On Tuesday 11 March 2003, MatlinPatterson Global Opportunities Partners LP (MP Global) applied for a review of the decision and the proposed orders in the Anaconda 16-17 proceedings concerning the affairs of Anaconda Nickel Ltd. (Anaconda).
The Review Panel in Anaconda 18 has today affirmed the decision of the Anaconda 16-17 Panel that the acquisition by MP Global of a parcel of 5 or 6% of the shares in Anaconda (Excess Shares) and the subsequent sale from MP Global to Australian Investments United Pty Ltd (AIU) (Share Sale Agreement) constituted unacceptable circumstances and should be reversed.
The Excess Shares are part of the shares in Anaconda that were issued to MP Global under a 14:1 rights issue (the Rights Issue) by Anaconda which closed on 14 February 2003. The Excess Shares are those shares issued to MP Global under the Rights Issue which would have caused MP Global's voting power in Anaconda after the completion of the Rights Issue to be greater than its voting power immediately before the Rights Issue (which, being greater than 20% was prohibited under section 606 of the Corporations Act (Act)). The 5 or 6% of voting power carried by the Excess Shares would take MP Global's voting power in Anaconda from 36 or 37% to 42%. Glencore International AG (Glencore) currently holds 46.5% of the voting power in Anaconda after the completion of the Rights Issue, which Glencore fully underwrote.
MP Global was obliged to sell the Excess Shares because it had acquired a greater percentage of the Anaconda Rights (Rights) under its offer for the Rights (Rights Offer) than the percentage of shares in Anaconda that it acquired under the takeover offer for existing shares in Anaconda that it had made (Share Offer). Exercising all of the Rights it acquired and acquiring all of the shares (including the Excess Shares) would have breached section 606 (as described above).
MP Global sought to prevent a breach of the Act by selling its interests in the Excess Shares to AIU, under the Share Sale Agreement, to take effect immediately the Excess Shares were issued. In doing so, MP Global sought to rely on section 609(2) of the Act which provides that if MP Global held, or was issued, the Excess Shares as a bare trustee for AIU under the Share Sale Agreement then any relevant interest that MP Global had in the Excess Shares as the registered holder would be disregarded for the purposes of ascertaining any breach of section 606 of the Act.
The Panel considered the terms of the Share Sale Agreement and the events leading up to and surrounding the issue of the Excess Shares. It considered that there appeared, prima facie, to have been a breach of section 606, in that the shares had been issued to MP Global. The Panel considered that in the circumstances, the onus of proof lay on MP Global and AIU to show that they could rely on the exception in section 609(2) of the Act which, in these circumstances, involves showing that they were not associated other than as bare trustee and beneficiary. The Panel considered the evidence brought before it by the various parties, and decided that MP Global and AIU had not satisfied the burden of proof required to assure the Panel that they were entitled to the defence in section 609(2). This evidence will be outlined in the Panel's reasons.
The Anaconda 18 Review Panel has not come to this view lightly. It recognises that the Share Sale Agreement is worth some $20 million, and the possible profit or loss on sale of the Excess Shares is considerable. However, for similar reasons to those set out by the Anaconda 16-17 Panel, the Anaconda 18 Review Panel does not consider that the Share Sale Agreement should stand.
In such circumstances the Panel considered that the onus would be on MP Global to demonstrate that the subsequent purchaser of the Excess Shares (here AIU) is not an associate. MP Global has failed to do so. However, in saying that, the Panel notes that none of Glencore, Anaconda or any other party to the proceedings has produced evidence which is convincing that MP Global and AIU are associated persons.
The Anaconda 18 Panel agrees with the Anaconda 16-17 Panel that it would constitute unacceptable circumstances for MP Global to exercise all the Rights it had acquired under its Rights Offer, and then seek to determine the identity of the purchaser of the Excess Shares. If it had not come to the view that MP Global was required to demonstrate that the prima facie breach of section 606 did not occur because MP Global could rely on being a bare trustee (under section 609(2) of the Act), the Panel would have come to the conclusion, in the alternative, that the public interest requires dispersal of the Excess Shares in an open, competitive process. The Anaconda 18 Review Panel considers that in the special circumstances applicable to this matter, a sale through such a process is required to ensure that shares in Anaconda are acquired in an efficient, competitive and informed market.
