The Panel has made a declaration of unacceptable circumstances and final orders in relation to the Skywest Limited 03 proceeding with the effect of stopping the off-market takeover bid (the Bid) by CaptiveVision Capital Limited (CVC) for all of the issued shares in Skywest Limited (Skywest) and allowing Skywest security holders who sold their securities to CVC after 1 December 2003 to cancel those sales. The proceeding related to an application (the Application) made by Skywest dated 5 July 2004 in relation to the Bid. As CVC has a pending application to have the Panel’s decisions (both the declaration of unacceptable circumstances and the orders made) considered by a review Panel, the operation of some of the orders has been suspended until the review Panel can consider what interim orders it may wish to make to preserve matters during the consideration of that review.
CVC is an unlisted public company incorporated in Singapore. CVC’s business is investing, financing and investment holding. The major shareholder of CVC is a Singaporean company, Advent Television Limited (Advent). The major and controlling shareholder of Advent is Mr Jeff Chatfield (Mr Chatfield). Mr Chatfield is also a director of CVC.
Skywest is an unlisted Australian public company with approximately 240 shareholders. Skywest operates in the regional aviation industry in Western Australia. Mr Craig Lovelady was appointed the chief financial officer (Mr Lovelady) of Skywest on 18 June 2003 and this appointment was terminated on 30 June 2004. Mr Lovelady was a director of CVC but that ceased on or about 23 July 2003.
Alleged provision of information to CVC
On 17 June 2004, Mr Scott Henderson, managing director of Skywest (Mr Henderson), received the actual results for the operation of Skywest’s business for May 2004. After reviewing these results, including the impact of the results on Skywest’s forecast earnings for the year ending 30 June 2004, Mr Henderson circulated to all Skywest directors a copy of the actual results for May 2004 and the revised forecast. On 21 June 2004, Skywest issued an announcement disclosing a significant profit downgrade for the financial year ending 30 June 2004.
Following receipt of this financial information, the Skywest board resolved that Mr Lovelady take a leave of absence pending an investigation into the reasons for the revised forecast, particularly having regard to feedback received from Skywest shareholders that they had been informed by CVC over a period of weeks by CVC’s advisers that Skywest would not meet its 2004 forecasts.
The board of Skywest appointed Ernst & Young to provide an independent forensic IT analysis of the emails sent to and from employees of Skywest and CVC, its related companies and advisers which was recorded on Skywest’s database and Mr Lovelady’s laptop computer. The investigation discovered that Mr Lovelady had provided information concerning the affairs of Skywest (the Information) to CVC (principally, Mr Chatfield) and CVC’s financial advisers between 30 June 2003 until the time that Mr Lovelady’s employment with Skywest was terminated on 30 June 2004.
The Information included:
- management accounts for Skywest for August and September 2003;
- details of the banking arrangements entered into by Skywest;
- management profit forecasts for Skywest the financial year ending 30 June 2005 (the Forecast Information); and
- the price at which it was proposed that Skywest offer shares under a foreshadowed prospectus (the IPO Information).
- important aspect of the Information is not just its apparent content, but also its source – the chief financial officer of Skywest.
In August 2003, Advent and/or CVC acquired a holding of 2,730,167 convertible notes and attached options by subscribing for them under a prospectus issued by Skywest. From October 2003, CVC began building its shareholding in Skywest by acquiring first options over Skywest shares (which it exercised shortly afterwards), then by acquiring Skywest shares directly and by acquiring convertible notes issued by Skywest and subsequently converting some of its convertible notes. As at 27 April 2004 (the date at which CVC lodged its initial bidder’s statement with ASIC and Skywest), CVC held approximately 19.57% of the total issued capital of Skywest.
Following from the proceeding in Skywest Limited 011, CVC dispatched a replacement bidder’s statement (the Bidder’s Statement) to Skywest shareholders on 1 June 2004. Skywest dispatched its target’s statement (the Target’s Statement) on 24 June 2004 with the Skywest directors recommending that shareholders reject the Bid. Neither the Forecast Information nor the IPO Information had previously been provided to shareholders in Skywest and neither was included in the Bidder’s Statement or the Target’s Statement.
After consideration of the materials provided to the Panel by the parties, the Panel decided that circumstances relating to the affairs of Skywest were unacceptable and to make a declaration of unacceptable circumstances.
