'Dawn raids’ may soon be a crime

Press, 22 October 1983, Page 20

'Dawn raids’ may soon be a crime

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“Dawn raids” — sudden and unexpected bids for a part of a company’s shareholding — may soon be outlawed under proposed changes to existing takeover law.

The Securities Commission has published a review of take-over law in three volumes, and is seeking comments from all interested parties to its proposals before making recommendations to the Government to have the law changed in this area. These volumes will be on sale from Government bookshops next week. Volume I contains a discussion on existing law and defensive tactics to takeovers, and a wide-ranging review of the law and practice in other Commonwealth Countries. At the end of this volume the Commission puts forward detailed proposals to form the basis of an extension of the Securities Act, 1978, after the Companies Amendment Act, 1963, has been repealed. Volume 2 contains the reports of the Commission of its investigations into three take-overs. Bing Harris and Company, Ltd, by Brierley Investments, Ltd, Property Securities, Ltd, by City Realties, Ltd, and Canterbury Frozen Meat Company, Ltd, by Primary Producers Cooperative Society, Ltd. The Commission has come to the conclusion that dawn raids are entirely inacceptable, because they offend all the reasons that exist for take-over law — the main one being that all shareholders should be treated equally. This argument was put by Mr I. O. E. McKellar and Mr C. E. W. Averill when

ADRIAN BROKKING

they gave evidence before the Commission on the CFM-PPCS affair, and has been argued by others before and since. The reports include references to “unseemly haste and scramble” in dawn raids with some people gaining unfair advantages over others, and observations that present take-over law — the Companies Amendment Act, 1963, — is a “dead letter.”

The proposals distinguish between three different cases of share acquisition, and recommend a different procedure only for one of them.

Acquisitions where the purchaser’s shareholding in the target company remains below 20 per cent could be made by any means. Acquisitions of more than 20 per cent but less than 90 per cent could be made only in one of four ways — by a take-over offer, by standing in the market, by “creeping” purchases of not more than 3 per cent in any six months, or by subscription to a new issue.

Acquisition of more than 90 per cent could be made by any means. Increasing an existing shareholding to more than 20 per cent could only be achieved by a take-over offer, or by “creeping” purchases.

The Commission has paid much attention to the question of due notice. A take-over offer must be made in writing to all shareholders, and should open not earlier than 14 days after the date the-offer is made, and should close not earlier than 21 days after opening. The consideration offered must be the same for all shareholders, and must not

be less than the highest • price paid by the purchaser j or associates during thethree months preceding the offer.

In the case of a partial offer being over-accepted, acceptances would be scaled down on a pro-rata basis.

Standing in the market entails an announcement to the stock exchange by the buyer, for the same five- ■' week period as under on ,‘ offer, offering to buy shares of a certain class at a'l specified price. The buyer * must take all shares offered.

Once again the price • offered must not be less than paid by the buyer , during the preceding three months, and in both cases if the buyer pays a higher price for only one parcel, that higher price must be extended to all shareholders view if they had previously accepted a lower price. When standing in the market the consideration must be cash, and partial bids are not permitted. The Commission suggests that disclosure should be required of (a) the financial i arrangements made by the buyer, (b) shareholdings and share dealings by the buyer i on his associates during the ‘ three months before the ; offer was made, (c) in the j case of a partial bid, a > statement of intentions re- ’ garding the continuation of the business, (d) the buyer’s intentions with regard to the continued employment of the staff of the target company. The Commission proposes that breaches of the new legislation should be criminal offences, and that the jurisdiction of the High j Court be extended to make an offending buyer comply. .