pty Limited (Pondale).
The Panel declined the application because, while it considered that the applicant had made out some of the concerns it alleged, the Panel believed that those concerns were addressed by the recent issue of a detailed media release to the market, and the disclosure to the market of a copy of an agreement (Shareholders Agreement) between the future controllers of 81% of Austar in supplementary substantial shareholding notices.
The application was in relation to the acquisition by CHAMP SPV Pty Ltd and its related entities (CHAMP Group) of a relevant interest of approximately 81% of the shares in Austar (the Austar Shares) for the sum of US $34.5 million. The CHAMP Group acquired the relevant interest in the Austar Shares through funding a US Chapter 11 debt restructure of a subsidiary of United Asia/Pacific Communications Inc. (UAPC). A US court will consider the Chapter 11 proceedings on 18 March 2003.
Pondale asserted in the application that the market was not adequately informed about the ultimate ownership and control of the CHAMP Group. It alleged that the acquisition by the CHAMP Group of a controlling interest in Austar will not take place in an efficient, competitive and informed market.
Specifically, Pondale's application raised four issues:
1. Ownership and Control of CHAMP Group:
Pondale asserted that the market, and Austar shareholders, were inadequately informed about the ownership and control of the CHAMP Group. Pondale asserted that the ultimate ownership and control of the CHAMP Group (to the extent that additional entities have a relevant interest in the Austar Shares) should be disclosed. As a result of the Austar Proceedings, the CHAMP Group issued a detailed media release to the market on 5 March 2003 dealing (in part) with this matter, while the controlling shareholders of CHAMP P/L (the 100% parent of CHAMP SPV) gave substantial shareholding notices on 13 March 2003, concerning their substantial holding in Austar as owners of more than 20% each of CHAMP P/L, CHAMP SPV being the entity which entered the agreement with UAPC .
The Panel considers that the media release and the substantial shareholding notices given by owners of CHAMP P/L now adequately disclose their interests and substantial holdings in the Austar Shares and there is no longer a need for the Panel to consider whether their failure to lodge substantial shareholding notices in December 2002 constituted unacceptable circumstances.
The funding structure which the CHAMP Group has put in place to fund the acquisition of its interests in the Austar Shares will include a number of Belgian limited liability companies. The identities of the investment companies were disclosed in the CHAMP Group substantial shareholding notices of 23 December 2002 (but not the individual investors in the funds which will invest in the investment companies).
The CHAMP Group advises that none of the investors in the CHAMP investment funds will have an interest in the Austar Shares which the Corporations Act would require to be disclosed. The CHAMP Group advises that the investors in the CHAMP investment funds will not have relevant interests in the Austar Shares, in a similar way to sub 20% shareholders in any entity owning shares in a public company.
The Panel considers that the advice provided by the CHAMP Group as to the dispersed ownership of the investment funds2 supports the claim by the CHAMP Group that substantial shareholding notices are not currently required from the investors in the investment funds. Changes in the structure or relationships of the CHAMP Group or the investment funds may bring about different disclosure requirements, but that is not a question currently before the Panel.
2. Disclosure of the Shareholders Agreement
Pondale asserted that the Shareholders Agreement, entered into by CHAMP SPV, UAPC and United Austar Inc (the direct holder of the Austar Shares) on 23 December 2002 (US time) was required to have been attached to the substantial shareholding notice given by CHAMP SPV on 23 December 2002 (Australian time). CHAMP SPV had entered into two separate agreements (the Master Agreement and the Reorganization Agreement) on 20 December 2002 (US time) which had given CHAMP SPV the substantial shareholding in the Austar Shares. CHAMP SPV was then required to give its substantial shareholding notice on or before the end of 24 December 2003. It gave the substantial shareholding notice on 23 December 2002 at 2.00 p.m. or thereabouts Sydney time. CHAMP SPV attached both the Master Agreement and the Reorganization Agreement to its substantial shareholding notice on 23 December 2002, but not the Shareholders Agreement which was still in the process of finalisation.
The Panel accepts that the Shareholders Agreement had not been executed at the time the CHAMP SPV substantial shareholding notice was given. On the other hand, it considers it highly likely that the material terms of the agreement were sufficiently well developed that section 671B(4)(b) of the Corporations Act (Act) required CHAMP SPV to have attached a written description of the Shareholders Agreement to its substantial shareholding notice. The owners of CHAMP P/L have attached a copy of the Shareholders Agreement to their substantial shareholding notices dated 13 March 2003.
The Panel considers that the better view is that the CHAMP Group, or the owners of CHAMP P/L, were in breach of the disclosure required under the substantial shareholding provisions, and section 602 of the Act, for nearly 3 months. Because they volunteered to make full disclosure once they fully understood the Panel's interpretation of section 671B(4)(b) of the Act, the Panel was not required to decide whether or not to make a declaration of unacceptable circumstances in this instance.