In coming to the findings that it has, the Anaconda 18 Panel is not making any finding of impropriety by MP Global or AIU.
However, the Panel considers that the Share Sale Agreement, and the process by which it was brought into being, constituted unacceptable circumstances. The Panel's orders are designed to take the situation back to before the Share Sale Agreement was entered into and ensure that a proper process for disposing of the Excess Shares is carried out, in the interests of an efficient, competitive and informed market for control of voting shares in Anaconda.
The Panel considers that neither MP Global nor AIU are unfairly harmed by its declaration and orders because the Share Sale Agreement was entered into by a flawed process and therefore AIU and MP Global should not have arrived at the position which the Panel is now required to unwind. Any potential windfall profit which AIU will not now gain is one for which it had should not have been placed in a position which entitled it to that profit.
A Substantial Interest
The Anaconda Panel considers that the Excess Shares do, and did, constitute a substantial interest in Anaconda. In part this follows the legislature's view of a substantial shareholding at 5% of the voting shares in a company. In part, the Anaconda Panel considers that the Excess Shares constitute a substantial interest because of the current closeness of the voting power of MP Global and Glencore. The Excess Shares in the hands of a person who supported Glencore's involvement in the management of Anaconda would guarantee Glencore control of Anaconda. However, in the hands of a supporter of MP Global's involvement, the Excess Shares could put MP Global within striking range of Glencore's voting power. On that basis, the Excess Shares are a strategic parcel, and well within the size with which the Panel should be concerned. Indeed, the vigour with which the various parties have prosecuted these proceedings, and the Anaconda 16-17 proceedings, is evidence of the importance of the parcel.
Consideration of the state of play of the Rights Offer and Share Offer at the time the Share Sale Agreement was entered into shows the balance of power in Anaconda even more fluid, and the Excess Shares as being even more strategically important at that time, and circumstances surrounding their disposal even more potentially significant and even more open to review by the Panel. The Panel's view is that the unacceptability or otherwise of the Share Sale Agreement should be considered more in the light of the circumstances of the time it was entered into, than on the basis of today's circumstances.
Proposed orders in Anaconda 18
The Review Panel proposes to make similar orders to those proposed in the Anaconda 16-17 decision i.e. that the Excess Shares be dispersed by way of a book build by a broker appointed by ASIC.
However, the Review Panel proposes that its orders will not be implemented until the result of any review of the Anaconda 15 decision has been resolved. The Review Panel considers that a further short delay in the dispersal of the Excess Shares will not materially adversely affect Anaconda or its shareholders, but finally disposing of the Excess Shares before the result of Anaconda 15 is settled could adversely affect the range of orders available to any Review Panel in the Anaconda 15 matter.