The Panel considered that CVC was clearly and knowingly in possession of the Information at the time at which CVC acquired its pre-bid stake and at the time when it dispatched the Bidder’s Statement to shareholders. The Panel has not made any findings as to whether the information was subject to obligations of confidentiality owed by Mr Lovelady to Skywest, whether Mr Lovelady breached those obligations or whether CVC was, or should have been, aware of any such breach – those matters were not necessary for the Panel to decide, once CVC admitted that it possessed the Information and the Panel found that the Information had not been disclosed to Skywest shareholders in the Bidder’s Statement, Target’s Statement or previously.
The Panel considered that:
- some of the Information, while it may have been material to a decision by a shareholder in Skywest whether to accept an offer under the Bid when CVC first received it, had ceased to require disclosure because it had been incorporated in subsequent disclosures to Skywest shareholders;
- the IPO Information and the Forecast Information was material to a decision by a shareholder in Skywest whether to accept an offer under the Bid, or was information which such a holder would reasonably require in order to make an informed assessment whether to accept an offer.
The Panel considered that, contrary to submissions by CVC, the IPO Information and the Forecast Information was not speculative and “off the cuff” as there was evidence that CVC and Advent had not regarded it as such at the time it received the Information, including:
- CVC and Advent had taken account of the IPO Information in formulating and implementing a strategy of acquiring a significant stake in Skywest through subscription of Skywest convertible notes; and
- at about the same time as Mr Chatfield requested Mr Lovelady to send him, and Mr Lovelady supplied, the Forecast Information, Advent (three of whose directors are also directors of CVC) had prepared (with the assistance of Mr Lovelady) a draft information memorandum for a private offer of securities to be issued by Advent in which:
- it disclosed a level of profit for 2004-05 consistent with the Forecast Information; and
- the directors were to state that they had a reasonable basis for disclosure of that information.
The Panel was also extremely concerned that there had been no disclosure to Skywest or to Skywest shareholders in the Bidder’s Statement of the following:
- the nature and extent of the relationship between Mr Lovelady and CVC;
- the nature and extent of communication between Mr Lovelady and CVC (which included the sending of material concerning the Bid calculated to assist CVC in an encrypted and concealed form by use of specific software designed to make the material appear to be other than what it was); and
- the monthly payments being made from CVC to Mr Lovelady between July 2003 and December 2003 (during which Mr Lovelady was CFO of Skywest).
By not disclosing in the Bidder’s Statement:
- CVC’s possession of the Information;
- the IPO Information and the Forecast Information (in each case, the Panel considered that the disclosure would have had to have been made in a careful manner so that the disclosure was both accurate and complete with shareholders understanding both the content and the limits of the information concerned); and
- the circumstances, particularly the relationship between CVC and Mr Lovelady, that allowed CVC to obtain the Information when its formal request for due diligence access to Skywest’s materials had been denied by Skywest,
the Panel considered that:
- CVC seriously contravened the policies of paragraph 602(a) that the acquisition of control over the voting shares in an unlisted company with more than 50 members takes place in an efficient, competitive and efficient market and paragraph 602(b) that shareholders are given enough information to assess the merits of a takeover proposal;
- CVC failed to comply with the requirements in section 636 concerning the contents of the Bidder’s Statement; and
- in light of its possession of the Information, statements made by CVC in the Bidder’s Statement were misleading.
During the acquisition of its pre-bid stake and the bid period, CVC requested and was provided with non-public and material information by Mr Lovelady. The Ernst & Young forensic investigation found that the correspondence between Mr Lovelady (from his Skywest laptop computer) and CVC for the period since Mr Lovelady commenced his employment with Skywest in June 2003 amounted to over 450 emails. It also showed that Skywest was not presently able to retrieve many of those e-mails from its back-up systems.
In addition, there was a large volume of telephone calls between Mr Lovelady and Mr Chatfield with telephone records indicating that Mr Lovelady made 59 calls and sent 23 SMS messages to Mr Chatfield between 14 May 2004 and 3 June 2004. Considering the nature, scope and continual flow of non-public information identified in the proceeding as having been communicated via email between Mr Lovelady from his Skywest email account and CVC and its advisers, the materials available to the Panel did not enable the Panel to form a view that the information identified during the proceeding as having been communicated via email by Mr Lovelady to CVC was the only information which had been communicated and omitted from the Bidder’s Statement. The Panel was also unable to consider information communicated via telephone and SMS messaging or via other email accounts or in hardcopy.
