Takeover Panel gives the cold shoulder

Takeover Panel gives the cold shoulder

In a very rare decision, the Takeover Panel has published a statement on its website requiring all firms and advisers regulated by the Financial Conduct Authority to "cold-shoulder" two individuals for systematically making dishonest and false representations to the Panel during its investigations into potential breaches of The City Code on Takeovers and Mergers (the Code).  Cold-shouldering is the most severe form of sanction available to the Panel and this is only the third time in its history that it has exercised this power. The effect of a cold-shoulder order is that no entity or professional adviser regulated by the Financial Conduct Authority may act for the individuals concerned on any transactions that are governed by the Code.

Background to the decision

Rule 9 of the Code requires a mandatory offer (Rule 9 Offer) to be made to the holders of shares carrying voting rights in a company which is subject to the Code (unless the Panel consents otherwise) by any person who acquires an interest in shares which, together with interests held by persons acting in concert with him, carry 30% or more of the voting rights of the company.

Mr Bob Morton and his close family (through a series of controlled companies) owned 28.32% of Hubco Investments PLC (Hubco) upon its admission to ISDX. A further 3.38% of Hubco was acquired by Groundlinks Limited, a company controlled by Mr Morton's family. The effect of this acquisition was that the aggregate interest held by Mr Morton's family in Hubco stood at 31.6%, thereby passing through the 30% threshold and requiring Mr Morton to make a Rule 9 Offer for the remaining shares in Hubco.

Mr Morton's broker identified and informed Mr Morton that the obligation to make a Rule 9 Offer had been triggered and advised him to consult the Panel. Mr Morton then informed his broker that Groundlinks had in fact purchased the 3.38% holding for a third party's benefit. The third party was a friend of Mr Morton's son, Mr John Garner. It later transpired that the agreement to document the arrangement between Mr Morton and Mr Garner was entered into after the acquisition of Hubco shares had been made and that the agreement had been back-dated.

Investigation and Panel ruling

The Executive of the Takeover Panel launched an investigation into the conduct of Mr Morton and Mr Garner.

The Panel expects any person dealing with it to do so in an open and co-operative way. It also expects prompt co-operation and assistance from persons dealing with it and those to whom enquiries and other requests are directed. In dealing with the Panel, a person must disclose to the Panel any information known to them and relevant to the matter being considered by the Panel (and correct or update that information if it changes). A person dealing with the Panel or to whom enquiries or requests are directed must take all reasonable care not to provide incorrect, incomplete or misleading information to the Panel.

The Executive found that Mr Morton and Mr Garner had systematically provided information to it which they knew to be false and that they intended to deceive the Executive into believing that the purchase of shares in Hubco had been made for Mr Garner pursuant to a prior agreement between Mr Morton and Mr Garner. In reality, the two individuals had invented the agreement in order to avert the perceived risk that the purchase had had the effect of triggering the requirement to make a Rule 9 Offer for Hubco.

The Executive found that the attempted deception in the course of its investigation was so serious and so prolonged as to merit the "cold-shouldering" of Mr Morton and Mr Garner for periods of six and four years, respectively.

Rather ironically, it transpired that the aggregate interest of Mr Moron's family in Hubco was actually in excess of 50% of Hubco's share capital at the time that Groundlinks acquired the 3.38% holding in Hubco, meaning that the acquisition did not trigger the need to make a mandatory Rule 9 Offer as Mr Morton's family already had effective control at that point.   However, the conduct of Mr Morton and Mr Garner during the course of the Executive's investigations into their potential breaches of the Code meant that the Panel could only conclude that they were persons that were not likely to comply with the provisions of the Code and it therefore issued the cold-shouldering decision.