Montana's letter to the stock exchange

Letter from Bell Gully Barristers & Solicitors


1. We act for Montana Group (NZ) Limited ("Montana"): Montana has received a complaint from a shareholder alleging that Lion Nathan Enterprises Limited ("Lion Nathan") breached the Notice and Pause provisions of the Listing Rules by entering into Restricted Transfers prior to the expiry of the pause period, as modified by the Market Surveillance Panel's waiver, at midnight on 8 February 2001.

2. Montana has investigated that complaint as required by Rule 4.7.4 and has obtained legal advice from James Farmer QC on whether there has been a breach by Lion Nathan. Montana has also notified Lion Nathan of the complaint and has requested and received from Lion Nathan its response to the complaint.

3. On the basis of the information available to Montana and the legal advice it has received, Montana considers that Lion Nathan's conduct (including that of its agent CSFB) may well be a breach of Listing Rule 4.5 with the consequence that Lion Nathan would be a Defaulter. In summary, the reasons why Montana and its advisers have reached this view are as follows:

(a) It appears from discussions Montana's legal advisers have had with a number of institutions that discussions took place between CSFB and institutional shareholders of Montana on the afternoon and evening of Thursday, 8 February, both before and after Lion Nathan had succeeded in obtaining the waiver from the Panel. Some of the institutions were established clients of CSFB and some were not.

(b) On either basis, it seems more likely than not, from the information Montana has been able to ascertain, that CSFB, in soliciting these offers, was acting as agent for Lion Nathan so that its actions are to be attributed to Lion Nathan. While Lion Nathan's lawyers, Russell McVeagh, have asserted that CSFB performed the role as agent for the selling shareholders, this is not inconsistent with CSFB also acting as agent for Lion Nathan in soliciting the offers. This would be quite typical of a broker's role in this situation. Indeed, CSFB, in their letter to the Exchange of 13 February 2001, acknowledged that CSFB considered itself as being the agent of the holder to sell their shares to Lion Nathan upon the holders indicating how many shares they wish to sell. The exact content of the discussions between CSFB and the institutional shareholders may be disputed but, as a broker, CSFB will have tapes of all of its discussions with shareholders. As we have indicated in our correspondence of 16 and 20 February 2001, those tapes could be made the subject of an order for inspection by the Exchange under Rule 2.3. For its part, Montana requests that such an order be made as soon as possible.

(c) The independent shareholders of Montana have received a signed statement from a director of one Montana institutional shareholder which states that at about 3.15pm on Thursday, 8 February 2001, a broker from CSFB telephoned an adviser to that institution and asked that institution to place a sell order with CSFB for its entire holding of Montana shares. CSFB is said to have commented that:

(i) the order would need to be placed by 6.00pm as Lion Nathan would be processing sell orders received by that time at one minute past midnight "by which time they expected to fill their order"; but

(ii) the sell order could be withdrawn at any time up until midnight.

The institution did place a sell order with CSFB before 6pm and Lion Nathan accepted over 95% of that order, advising the next morning that the balance would have to be sold on market.

(d) On the basis of the information as established by Montana's investigations, the issue is whether a "Transfer" (as defined in the Listing Rules) of Montana shares took place on Thursday, 8 February 2001 notwithstanding that the offer was not formally accepted until Friday, 9 February 2001 and notwithstanding that the offer could have been withdrawn at any time before the beginning of 9 February 2001. On the basis of the information available to Montana, both we and Mr Farmer QC consider it more likely than not that a Restricted Transfer did take place on Thursday, 8 February 2001 notwithstanding that there was no formal acceptance of the offer and hence no legally binding sale agreement until the early hours of Friday, 9 February 2001. Specifically, we consider that the discussions that took place between CSFB for Lion Nathan and institutional shareholders were:

(i) a "transaction whereby one party proposes to dispose of or alienate ... any interest or right of title to any Equity Security ..." [sub-clause (a) of the definition]; and/or

(ii) a "transaction whereby the holder of the Equity Securities enters into a commitment (whether conditional or unconditional) to sell the Equity Securities or .... (to sell them) at any future time ..." [sub-clause (c) of the definition]; and/or

(iii) a "transaction, agreement or arrangement that has substantially the same effect as (a) .... [or] (c) _" [sub-clause (e) of the definition].