The Panel was concerned that CVC:
- declined an offer by Skywest to exchange documents retrieved from their respective computer systems on which they proposed to rely in the proceeding;
- did not provide any further evidence of the correspondence between it and Mr Lovelady at any time during the Proceeding, even though it knew from Skywest’s evidence that there were many e-mails sent to it, its directors or advisers which may have contained relevant evidence; and
- did not take advantage in its submissions of the opportunity that the Panel afforded for it to address this issue by means of signed statements by the directors of CVC and Mr Lovelady which would have addressed this issue. Those statements were to have stated that, having made full enquiries of each other and the other officers of CVC, there was no information known to them that was communicated (orally or in writing) by Mr Lovelady to the officers of CVC (apart from the information which had already been identified in the proceeding and any additional information provided with the statement) which should be included in the Bidder’s Statement to comply with section 636.
The Panel first sought to formulate orders that might have allowed the Bid to proceed, as it was reluctant to deny Skywest shareholders an opportunity to consider the merits of the Bid for themselves. However, in the circumstances, the Panel could not be satisfied that it could make a complete assessment of at least the scope of all the information which Mr Lovelady provided to CVC throughout the period of his engagement by Skywest and which should have been disclosed to shareholders. Accordingly, the Panel could not be certain that the unacceptable circumstances identified by it in the Proceeding could be remedied by additional disclosure by CVC (even with corrective advertising) and therefore was unable to formulate orders of the kind that might allow the Bid to proceed.
Declaration and Orders
The declaration and orders made by the Panel are set out in the Annexure. In general terms, the Panel has ordered that:
- the Bid be effectively stopped from proceeding with all acceptances under the Bid to be cancelled, and CVC not to extend the Bid or declare the Bid free from any defeating conditions;
- certain Skywest security holders who sold their securities to CVC after 1 December 2003 may cancel those sales;
- CVC not to dispose of its Skywest securities until the earliest of 1 March 2005, the date that Skywest lodges its half year report and the date that Skywest next lodges a disclosure document in relation to an offer of its securities;
- unless agreed by Skywest, CVC (and its related entities or affiliates) is not permitted to make or publicly propose a takeover bid in relation to any class of securities issued by Skywest, during the period referred to in paragraph (c); and
- CVC pay the reasonable costs and expenses of Skywest arising out of the proceeding (including the costs of engaging Ernst & Young).
The Panel noted that Mr Michael Calneggia (a former director of Skywest who resigned in or about March 2003) (Mr Calneggia) and CVC entered into a call option agreement in October 2003 under which Mr Calneggia granted to CVC an option to acquire his interest in Skywest (totalling 5,033,000 shares). The option was exercised on 31 October 2003 and the respective share transfer forms were executed in December 2003. The Panel received a signed statement by Mr Calneggia indicating that although he was unaware of any profit forecast for the 2004-2005 financial year, he would have sold his shares to CVC in any event. Given Mr Calneggia’s signed statement, the option to cancel does not apply to his sale.
Application for review
CVC has a pending application for a review of the Panel’s decision in this matter. Given this, the operation of a number of the orders has been suspended for 4 business days to enable a review Panel to consider what interim orders (if any) it considers necessary to preserve matters during the consideration of that review.
Media canvassing and breach of panel confidentiality
During the proceeding, CVC alleged on a few occasions that Skywest had engaged in media canvassing in breach of the Panel’s interim orders and Rule 12 of the Takeovers Panel’s Rules for Proceedings.
The most serious allegation was communicated to the Panel on 23 July 2004. CVC alleged that Skywest had provided a journalist with information concerning the Panel’s then current views on the proceeding, which party was most likely to benefit from the Panel’s decision and the likely timing of the Panel’s decision. The information had been contained in a letter from the Panel which was clearly stated to be confidential and not to be published, referred to or distributed by any party.
Subsequently, Mr Henderson provided to the Panel a signed statement admitting to having engaged in discussions with the journalist and describing the circumstances and discussions he had had with the journalist. Mr Henderson not only provided information about what he believed the outcome of the proceeding would be, but also indicated the range of orders that may be made by the Panel. In his defence, Mr Henderson stated that he understood the discussions to be “off the record” and that the journalist was not intending to write any article based on the discussions.
The Panel condemns Mr Henderson’s conduct and considers this type of conduct to be objectionable. The Panel believes that its ability to resolve disputes as quickly and efficiently as possible is likely to be adversely affected if parties seek to use publicity in any way and disapproves of any attempt by a party to use publicity to influence a decision of the Panel or detract from its authority. Further, the Panel considers that Mr Henderson’s conduct is in clear breach of the Panel’s requirement that Panel proceedings (and in particular Panel correspondence) remain confidential. The Panel considers Mr Henderson’s explanations for his conduct in the face of the express confidentiality requirements of the Panel to be both implausible and irrelevant.
A copy of the declaration and orders will be available on the Panel’s website, attached to this media release.
