Dorchester deal likely to go to court

By ANNE GIBSON

Rod Petricevic's standoff with the Takeovers Panel over his bid to take a cornerstone holding in a rival financier looks set to be resolved in the High Court.

Specialist experts said yesterday the $20 million deal for listed Dorchester Pacific to sell 19.9 per cent to Petricevic's Bridgecorp Capital could go before a judge, who would be asked to decide whether the transaction was legal.

Lawyers and merger and acquisition specialists said given the steps taken so far, the most likely course of action for the panel would be to let the courts sort out the issues.

They predicted the only way litigation could be avoided would be for a deal to be struck between the panel, Petricevic and Dorchester Pacific managing director Brent King before the end of this month.

The panel didn't really have any teeth and it could not order forfeiture of the shares, but a judge could, said one corporate specialist in Auckland yesterday, predicting a worst-scenario outcome.

The panel's decision this week to extend restraining orders on the deal until September 29 added further resolve to its ruling at the end of last month that the parties involved could have become associates, pushing them over the illegal 20 per cent takeovers threshold which triggers a full takeover launch.

Although the panel said it could give no reasons for extending the restraining orders, market observers were sure the decision was simply a reinforcement of the panel's earlier decision that stated it was not satisfied that King and Bridgecorp had complied with the code.

The panel said Bridgecorp, King and King's Snowden Peak Investments might not have complied with the code or might not be complying with the code or might intend not to comply with the code in several respects.

The parties might have become associates in striking a deal that King could sell his remaining 5 per cent stake in Dorchester to Bridgecorp, reaching an exclusive agreement which would lock up that portion of Dorchester, preventing the sale to anyone else.

Under section 32 of the Takeovers Act, the panel can issue restraining orders stopping the parties involved buying or selling any more shares, then take matters to the court, seeking a ruling on whether the regulations had been breached.

Petricevic, a controversial 1980s sharemarket highflyer, and King are expected to argue strongly that they have not broken the law and are not associates, but neither was commenting this week.

One merger specialist said the worst scenario for Petricevic would be a court order for forfeiture of his shares in Dorchester, cancelling out his holding and automatically increasing the wealth of the other Dorchester shareholders.

But he was more likely to be asked to take other steps, such as divesting some of his shares or being deprived of voting rights or obeying orders relating to various contracts, the specialist said, adding that he did not want to be named because he was involved in the deal.

He said this was a "pretty novel" case.

A Wellington legal takeovers specialist who did not want to be named because he was also close to the deal said the situation was unpalatable for all parties involved.

"The panel can't unstitch what's been done, it can't unscramble the eggs. But it now has to look at remedies ... The parties involved could undertake to remedy the breach or else this has to go to court."

He predicted that because no agreement had been reached so far, it was more likely to go to court and would probably be heard in Auckland, where Dorchester and Bridgecorp are based.

King said yesterday that he was awaiting the panel's full determination before deciding his next move.

"I've run this business for 16 years and we have complied with every law and statute.

"We are not going to breach that now but we have full legal advice on this matter and that advice tells us we are not in breach of the act."

But if the panel took a different view, King said, he had two options.

"If we believe the panel's judgment is logical, we will comply.

"But if the judgment is not logical, we will appeal it," he said, threatening litigation against the panel itself. "But we will do everything to put matters to rights if a breach has occurred."

Takeovers specialist Roger Partridge, a partner in the Bell Gully law firm, said the harshest penalty for breaching the code would be a court order cancelling Petricevic's $20 million stake in Dorchester.

"But whether the court exercises the most draconian measure will depend on the flagrancy of any breach," he said.

A more likely scenario was that Petricevic and King would try to comply with the panel once they had read the determination on the issue.


Penalties

The courts have 18 separate penalties they can impose on those breaching takeover laws. Punishments are outlined under section 33 of the Takeovers Act 1973 and give the courts wide-ranging powers. More information is available under the legislation link at www.takeovers.govt.nz.

* At the most punitive end of the scale, an order for forfeiture can be made for some or all of the shares involved in an illegal deal.

* Orders can also be made to pay compensation to those who have suffered loss or damage.

* Orders can be made banning voting or other rights attached to the shares involved in such a deal.

* Rulings can also be made declaring agreements for acquisitions that breached the act to be void.