(e) In our view and Mr Farmer QC's view, it is not necessary to show that a legally binding contract had been concluded between Lion Nathan and the selling shareholders on the Thursday for one or more of the definitions of "Transfer" to be applicable:

(i) The phrase "a transaction whereby one party ... proposes to dispose of "shares (sub-clause (a)) indicates that the transaction need not be a contract enforceable at the time that it is entered into - some further support for this view is to be found in the juxtaposition in sub-clause (e) of the terms "transaction" and "agreement";

(ii) While the term "commitment" in sub-clause (c) might suggest a legally binding obligation, in the context of the whole definition we think it equally arguable that a moral commitment (which in practice would be honoured) or informal agreement short of a legally binding contract is enough to constitute a commitment;

(iii) Significantly, the inclusion of "arrangements" within sub-clause (e), which then relates back to all the previous categories, is a firm indication that "transfer" is not restricted to concluded contracts. There are numerous authorities holding that "arrangement" extends to commercial dealings that fall short of binding legal commitments.

4. On this basis, we consider it more likely than not that a "Restricted Transfer" occurred; that is, a Transfer prior to the expiry of the required pause period. That pause period expired, at the earliest, at midnight on Thursday, 8 February 2001 as a result of the waiver given by the Panel to Lion Nathan.

5. In addition, Mr Farmer QC has also advised Montana that while the application made by Russell McVeagh to the Panel for a waiver on 8 February 2001 makes specific reference to the fact that the original Lion Nathan notice "allowed for purchases on the market by private treaty, or by an off or under the Companies Amendment Act 1963", the whole thrust of the application is that Lion Nathan should have the opportunity to buy in the market in competition with Allied. This is clear, for example, from paragraphs 6 and 7(d) of the email from Russell McVeagh to the Panel on 8 February 2001. Subsequent statements by the Panel confirm that this was the basis upon which the waiver was granted by the Panel. In short, the assumption was that Lion Nathan would be buying on market if the waiver was granted.

If the terms of the waiver do not expressly limit Lion Nathan to on-market purchases, Montana requests a ruling on whether the waiver, if properly construed in the context in which it was granted, was to be so regarded. That is, whether the waiver was to be read together with the application which suggested that Lion Nathan would be making its purchase on 9 February on market.

6. As part of our investigations into this matter on behalf of Montana, we met with Russell McVeagh last evening. During that meeting, Russell McVeagh made it clear that Lion Nathan disputed a number of aspects of the facts as they have been ascertained from the investigations undertaken by the independent directors of Montana. In particular, it was indicated to us that Lion disputes that CSFB was acting as its agent at any point up until approximately 2.15am on Friday, 9 February.

7. Russell McVeagh also asserted that Listing Rule 4.5.4 does not require a proposed Transferor to pause for the notice period set out in clause 4.5.4(a); their reasoning being that the language of that section merely requires notice to be given (in current circumstances) at least two Business Days "before the change takes effect". We advised Russell McVeagh that we believe this argument to be incorrect as, in our view, the plain meaning of Rule 4.5.4 was to require a proposed Transferor to wait until the notice period had expired before effecting the Restricted Transfer (our view on this is seemingly consistent with the reason Lion Nathan sought a waiver from the Panel on 8 February).

8. Montana recognises that it may not have access to all relevant information and that the consequences of a Default by Lion Nathan are potentially serious to Lion Nathan. Montana therefore considers it appropriate for the Panel, through a Standing Committee, to conduct an investigation into the dealings between Lion Nathan and other Montana shareholders prior to midnight on 8 February 2001. Montana requests that the Panel initiate such an investigation as soon as possible.

9. As this matter involves potentially disputed factual as well as legal issues, Montana requests that the Panel appoint a Standing Committee of appropriately qualified persons under Listing Rule 4.7.8 to issue a Ruling on these matters. In accordance with Listing Rule 4.7.8 (and the footnote to that Rule), Montana proposes that Sir Duncan McMullin, Sir Ian Baker and Mr Bill Wilson QC, or, depending upon availability, any two of them, would be appropriate to be appointed as members of that Standing Committee.

Please confirm that the Panel will appoint a Standing Committee to address these matters.

D M Flacks / J M Gibson


PARTNERS