Takeover Appeal Board decision on Rangers International Football Club plc and Mr King

This news analysis considers the recent decision of the Takeover Appeal Board (TAB) to dismiss the appeal by Mr David Cunningham King in relation to the finding by the Hearings Committee that Mr King and others acting in concert with him had acquired interests in shares carrying more than 30% of the voting rights of Rangers International Football Club plc(Rangers) and were therefore required to make a mandatory offer for Rangers in accordance with Rule 9 of the Takeover Code.
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Original news

Takeover Appeal Board issues decision on Rangers International Football Club plc, LNB News 13/03/2017 138

The Takeover Appeal Board has issued its decision in relation to the matter of Rangers International Football Club PLC (Rangers) and Mr David Cunningham King. The main issue on this appeal was whether interests in shares carrying more than 30% of the voting rights of a company were acquired by persons ‘acting in concert’, so as to trigger a mandatory offer under the Takeover Code (Code).

What is the background to this matter?

Messrs Letham and King had discussions from Summer 2014 onwards and they co-operated with each other in two successive proposals concerning Rangers:

  • a consortium funding proposal to provide a major injection of capital in the form of funding of £16m — had the proposal materialised, it would have resulted in the funders acquiring 33% of the enlarged share capital, but the proposal was rejected by the Rangers board of directors, and
  • a proposal to acquire a blocking stake of 25% of Rangers shares (again, this did not materialise)

On 31 December 2014, Messrs Letham, Taylor and Park acquired interests in shares in Rangers (at 20p per share) from Laxey Partners Limited, which, together with shares already held by Mr Taylor, amounted to 19.48% if the issued shares in Rangers.

On the same day, Mr King instructed Cantor Fitzgerald, an investment bank, to acquire shares in Rangers. As per Mr King's instructions, the shares were purchased by New Oasis Asset Limited (NOAL) which is beneficially owned (through a trust) by Mr King and his family) at 20p per share, from three institutional UK fund managers, with completion occurring on 2 January 2015. The shares amounted to 14.57% of the issued shares in Rangers.

The interests of Messrs Letham, Taylor, Parker and King amounted to an aggregate holding of 34.05% of the issued shares in Rangers.

After the purchase of the shares in Rangers the existing directors of Rangers were removed by the shareholders vote at an EGM in March 2015 and Mr King’s nominees were appointed as directors of Rangers. In May 2015 Mr King was appointed chairman of Rangers.

Early in 2015 the Takeover Panel Executive (Executive) began to investigate allegations that Mr King had acted in concert with Messrs Letham, Taylor and Park within the meaning of Rule 9.1 of the Code (ie, that, in aggregate, they had acquired interests in and control of more than 30% (34.05%) of the voting rights of Rangers and that there was thereby triggered an obligation to extend the offer to acquire the shares of other shareholders on the terms stipulated by Rules 9.3 and 9.5 of the Code).

On 7 June 2016, following completion of its interviews and other investigations, the Executive ruled that, for the purposes of Rule 9.1 of the Code, Mr King had been acting in concert with Messrs Letham, Taylor and Park in the acquisition of shares in Rangers on 31 December 2014 and 2 January 2015 and that an obligation should be imposed on Mr King to extend a Rule 9 offer to other shareholders in Rangers in accordance with Rule 9 for all of the issued shares in Rangers not owned by him and Messrs Letham, Taylor and Park. The offer was to be made at the price of 20p per share.

On 2 August 2016, Mr King requested a review of the Executive’s ruling by the Hearings Committee which upheld the Executive's ruling on 5 December 2016. The Panel has separately published the ruling of the Hearing Committee.

On 12 December 2016, Mr King appealed the ruling, and the TAB heard the appeal on 25 January 2017.

Mr King failed to attend either the Hearing Committee or TAB appeal hearings.

What were the grounds for the appeal to the TAB?