The Panel considers that where a commercial transaction is the subject of a number of interlinked agreements, and the obligation to give a substantial shareholding notice is triggered by entry into the first agreement, with negotiations proceeding on subsequent documents, it will frequently be likely that section 671B(4)(b) will require disclosure of a written description of the agreements still under negotiation. It is likely that commercially, the onus will be on the person giving the substantial shareholding notice to explain why, having entered the triggering agreement, the parties have not reached sufficient consensus on the terms of the other agreements to bring section 671B(4)(b) into play. Thus, it is likely that the decision in New Ashwick Pty. Ltd. v Wesfarmers Ltd. (2000) 35 ACSR 263 in many cases will have effect in requiring the disclosure of the related agreements (or a summary of them if they are not yet concluded) despite any timing anomalies arising out of one agreement being signed before the others have been concluded.
The Shareholders Agreement contains provisions relating to, inter alia:
- The number of CHAMP Group and UAPC nominee directors elected to the Austar board;
- Future independent directors on the Austar board;
- The chairmanship of the Austar board;
- The CEO of Austar;
- The make-up of the underwriting agreement for a proposed future rights issue by Austar;
- Restrictions on transfer of Austar shares controlled by CHAMP Group and UAPC;
- Management fees in relation to Austar; and
- Standstill agreements between UAPC and CHAMP Group.
- The CHAMP Group disclosed a summary of aspects of the Shareholders Agreement on 5 March 2003 in supplementary disclosures through its media release to the market.
3. Difference between percentage exempted under ASIC Relief and CHAMP Group Substantial Shareholding Notices
On 20 December 2002, ASIC granted CHAMP Group an exemption from section 606 of the Act (the 20% threshold ) to allow CHAMP Group to enter the debt restructure agreements under which it acquired relevant interests in the Austar Shares. The relief is conditional on CHAMP Group making takeover offers for the 18.1% of shares in Austar held by the public. The percentage specified in the ASIC instrument did not include two parcels of Austar shares: 0.6% owned directly by UAPC and 0.000196% held by an associate director of the CHAMP Group.
The CHAMP Group's initial substantial shareholding notice did not disclose its interest in either of these parcels of shares. The CHAMP Group subsequently gave amended substantial shareholding notices on 18 and 20 February 2003 disclosing the CHAMP Group's associates' relevant interest in the two additional parcels of shares.
It is unclear whether or not the 0.6% parcel should have been included in the relief. However, the Panel does not consider in these circumstances that a breach (if any) of section 606 occasioned by the ASIC relief relating only to 80.7% of Austar would constitute unacceptable circumstances.
4. CHAMP Group's Intentions for Austar
Pondale asserted that the market for control of Austar is uninformed because the CHAMP Group has not made detailed disclosures about its intentions for the future of Austar.
The Panel considers that ASIC's relief requires CHAMP Group to make takeover offers for the publicly held shares in Austar and that the proper time for the CHAMP Group to make such disclosures is when it issues its bidder's statement. The Panel considers that in the present circumstances, the market and Austar shareholders have been properly informed of CHAMP Group's substantial shareholding and of the requirement in ASIC's relief for a follow-on bid.
5. Pondale's Standing
An issue of concern to the Austar Panel, which was not raised by Pondale, was Pondale's standing, and good faith, in making its application.
Pondale is the owner of 3,000 shares in Austar. It paid $622 for the shares, which it acquired on 23 January 2003 (almost a month after the CHAMP Group announcements and first substantial shareholding notice). Pondale is a private company of the solicitor acting for Pondale.
The Panel was concerned that it know the identity of any person bringing an application before the Panel. It therefore sought information from Pondale, and its solicitors, as to any person who had given instructions to Pondale in relation to the application that Pondale had made. Pondale has advised the Panel that a client of Watson Mangioni (Pondale's solicitors) requested Watson Mangioni to acquire shares in Austar, to acquire those shares through a vehicle connected with Watson Mangioni i.e. Pondale, and to commence the application. The client agreed to pay all of Pondale's costs of the application.
Pondale gave none of this information to the Panel in its initial application.
The Panel seriously considered declining the application when advised of the instructions behind Pondale's application. However, as Pondale formally had standing, the Panel decided to consider whether the issues raised by the Pondale application raised issues which would properly concern the market for Austar shares, and Austar shareholders. It decided that at least two of the issues raised were, of themselves, sufficiently material to the market for Austar shares to proceed with the application, regardless of the hands behind Pondale.
The Panel is continuing with its enquiries concerning the instructions given to Watson Mangioni in relation to the application by Pondale and may make further comment in its published reasons.
The Panel considered it was appropriate to publish its decision, and the outline of its reasons, to allow Austar to give the decision to the US court considering the Chapter 11 arrangements to reassure the US court that it need not make any provision for any decision by the Panel in the US court's considerations.
The Panel will publish its reasons on its website when finalised.
The President of the Panel appointed Nerolie Withnall, Alice McCleary and Michael Ashforth to be the Sitting Panel to consider the application.
Nigel Morris,
Director, Takeovers Panel
Level 47 Nauru House,
80 Collins Street, Melbourne VIC 3000
Ph: +61 3 9655 3501
nigel.morris@takeovers.gov.au
1 Castle Harlan Australian Mezzanine Partners Pty. Ltd.
2 In its statement dated 5 March 2003, CHAMP P/L stated that no investor in either the Australian investment funds or overseas funds managed by CHAMP P/L holds more than 20% of either funds, nor more than 11% of the combined funds. CHAMP P/L advised that the purchases of Austar shares will be funded by capital calls on the existing investors based on their existing capital commitments.
