The Takeovers Panel advises today that it has declined to commence proceedings in relation to an application from TVG Consolidation Holdings SPRL (TVG). The Panel received the application on Thursday 26 June, seeking a declaration of unacceptable circumstances in relation to the affairs of PowerTel Limited (PowerTel).
The Panel decided on the basis of the information and circumstances currently before it, that additional disclosures made by both PowerTel and the Roslyndale Syndicate (Roslyndale) on Friday 27 June, following the application, mean that, on balance, the shareholders of PowerTel will have sufficient information on the Roslyndale Proposal to vote on the resolutions to approve the Roslyndale Proposal. The resolutions are currently proposed be put to PowerTel shareholders at a meeting on 2 July under Item 7 of section 611 of the Corporations Act (Item 7 Meeting).
The Panel also considered that an undertaking offered by Roslyndale to accelerate the termination of its Share Sale Agreement with WilTel Communications Group (WilTel), PowerTel's largest shareholder, would resolve other issues raised by TVG.
TVG announced a takeover bid for all of PowerTel's shares on 10 June 2003. TVG's bid is a rival proposal to the Roslyndale Proposal. Under the Roslyndale Proposal, Roslyndale would, among other matters, acquire all of the PowerTel shares owned by WilTel, and WilTel would assign to Roslyndale various debts (somewhat more than $21.3 million) owed by PowerTel to WilTel.
The Panel considered the submissions which formed the TVG application, and the additional disclosures that were made on 27 June. It reached a preliminary view that the additional disclosures had addressed the disclosure issues raised by TVG, and Roslyndale had offered an undertaking which appeared to address TVG's concerns about the extended effect of the Roslyndale Share Sale Agreement. The Panel wrote to the parties on the evening of Friday 27 June, seeking responses by 5.30 p.m. Saturday 28 June to a number of questions the Panel considered appropriate to enable it to reassess its preliminary view. In light of the responses, the Panel decided on the evening of 28 June not to commence proceedings.
Supplementary Disclosure - 27 June 2003
PowerTel published a supplementary target's statement on ASX's companies' announcement platform (CAP) on the afternoon of 27 June. The supplementary target's statement included the following disclosure:
- a discussion of the changes that TVG had recently made to its bid (as set out in TVG's supplementary bidder's statement dated 25 June);
- an updated recommendation by the PowerTel directors on the Roslyndale Proposal in light of the changed TVG bid;
- an updated recommendation by the independent expert on the Roslyndale Proposal in light of the changed TVG bid;
- a discussion by the PowerTel directors as to why they make their updated recommendation; and
- notice of Roslyndale's further disclosure in the substantial shareholding notice published by Roslyndale on ASX's CAP on the afternoon of 27 June.
Roslyndale published a supplementary substantial shareholding notice on ASX's CAP on the afternoon of 27 June. Roslyndale's notice included the following documents, among others:
- a copy of the notice of meeting and independent expert's report for the Item 7 Meeting (these two documents had already been posted on ASX's CAP, and posted to PowerTel shareholders on 3 June);
- a copy of the Share Sale Agreement between WilTel (the US parent and its Australian subsidiary which holds the PowerTel shares), Roslyndale and PowerTel (the copy which has been posted appears to be dated 15 May 2003, but is only partially signed). The copy includes as schedules to the agreement the following documents which had not been previously disclosed to PowerTel shareholders (although the terms of some had been described in the notice of meeting for the Item 7 Meeting):
- PowerTel financial statements at 31 December 2002;
- a term sheet for Roslyndale's underwriting of a renounceable rights issue by PowerTel which forms part of the Roslyndale Proposal;
- a list of documents to which Roslyndale had been provided access in its due diligence studies on PowerTel in January and February 2003; and
- a deed of novation assigning from WilTel to Roslyndale the debt owed by PowerTel to WilTel; and
- copies of pro-forma letters from Roslyndale to potential sub-underwriters of the proposed PowerTel rights issue.
Roslyndale Undertaking to the Takeovers Panel
Roslyndale has, in the course of the Panel considering the TVG application, offered an undertaking to the Panel to waive all rights it may have under the Share Sale Agreement to restrict or prevent WilTel Communications Pty Ltd accepting the TVG offer after the Item 7 Meeting, if PowerTel shareholders vote against the Roslyndale Proposal. If they do reject the Roslyndale Proposal, the undertaking will have effect from the date of the Item 7 Meeting. Roslyndale's solicitors advised the Panel that Roslyndale had not intended the Share Sale Agreement to act as any form of lock up after the Item 7 Meeting. The Panel accepted Roslyndale's offered undertaking as a positive element in the resolution of the issues before it.
The terms of the Share Sale Agreement set a date of 31 July 2003 at which the Share Sale Agreement would terminate if the Roslyndale Proposal had not been approved by PowerTel shareholders. The Panel accepted Roslyndale's advice that that date had been set to ensure that negotiations and proceedings were not allowed to be unduly delayed, rather than as any device to affect the competitive market for PowerTel shares in any period after the Item 7 Meeting. The Panel also accepts that the date and the terms of the agreement were not drafted in contemplation of a rival takeover bid being announced and which might have been affected by the end date for the Roslyndale Proposal. The Panel notes that at the time the Share Sale Agreement was being drafted, Roslyndale and PowerTel did not know the dates of the TVG bid and did not know that the 31 July date would extend beyond the closing date of the TVG bid.