One of the grounds for the appeal to the TAB was in relation to the status of NOAL: Mr King submitted that the Hearings Committee had failed to ask for and/or examine evidence of the position or status of NOAL and the reality of the separation between Mr King and that company and that NOAL does not act on Mr King's instructions. Further grounds included:

  • the consortium funding proposal was a different business proposition from the acquisitions of the Rangers shares on 31 December 2014 and 2 January 2015—that the Hearings Committee fundamentally erred in relying on the earlier proposal to infer 'acting in concert' in the later acquisition of shares and that they were entirely different business propositions
  • Mr King's motivations—that the Hearings Commitee had fundamentally misinterpreted what occurred at Rangers and the motivation of Mr King for his recommendation to NOAL—his wish was to work together with supporters groups to restore proper standards of corporate governance of Rangers
  • that there was no benefit to the shareholders for obliging Mr King to make a mandatory offer of 20p for shares now worth more than 20p

What Code provisions were in issue?

The key question before the TAB was whether Mr King was acting in concert with Messrs Letham, Taylor and Park when the shares in Rangers were acquired on 31 December 2014 and 2 January 2015 in accordance with Mr King's instructions to Cantor Fitzgerald.

The main issue on the appeal was whether interests in shares carrying more than 30% of the voting rights of Rangers were acquired by persons 'acting in concert', so as to trigger an obligation under Rule 9.1 of the Code to extend an offer to acquire the shares of other shareholders in Rangers on the terms stipulated by Rules 9.3 and 9.5 of the Code.

Acting in concert

Under the Code, 'acting in concert' is defined as 'Persons acting in concert comprise persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. A person and each of its affiliated persons will be deemed to be acting in concert all with each other'. The definition also includes a presumption that certain persons are acting in concert unless the contrary is proved. Presumption 5 ( 'a person, the person’s close relatives, and the related trusts of any of them, all with each other') is of particular relevance in this instance.

Note 2 of the Notes on Acting in concert provides that an 'affiliated person' would include any undertaking in respect of which any person has the power to exercise, or actually exercises, dominant influence or control.

Rule 9

Rule 9.1 provides when a mandatory offer is required and who is primarily responsible for making it. The Rule provides that, except with the consent of the Panel, when any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which persons acting in concert with him are interested) carry 30% or more of the voting rights of a company, such person shall extend offers, on the basis set out in Rules 9.3, 9.4 and 9.5 to the holders of any class of equity share capital whether voting or non-voting.

Rule 9.2 provides that in addition to the person specified in Rule 9.1, each of the principal members of a group of persons acting in concert with him may, according to the circumstances of the case, have the obligation to extend an offer.

Other definitions

The TAB also referred to the definitions of:

  • interests in securities and shares — a person will be treated as having an interest in securities if he owns them or has the right (whether conditional of absolute) to exercise or direct the exercise of voting rights attaching to them or has general control of them
  • control — an interest, or interests, in shares carrying in aggregate 30% or more of the voting rights of a company, irrespective of whether such interest or interests give de facto control
  • voting rights — all the voting rights attributable to its share capital which are currently exercisable at a general meeting

What was the decision of the Takeover Appeal Board?

The TAB dismissed the appeal and affirmed the ruling of the Hearings Committee, save for varying the date and directing that Mr King is required to announce an offer pursuant to Rule 9 within 30 days (ie, by 12 April 2017), the offer to be made at the price of 20p per share.

