Market surveillance panel’s explanation for granting Lion Nathan a waiver

Official statement

Panel waiver for Lion Nathan in Montana takeover contest

The Panel regrets the situation which has arisen following its grant of a waiver to Lion Nathan (LNN) on 8 February, but remains satisfied of the grounds for acting as it did, on the information then available. It emphasises that it has acted in good faith throughout.

LNN requested a waiver on the grounds that the market was fully informed about Montana, that the independent directors had already stated that a lower price than LNN would pay was fair, and that there was therefore no reason to prevent LNN from trading in the market until 12 February when Allied could do so from 9 February. LNN claimed it would be disadvantaged because Allied alone was able to buy in the market on 9 February and able to raise its bid price on only two hours notice. The terms of LNN's request are being published with this statement.

The Panel had less than four hours to review the matter in order to issue its decision by 5pm on Thursday 8 February. To wait until 8.30am on Friday, 9 February 2001, as suggested in the attached waiver application, would not have been in the interests of the market.

Because the terms of the request focussed solely on competing in on market bids, the Panel accepted that LNN would be disadvantaged in that respect. The Panel treated LNN's waiver request as relating to trading on the market from the opening on 9 February, and its intention in granting the waiver wa to put the two bidders on an equal footing when the market opened on that day.

There was nothing in the terms of the request, or in the surrounding circumstances that suggested dto the Panel that any waiver would be used to pursue off market transactions before the market opened on 9 February.

The effect of the waiver was to shorten the time in which Allied could consider its position in respect of LNN's raised offer from 40 hour to 16 hours, ie from 8.30am Thursday when LNN announced its revised bid until midnight that day instead of midnight Friday 9 February.

Allied's strategy had been to mount a bid solely on market, thereby entitling Allied to commence purchasing on one rather than three business days notice. On the other hand, LNN had, in the terms of its original RTN in November 2000, preserved its options to purchase Montana shares off market, by private treaty.

Allied and Montana, which had supported the Allied bid for 100% of its shares, asked the Panel on 9 February to revoke its waiver. By that time, LNN had advised that it had secured commitments to sell to it for 18% of the shares bringing its holding to 46%.

The Panel has considered revocation of the waiver in considerable detail and has sought legal advice. The Rules allow waivers to be revoked retrospectively only if the Panel acted on incorrect information. The Panel has reviewed the information provided to it and concluded that, whilst the terms of the LNN request caused the Panel to focus solely on achieving a position of competitive neutrality for on market bidding, it did not contain any incorrect information.

Allied has claimed that the request for waiver contained incorrect information in that it failed to disclose a condition of LNN offers that would be material to price, in that LNN's offers to institutions were subject to a condition that LNN would reserve its entitlement, once acceptances had been gained from sellers, to subsequently scale down the number of shares LNN purchased. The Panel is unable to accept this argument, having received an explanation from LNN's broker as to the terms on which agreements were made with Montana shareholders on the morning of 9 February.

Even if the position could be reinstated as if the waiver had not been granted, there is still a real likelihood that the outcome would be unchanged except that it would have occurred one business day later. In this regard, the Panel notes that Allied was reported early on 9 February 2001 as saying that it would not raise its offer at that time.

For these reasons the Panel has not revoked the waiver.