Escalation was not reported

Press, 18 December 1985, Page 37

Escalation was not reported

PA Wellington Reports of two purchases of shares in Emco Group, Ltd, from the AMP Society earlier this year should have included details of escalation clauses, the Securities Commission has found. The finding is included in a report by the commission on an inquiry held on August 16 into dealings in Emco shares at the time that company was the subject of a take-over bid by Brierley Investments, Ltd. A large part of the report focuses on two sales, representing about 10 per cent of the Emco capital.

The first sale involved BIL buying 1.65 M shares from AMP, while the second involved the sale of 1,612,542, ordinary and 390,190 specified preference shares from AMP to Giltrap Group Holdings, a company owned by an Auckland car dealer, Mr Colin Giltrap. While both transactions were reported at the time of sale in April to the Stock Exchange, details of escalation clauses on both deals, which, in effect contained the possibility of the seller ultimately receiving a higher price than that nominally paid, were not irted.

repoi The Stock Exchange’s regulation 34.11 relating to reporting of sales says: “If a sale is ’special’ because of the terms being different from those applying to sales on the trading floor on that day, then the report of the sale must include details of such terms.” The commission, in its report, said it considered an escalation clause was a term of sale irrespective of whether or not an obligation arose in any case. “In the case of the two AMP transactions, it was an important term, one of profound interest to the contracting parties and to the market generally,” the commission said. “On a correct interpreta-

tion of regulation 34.11, in the commission view the reports of the two sales should have included details of the revelant escalation clauses.”

The commission said there should be a procedure for ensuring that terms of sales of listed securities for which the seller is not bound by the rules of the Stock Exchange are, in any case, reported to the exchange.