Future Conditional Share Sale Agreements
The Panel considers that the events of the Roslyndale Proposal and TVG bid should be considered by companies and persons involved in drafting such agreements in future. In order to avoid the concerns expressed by TVG, which Roslyndale has resolved by its undertaking, parties to such conditional share sale agreements should preferably specify the share sale agreement to terminate, or become unconditional, at the earlier of the specified end date and the relevant shareholders' meeting to approve the acquisition by the purchaser.
The Panel considers that this is a matter which boards of target shareholders should consider in determining what would be in the best interests of shareholders. Ideally, target boards should try to ensure that their shareholders have maximum opportunities to consider different control alternatives, unimpeded by unnecessarily restrictive effects of the conditional share sale agreement to be put to shareholders for approval.
TVG originally asked the Panel to consider whether or not the PowerTel shareholders would have adequate time to consider any additional information which it required to be disclosed if it had commenced proceedings and required further disclosure. In deciding not to commence proceedings, the Panel considered:
- the remaining time available until the Item 7 Meeting (and the cut-off time for lodging proxies for that meeting);
- the nature and availability of the information provided to PowerTel shareholders on 27 June, both in the supplementary target's statement and the Roslyndale further substantial shareholding notice (albeit that document contained 192 pages , that many PowerTel shareholders may have been deterred from downloading it by the size, and the fact that individual parts of it were not readily accessible as separate documents);
- the nature of the additional recommendations provided by the PowerTel directors and the independent expert;
- the nature, timing and content of information provided to PowerTel shareholders in the period leading up to the application by TVG (information provided by PowerTel, TVG and Roslyndale);
- the media coverage of the issues recently raised; and
- further steps which PowerTel and others may take over the next few days to advise PowerTel shareholders of the nature and existence of the additional information.
The Panel considered whether there appeared sufficient risk, on the face of the evidence put before it by parties and by TVG, concerning PowerTel shareholders' ability to assimilate the information to warrant the Panel commencing proceedings to consider postponing the Item 7 Meeting. However, on the basis of the further disclosures, the issues set out above, and the submissions of the parties, the Panel considered on balance that there was not a sufficient basis for commencing proceedings or postponing the meeting.
The Panel noted that both PowerTel and Roslyndale provided the supplementary information at a very early stage of the Panel's process following TVG's application. The Panel considered that while TVG's request for a postponement or adjournment of the meeting may have had materially more influence if the information had only been released following Panel proceedings, the very early disclosure by PowerTel and Roslyndale, well before TVG could have expected the Panel to have ordered it, had materially reduced the need for considering any delay of the PowerTel shareholders' decision.
The Panel considered that shareholders generally are inevitably required to assess and deal with changing circumstances in many types of transactions before voting or deciding whether or not to accept a takeover offer. In the context of takeovers, the legislation sets out supplementary bidder's statements and supplementary target's statements as the process for informing shareholders of new information and material changes. The Panel considers that the additional information provided prior to the Item 7 Meeting is equivalent to the disclosure that may have been provided if the Roslyndale Proposal had been a takeover bid. On that basis, the Panel considers that on balance PowerTel shareholders have received sufficient information and will have sufficient time to be able to assess that additional information.
Access to updated information via website
The Panel considers that PowerTel should, nevertheless, ensure that its website contains, as soon as possible, all of the recently disclosed information, in a prominent, and readily and conveniently accessible form, or links to other sites where the information is readily and conveniently accessible by PowerTel shareholders.
Timing of TVG application
The Panel is not aware of whatever internal issues within TVG related to the timing of its application to the Panel. However, the Panel considers it would have been desirable, if it had been feasible for TVG, for the application to have been made earlier. In saying this, the Panel notes that the market has been aware of the existence of the Share Sale Agreement and the debt Assignment Agreement since their existence was disclosed in the 9 May announcement by PowerTel, and the fact of the agreements themselves not being disclosed was clear from 15 May when PowerTel announced that they had been signed, but did not include them in the announcement and Roslyndale did not include them in its initial substantial shareholding notice on 3 June. TVG has advised the Panel that it had been seeking disclosure of the relevant documents from WilTel and PowerTel but had been told that the documents would not be disclosed to TVG because the arrangements were subject to confidentiality obligations.
TVG had asked the Panel to make a declaration of unacceptable circumstances in relation to the affairs of PowerTel and then to make orders that:
(a) PowerTel seek the consent of its shareholders to adjourn the Item 7 Meeting to enable supplementary disclosure to be made and considered by PowerTel shareholders.
(b) PowerTel issue a supplementary target's statement, by no later than 5 business days before the adjourned Item 7 Meeting, which:
(i) included all information regarding the Roslyndale Proposal that is material to PowerTel shareholders deciding on how to vote on the Roslyndale Proposal, in the context of the TVG Proposal, in terms approved by the Takeovers Panel; and
(ii) updated the recommendations made in the PowerTel target's statement, addressing the recent changes made by TVG to its bid conditions and intentions; and
(c) any agreement between WilTel and Roslyndale not restrict WilTel's capacity to accept the TVG bid subsequent to the PowerTel meeting (should PowerTel shareholders vote against the Roslyndale Proposal).
The President of the Panel appointed Carol Buys, Alison Lansley and Chris Photakis to constitute the Sitting Panel to consider the application.
The Panel will publish the reasons for its decision not to commence proceedings on its website www.takeovers.gov.au when they are settled.
The Panel wishes to thank the parties to this application for their helpful cooperation and timely responses, both of which made the Panel's consideration significantly easier.
Director, Takeovers Panel
Level 47 Nauru House,
80 Collins Street, Melbourne VIC 3000
Ph: +61 3 9655 3501