The orders that the Anaconda 18 Review Panel proposes are as follows:
- a. the Share Sale Agreement between MP Global and AIU will be cancelled, from its outset;
- the legal and beneficial title to the Excess Shares will vest in ASIC, for sale by a stockbroker appointed by ASIC, by way of a bookbuild. A number of brokers have recently been involved in transactions in, or advice in relation to, Anaconda shares on behalf of parties to these or other Anaconda proceedings. The Panel will specify a number of those brokers whose involvement in conducting the sale process might risk some public perception of conflict, and who therefore should not conduct the bookbuild;
- the proceeds of the sale (net of selling costs, which will be commission only) will be returned to MP Global. MP Global therefore carries the risk of any profit or loss on the sale of the Excess Shares . The Panel makes no orders restraining MP Global and AIU from making any arrangements they wish as a consequence of the Panel cancelling the Share Sale Agreement;
- none of AIU, MP Global, Anaconda or Glencore, or their associates may participate in the sale. The Panel understands that both MP Global and Glencore, and their associates, would currently be precluded, by section 606, from purchasing any of the Excess Shares;
- consistent with the Truth in Takeovers principle, the number of Excess Shares to be vested and sold shall be calculated by reference to the percentage voting power which MP Global held at the close of its Rights Offer. This is consistent with MP Global's announcement on 6 February 2003 that that was how and when it would calculate the number of Rights it could exercise;
- the broker will be instructed to seek to maximise the sale price of the Excess Shares while not selling more than 1% of the total shares in Anaconda to any person (alone or in combination with their associates);
- to assist the broker monitor the 1% cap, any prospective purchaser will be required to give to the Panel (under the Panel's Rules for proceedings), via the broker and with any bid or order, a warranty that they are not associated with any of MP Global, AIU, Anaconda or Glencore. They will also be required to give a similar warranty setting out, to the best of their knowledge, the identity of any associate of theirs who is bidding for any of the Excess Shares in the bookbuild2 ;
- ASIC will be instructed to seek further instructions if the broker is unable to dispose of the whole parcel within the 1% cap within a reasonable time given the size of the parcel of Excess Shares and given the current free float of Anaconda shares, at a price of $0.06 per share or more, and without unduly depressing the market price of Anaconda shares;
- ASIC will be instructed to seek further instructions if the broker receives bids which are so high that they suggest that the bidder is indifferent, commercially, as to the price it pays;
- ASIC will be instructed to seek further instructions from the Panel if it appears, in the course of the bookbuild, that the 1% cap would unfairly harm MP Global's interests.
The Review Panel has requested ASIC to commence inquiries for a suitable broker in order to ensure that the process may proceed as expeditiously as possible once it is feasible to make final orders.
The interim order that the Anaconda 16-17 Panel made preventing further sale, transfer or voting of the Excess Shares until the Anaconda 16-17 and 18 matters have been decided remains in place. If the sale process requires further time, the Anaconda 18 Review Panel will consider extending the Anaconda 16-17 Panel's interim order.
Precedent Disposal Orders
The Panel has settled the orders for the dispersal of the Excess Shares in light of the specific circumstances of the Anaconda 18 proceedings. It specifically advises that each set of circumstances in which it orders vesting or disposal of securities will be considered on their own merits and that orders in other matters may take materially different forms to the orders in Anaconda 18.
The President of the Panel appointed Simon McKeon (President), David Gonski and Ian Ramsay to consider the Anaconda 18 application.
The Review Panel will publish its reasons for this decision on the Panel's website when they are finalised.
Anaconda 16-17 decision
On Friday 07 March 2003, the Sitting Panel in the Anaconda 16-17 proceedings advised parties that it had decided to make a declaration of unacceptable circumstances in relation to the affairs of Anaconda. It also provided draft orders requiring dispersal of the Excess Shares in Anaconda subscribed for by MP Global (under the Corporations Act the Panel must provide draft orders to affected persons for comment prior to making the order).
The Anaconda 16 and 17 applications were from Anaconda and Glencore, and were made on 21 February 2003.
The Anaconda 16-17 Panel proposed making final orders similar to those currently proposed by the Anaconda 18 Panel. However, it decided not to make any orders, in order to allow the Anaconda 18 Panel an opportunity to consider the review application without circumstances having changed materially due to Anaconda 16-17 orders being executed.
The Anaconda 16-17 Panel will publish the reasons for its decision on the Panel's website when they are finalised.
Director, Takeovers Panel
Level 47 Nauru House,
80 Collins Street,
Melbourne VIC 3000
Ph: +61 3 9655 3501
1 This is consistent with the Panel's legislative mandate. It is not a punitive body, its role is to bring takeovers back to the situation they would have been if unacceptable circumstances had not occurred. The Panel's approach in these orders is also consistent with the approach of the courts, see, for example Merkel J in ASIC v Terra Industries Inc  FCA 525.