Director, Takeovers Panel
Level 47 Nauru House
80 Collins Street
Melbourne VIC 3000,
Ph: +61 3 9655 3501
Declaration and Orders
Corporations Act 2001
Sections 657A and 657C
Declaration and Orders
In the matter of Skywest Limited 03:
- CaptiveVision Capital Ltd (CVC) (a company incorporated in Singapore, which is a subsidiary of Advent Television Ltd (Advent)) has made a takeover bid (the Bid) for all of the ordinary shares (Skywest Shares) in Skywest Limited (Skywest), an unlisted public company with more than 50 shareholders;
- CVC has received information concerning the affairs of Skywest (the Information) which has not been provided to shareholders in Skywest and which was not included in the bidder’s statement issued by CVC or the target’s statement issued by Skywest in relation to the Bid;
- the Information included:
- management accounts for parts of the financial year ending 30 June 2004,
- details of the banking arrangements entered into by Skywest,
- management profit forecasts for the financial year ending 30 June 2005, and
- the price at which Skywest proposed to offer shares under a prospectus;
- some of the Information was material to a decision by a shareholder in Skywest whether to accept an offer under the Bid, or was information which such a holder would reasonably require in order to make an informed assessment whether to accept such an offer;
- the Panel finds that there is a probability that other information concerning the affairs of Skywest was provided to CVC shortly before or during the Bid in such a way that neither Skywest nor the Panel can now ascertain all of that information,
PURSUANT to section 657A of the Corporations Act, the Takeovers Panel HEREBY DECLARES that the circumstances described above are unacceptable circumstances in relation to the affairs of Skywest because of the effect of those circumstances on the Bid.
AND PURSUANT to section 657D of the Corporations Act, the Panel HEREBY ORDERS that:
- Subject to Order 2:
- all takeover contracts relating to the Bid are cancelled;
- all acceptances and purported acceptances of the Bid are void and of no effect;
- CVC must not extend the offer period of the Bid;
- CVC must not declare the offers under the Bid, or takeover contracts relating to the Bid, free from any defeating condition;
- except where paragraph (f) applies, each contract of purchase of Skywest Shares or other securities issued by Skywest (Skywest Securities) to which CVC is a party as purchaser entered into after 1 December 2003 (other than takeover contracts relating to the Bid) (each, a Purchase Contract) is voidable at the instance of the vendor under that Purchase Contract (each, a Vendor), and to give effect to this Order:
- CVC must give the Panel within 2 business days after this Order comes into operation, a proposed form of notice to Vendors which:
- identifies the Purchase Contract and the Skywest Securities the subject of that Purchase Contract; and
- informs the Vendor that the Vendor has the right by reason of this Order to give notice to CVC, accompanied by a cheque for the amount of the consideration received by the Vendor under the Purchase Contract and an instrument of transfer to the vendor of the relevant Skywest Securities, to cancel the Purchase Contract (Cancellation Notice) but only if that notice is given to CVC at an address in Australia specified in the notice not later than 1 month after the Vendor receives the notice;
- CVC must make any amendments required by the Panel to the form;
- Not less than two business days after the Panel has stated to CVC that it has no further comments to make on the form, CVC must send to each Vendor the form (as amended to comply with the requirements of the Panel under sub-paragraph (ii)) (Notice) accompanied by a copy of:
- CVC’s bidder’s statement (together with any supplementary bidder’s statement);
- Skywest’s target’s statement (together with any supplementary target’s statement); and
- the Panel’s Media Release announcing the making of this Declaration and these Orders;
- When it has complied with sub-paragraph (iii), CVC must immediately give notice to the Panel and the parties that it has sent all the Notices and accompanying documents to all the Vendors;
- CVC must give the Panel and each party a copy of each purported Cancellation Notice and any accompanying documents received by it before the 30th business day after it has given notice under sub-paragraph (iv)
- CVC must execute the instruments of transfer re-transferring to each Vendor who gives a valid Cancellation Notice the relevant Skywest Securities; and
- CVC must pay any stamp duty on any instrument of transfer executed under sub-paragraph (vi) and present the stamped transfers to Skywest for registration;
- CVC must give the Panel within 2 business days after this Order comes into operation, a proposed form of notice to Vendors which:
- Paragraph (e) does not apply to any contract of purchase where the Panel notifies CVC that, on the basis of the evidence presented to it by CVC and Skywest, it is satisfied that the vendor under that contract was:
- on, or at any time in the period of 2 months before, the date of the contract, a director of Skywest;
- a spouse, de facto spouse, parent or child of a person within sub-paragraph (i);
- an entity controlled by one or more persons within either or both of sub-paragraphs (i) and (ii); or