Status of NOAL

The TAB noted that NOAL had neither made an application to be heard nor made any submissions either to the Hearings Committee or the TAB, nor has NOAL made any comments on emails forwarded to it in relation to the matter. Further, the TAB notes that:

  • it was Mr King who communicated with Mr Letham, Mr King who decided on the quantum of price of the share purchases, Mr King who contacted Cantor Fitzgerald to effect the purchases and Mr King who - within a day of the decision - caused his family trust to pay for the shares and put them into the name of NOAL (at paragraph 84 of the TAB decision).
  • Mr King had failed to rebut the presumption that he was acting in concert with NOAL which was an affiliated person (in this instance, an undertaking over which Mr King exercises dominant influence or control)
  • Mr King's denial that he had any interest in the shares acquired by NOAL and any voting rights in Rangers is contrary to the evidence as to their acquisition and as to NOAL's requisition of an EGM that led to Mr King and his nominees constituting the Rangers board of directors, and
  • irrespective of whether or not Mr King had an interest in the Rangers shares vested in NOAL, he is obliged pursuant to Rule 9.2 to extend the offer in his capacity as 'principal member of the group of persons acting in concert with him' (ie, Messrs Letham, Taylor and Park)

The TAB further highlighted that the completed internal Cantor Fitzgerald KYC document produced to the TAB named NOAL as the client, but described the 'deemed purpose of the business as to buy shares in RANGERS INTERNATIONAL FOOTBALL CLUB PLC for Mr Dave King'.

Funding consortium proposal

The TAB concluded that the event in October 2014 relating to the co-operation of Mr Letham and Mr King are relevant when determining whether Mr King and Mr Letham were acting in concert at the end of December 2014, and that a relevant feature of the earlier proposals was that it was Mr King who would be providing funding to or investing in Rangers (there was no mention of involvement by NOAL).

Mr King's motivation

The TAB emphasised that personal motives or reasons for gaining control of a company are not relevant when considering whether parties were acting in concert.

The point is whether, on the evidence, the conditions for triggering an obligation to extend an offer for shares under Rule 9.1 existed. The focus in the definition of 'acting in concert' is on the existence of the objective fact of persons co-operating to gain control of a company, not on their subjective personal motives or reasons for seeking control or for acquiring the shares. The facts relevant to acting in concert may be established by direct documentary or oral evidence, and by reasonable inference from all the surrounding circumstances of the case" (para 93)

No benefit to shareholders or Rangers

The TAB clarified that Rule 9 operates according to its own terms without consideration of whether the shareholders or Rangers will benefit from an offer in a particular case

What are the practical implications of this decision?

The decision highlights the potential pitfalls of shareholder activism and the need to pay careful attention to ensure compliance with the Code. There is no doubt that Mr King and the concert parties were trying to help their football club raise funds, but the motives behind acquisitions of voting rights in shares in companies subject to the Code are irrelevant.

Among other things, the decision reminds investors, practitioners and companies subject to the Code:

  • of the importance of identifying persons acting in concert and aggregating their holdings when acquiring interests in voting rights in shares so as to avoid triggering the obligation to make a Rule 9 compliant mandatory offer
  • that it is for the Executive (not the parties, advisers or companies) to determine whether or not a person is acting in concert (in contrast with the submission by the Rangers board that it had taken the position that there was no concert party)
  • that the Executive, Hearings Committee and TAB will look behind nominees and/or trust arrangements to determine who is the beneficial owner, and examine the evidence to determine who exercises control, when assessing whether a person has acquired interests in shares (whether directly or through an affiliate)
  • that they should consider past discussions, dealings and/or endeavours with other investors, whether or not those discussions, dealings and/or endeavours materialised or failed to do so (as these could mean they are acting in concert)
  • the importance of disclosing all relevant facts to, being open and co-operating fully with, and taking reasonable care not to provide incorrect, incomplete or misleading information to the Panel, the Hearings Committee and the TAB (as appropriate) where an investigation or an appeal is under way
  • failure to attend a hearing or be represented at a hearing shall not prevent the TAB or chairman of the hearing proceeding in the absence of that party, pursuant to Rule 2.15 of the Rules of the TAB
  • where persons have acted in concert and passed the 30% threshold, the remaining shareholders are entitled to have a mandatory offer made for their shares: the operation of Rule 9 does not take into account whether the shareholders or the company will benefit from a mandatory offer being made

By Kavita Bassan

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