The Takeovers Panel has declined the application by the Roslyndale syndicate for a declaration of unacceptable circumstances and orders regarding the current bid by TVG for all of the ordinary shares in PowerTel Ltd.
PowerTel has two major shareholders, WilTel Communications Group (WilTel) and DownTown Utilities (DTU). WilTel holds 33% of the ordinary shares and also holds preference shares which WilTel may convert into ordinary shares, after which WilTel would hold 47% of the ordinary shares. WilTel is also owed $24 million by PowerTel. DTU holds 35% of the issued ordinary shares.
TVG's Bid for PowerTel
On 3 July 2003, TVG Consolidation Holdings SPRL (TVG) made a bid to acquire all of the ordinary shares in PowerTel for 3.85 cents each. On Friday 25 July, the bid was conditional on TVG receiving 47% acceptances and on WilTel converting its preference shares into ordinary shares and selling the debt owed to it by PowerTel to TVG for $1 (the Debt Condition).
On 25 July, WilTel made an irrevocable offer to PowerTel to release the debt for a payment of $10 million by PowerTel to WilTel, on condition that TVG waive the Debt Condition and accelerate payment for acceptances under the bid. On 26 July, TVG waived the Debt Condition and announced that it would accelerate payment for acceptances.
The application related to the effect on TVG's bid of the waiver of the Debt Condition. Roslyndale argued that by waiving the condition, TVG gave WilTel a benefit which was not offered or given to any other holder of ordinary shares in TVG, and which was likely to induce WilTel to accept its bid, leading to unacceptable circumstances.
Roslyndale's application was based on the submission that the waiver was a breach of section 623 of the Corporations Act. That section relevantly prohibits a bidder from giving a benefit to some offeree shareholders and not to all of them, if the benefit is likely to induce the offeree shareholders to whom it is given to accept the bid.
Whether or not such a breach occurred, it could have led to unacceptable circumstances, if offeree shareholders did not all have an opportunity to share in a benefit which TVG gave to WilTel in connection with its bid, contrary to the principle in paragraph 602(c) of the Corporations Act, that all holders of shares in the class for which a takeover bid is made should have reasonable and equal opportunities to participate in the benefits received under the bid by any shareholder in that class.
The Panel rejected a central part of these submissions, namely that the waiver resulted in WilTel receiving a benefit which was not available to other ordinary shareholders. Roslyndale submitted that the waiver of the condition was a benefit to WilTel, because it enabled WilTel to accept TVG's bid for its shares in PowerTel, without prejudicing its ability to deal with its other assets (relevantly, the debt owed by PowerTel to WilTel). Because there was no condition affecting any other shareholder in a similar way, no other shareholder was given a comparable benefit.
The Panel decided that that for a shareholder to be able to accept the bid for their shares and also deal with their other assets is a benefit which WilTel shares with all other ordinary shareholders in PowerTel (if it is properly a benefit at all), because the terms of the bid do not restrain any other shareholder from dealing with their assets other than PowerTel shares. Rather than giving WilTel a benefit, the waiver in effect removed a detriment which TVG's original bid had sought to impose on WilTel, restoring equality between WilTel and all other shareholders in accessing the benefits under the bid.
The Price of the Debt
The Panel also considered whether WilTel would receive a benefit in which other shareholders could not share if, as seems likely, the successful close of the bid would be followed by the repayment of the WilTel debt for $10 million. Roslyndale did not submit that the WilTel debt was worth less than $10 million, or that TVG had offered or agreed to give WilTel a benefit by arranging for PowerTel to buy the debt for $10 million. Other parties provided evidence that the value of the debt, in a transaction such as TVG's bid, is not less than $10 million.
In reliance on that evidence, the Panel decided that there was no basis for a conclusion that even if the WilTel debt was repaid for $10 million, WilTel would receive a net benefit in which other shareholders cannot share i.e. that the $10 million WilTel would receive for the debt would exceed the value of the debt accepted by the parties.
The sitting Panel was Teresa Handicott (sitting President), Chris Photakis (sitting Deputy President) and Carol Buys.
Director, Takeovers Panel
Level 47 Nauru House
80 Collins Street
Melbourne VIC 3000
Ph: +61 3 9655 3553