- on the date of the contract, an entity that controlled CVC or an entity controlled by the same entity as an entity that controlled CVC;
- Until the earliest of:
- 1 March 2005;
- the date that Skywest lodges with ASIC its reports under Part 2M.3 Division 2 for the half-year which will end on 31 December 2004; and
- the date Skywest next lodges a disclosure document in relation to an offer of its securities, in respect of all Skywest Securities held by CVC which were the subject of Purchase Contracts to which paragraph (e) applies:
- CVC must not dispose of those Skywest Securities or, if any of those Skywest Securities are convertible securities, any other securities issued or arising as a consequence of the exercise of the rights of those Skywest Securities or any unit of them except:
- in accordance with paragraph (e);
- by accepting a takeover bid for those Skywest Securities or other securities where the majority of Skywest directors recommend that holders accept that bid; or
- where the Panel gives notice to CVC that, on the basis of the evidence presented to it by CVC and Skywest, it is satisfied that it is appropriate to allow CVC to dispose of a particular Skywest Security, other security or unit in a particular manner; and
- Skywest must disregard any purported exercise by or on behalf of CVC of any voting rights attaching to those Skywest Securities or other securities;
- Subject to paragraph (i), none of the following, alone or with other persons, may make or publicly propose to make a takeover bid in relation to any class of securities issued by Skywest during the period specified in paragraph (g):
- Any person or entity that has been within 2 months before this Order, or is now or who becomes, either:
- an entity that controls CVC or Advent or both of them; or
- a director of CVC or Advent or an entity within clause (A) or two or more of them; or
- an entity controlled by one or more persons within one or more of sub-paragraphs (i), (ii) and (iii),
- An entity referred to in paragraphs (h)(i)-(iv) may, alone or with other persons, make or publicly propose to make a takeover bid in relation to any class of securities issued by Skywest during the period specified in paragraph (g) where the entity and Skywest enters into a binding agreement under which:
- the entity agrees to make or publicly proposes to make a takeover bid during the period specified in paragraph (g);
- the board of Skywest agrees to recommend that Skywest shareholders accept the bid to be made by the entity; and
- the agreement is conditional upon Skywest and the entity:
- jointly applying to the Panel requesting that the Panel varies paragraph (h) of Order 1 so that it ceases to apply; and
- receiving written approval from the Panel that paragraph (h) of Order 1 is varied so that it ceases to apply;
- CVC must:
- pay the reasonable costs and expenses of Skywest arising out of, or connected with, this proceeding as agreed between CVC and Skywest; or
- failing such agreement, pay the party-party costs of Skywest in relation to this proceeding using the Federal Court scale and the costs incurred by Skywest in engaging Ernst & Young in relation to this proceeding from 18 June 2004 until and including 8 July 2004, using the following procedure:
- Skywest must provide CVC with an itemised bill of costs in relation to this proceeding;
- if CVC objects to the amount claimed by Skywest, Skywest must provide either:
- a bill of costs in taxable form, or
- the itemised bill of costs and to make their file available,
- to an independent cost consultant, approved by the Panel Executive;
- the independent cost consultant will then assess the costs to be paid by CVC in respect of Skywest;
- if the independent cost consultant determines that the costs proposed by Skywest are to be reduced by 10% or more, the costs of employing the independent cost consultant to assess costs are deducted from the costs payable to Skywest. Otherwise, those costs are to be part of the costs paid by CVC; and
- CVC must not transfer or dispose of any shares (or any unit of them) which it holds in Skywest and Skywest must not register a transfer of those shares until the Panel receives confirmation from Skywest that it has received payment of its costs from CVC (with such confirmation to be provided by Skywest to the Panel immediately after it has received payment of its costs).
- Either the sitting Panel, or any Panel conducting a review under section 657EA in relation to the proceeding in which the sitting Panel made this Order, may (either on its own motion or following a request from one of the parties (in which case Rules 8 and 9.5 of the Panel’s Rules for Proceedings apply to the making of the request)) by notice to the parties vary or suspend the operation (either for a specified period or until a further order) of Order 1 or any paragraph, sub-paragraph, clause or sub-clause of Order 1.
- Pursuant to Order 2, the sitting Panel suspends the operation of paragraphs (a), (b), (c), (e), (f) and (j) of Order 1 until the fourth business day after the date on which the sitting Panel announces the making of this Order. The purpose of this suspension is to enable any review Panel to consider what interim orders it may wish to make to preserve matters during the consideration of that review.
President of the sitting Panel
1  ATP 1