Statement of reasons
This notice applies to acts or omissions occurring on or after 1 June 2007 and expires on 30 September 2011. The Takeovers Panel (the Panel) has granted exemptions to—
each of John William Penno, Ben McFarlane Dingle, and Juliet Ann Maclean (Penno, Dingle, and Maclean) from rule 6(1) the Takeovers Code (the Code) in respect of any increase in that person's voting control arising from an allotment of voting securities in Synlait Limited (Synlait) on 20 June 2007:
each of Penno, Dingle, and Maclean from rule 7(d) of the Code in respect of any increase in that person's voting control as a result of the allotment of voting securities in Synlait under an agreement for sale and purchase of shares between Penno, Dingle, and Maclean and Synlait, to the extent that the notice of meeting of shareholders of Synlait to approve the allotment of those securities does not comply with the requirements of rule 16(b) and (d) of the Code:
Synlait Limited (Synlait) from rule 16(b) and (d) of the Code.
Synlait is a code company, as that term is defined in the Code, by virtue of its having more than 50 shareholders.
The present form of Synlait and its subsidiaries arises from a complex restructuring of Synlait Investments Limited (Synlait Investments), a company owned by Penno, Dingle, and Maclean, and related entities that was principally effected in August and September 2006 (the restructuring). In substance, the restructuring involved the amalgamation of the various businesses that were linked to Synlait Investments into a single entity.
As part of the restructuring, Synlait entered into an agreement (the sale and purchase agreement) for the purchase of all of the shares in Synlait Investments from Penno, Dingle, and Maclean. The sale and purchase agreement provided for part of the consideration for the sale to be an earn-out entitlement (the earn-out entitlement), requiring the issue of further shares in Synlait having a value equal to the earn-out amount, which would reflect 50% of the growth in value of specified assets during the 5-year period from 1 June 2006 to 31 May 2011. The earn-out amount is capped at $12 million. At the time of entry into the sale and purchase agreement, Synlait had less than 50 shareholders and Penno, Dingle, and Maclean held 62.5% of the shares in Synlait.
There were a number of steps in the restructuring that included, on 20 June 2007, 34 ordinary shares being allotted to each of Penno, Dingle, and Maclean to correct errors that had been made in the calculation of the number of shares to be allotted under the restructuring (the tidy-up allotments).
The applicants had not realised that Synlait had become a code company at the time that the tidy-up allotments were made.
Because Penno, Dingle, and Maclean are associates, with a combined holding of more than 20% of the voting rights in Synlait, the tidy-up allotments were made, inadvertently, in breach of rule 6(1)(a) of the Code. No shareholder approval was obtained under rule 7(d) of the Code for those allotments, although shareholder approval was obtained under the Companies Act 1993. Synlait is not able to seek shareholders' approval in terms of rule 7(d) of the Code in respect of the tidy-up allotments because rule 7(d) only allows for shareholder approval to be obtained prior to allotments being made.
In addition, any allotment of shares to Penno, Dingle, and Maclean under the earn-out entitlement would result in their breaching rule 6(1)(a) of the Code unless the allotment is approved by ordinary resolution of the code company in accordance with rule 7(d) of the Code.
Although Synlait is able to seek shareholders' approval, in terms of rule 7(d), for any increase in Penno, Dingle, and Macleans' voting rights that results from the allotment of shares under the earn-out entitlement, Synlait is unable to specify the information required by rule 16(b) and (d) of the Code in a notice of meeting in respect of the 12-month periods ending on 31 May in the years 2008 to 2011.
Exemption from rule 6(1) of Code
The Panel considers that it is appropriate and consistent with the objectives of the Code to grant exemptions to each of Penno, Dingle, and Maclean from rule 6(1) of the Code in relation to the tidy-up allotments that resulted in each of them increasing their voting control in breach of that rule because—
the Code contains certain mechanisms that allow shareholders to approve an increase in a person's voting control that would otherwise breach the fundamental rule. The exempted persons cannot rely on these mechanisms, as the transactions are historical in nature and the Code mechanisms do not provide for retrospective approval by shareholders; and
it is a condition of the exemption that, within 30 days of the date of notification of this notice in the Gazette, Penno, Dingle, and Maclean dispose of, to persons not associated with any of them, the voting securities acquired in breach of the Code as a result of the tidy-up allotments; and
Exemption from rules 7(d) and 16(b) and (d) of Code
The Panel considers that it is appropriate and consistent with the objectives of the Code to grant exemptions to Penno, Dingle, and Maclean from rule 7(d) of the Code and Synlait from rule 16(b) and (d) of the Code because—
it is impossible for the actual number of voting securities to be allotted and the relevant percentages required by rule 16(b) to be stated in the notice of meeting, as these numbers and percentages are dependent on the value of Synlait's shares at the time of the allotments and the extent to which the earn-out entitlement shares are allotted, which in turn depends on whether the performance of Synlait and the value of certain of its assets meet the performance criteria that trigger the allotments of shares under the earn-out entitlement:
if the non-associated shareholders approve the potential maximum allotment of voting securities to Penno, Dingle, and Maclean, then, by implication, the shareholders also approve any lesser percentage of voting rights that may be acquired as a result of the allotment of voting securities under the earn-out entitlement.