The Takeovers Panel has ruled that Harbinger Capital Partners will not be allowed to vote with its 4.27 per cent interest in takeover target Midwest Corporation Ltd while a bid by Chinese steelmaker Sinosteel is active.
The Takeovers Panel has ruled that Harbinger Capital Partners will not be allowed to vote with its 4.27 per cent interest in takeover target Midwest Corporation Ltd while a bid by Chinese steelmaker Sinosteel is active.
The Panel found Harbinger had bought the 4.27 per cent stake in Midwest without giving notice to the Foreign Acquisitions and Takeovers Act.
The Panel said Harbinger, a US-based company, needed approval from the treasurer to retain the 4.27 per cent interest by July 11, however if it failed to do so, it would have to sell the stake within a three day period.
"The Harbinger entities may apply for a variation of the divestment order in the event that the Sinosteel bid is extended," the Panel said.
Sinosteel is offering $6.38 cash for every Midwest shares and has a 43.62 per cent stake in the miner.
The Chinese company made an application to the Panel earlier this month, claiming that Harbinger and Murchison Metals Ltd, which is proposing to merge with Midwest, are related parties and that inadequate shareholding notices had been provided to Midwest and the Australian Securities Exchange.
Sinosteel also complained that inadequate substantial shareholder notices had been issued in relation to Harbinger's investment in Midwest.
The Chinese group requires 45 per cent of Midwest to block a planned `reverse takeover' of the company by iron ore miner Murchison.
Murchison last month proposed the reverse takeover for Midwest, which was engineered to prevent Sinosteel, which at the time held 19.89 per cent of Midwest, from blocking the deal.
Below is an announcement by the Takeovers Panel:
Midwest Corporation Limited 02 - Declaration of Unacceptable Circumstances and Orders
The Panel today made a declaration of unacceptable circumstances (Annexure A) and final orders (Annexure B) in relation to an application dated 4 June 2008 by Sinosteel Ocean Capital Pty Limited in relation to the affairs of Midwest Corporation Limited (TP 08/53).
Background
Midwest is the subject of an off-market takeover bid by Sinosteel. It is also the subject of a proposed merger with Murchison Metals Limited by way of scheme of arrangement. Murchison has a 9.98% interest in Midwest, which it announced on 26 May 2008. The Harbinger entities1 have a 19.98% interest in Murchison. Between 26 and 30 May 2008, the Harbinger entities made on-market purchases of 9.29% of the shares in Midwest. This included purchases of approximately 4.27% of Midwest shares on 28, 29 and 30 May 2008, without giving notice under the Foreign Acquisitions and Takeovers Act 1975 (FATA). For the purposes of FATA, the interests of the Harbinger entities and Murchison are aggregated as a result of the Harbinger entities having a 19.98% interest in Murchison. Therefore, 4.27% of the Harbinger entities' acquisitions in Midwest were over the 15% threshold in FATA.
Declaration
The Panel considered that the circumstances were unacceptable having regard to their effect on the control or potential control of Midwest, or the acquisition of a substantial interest in Midwest, or were otherwise unacceptable having regard to the principle in s602(a) of the Corporations Act relating to an efficient, competitive and informedmarket for corporate control. Its reasons included:
- An aspect of an efficient, competitive and informed market is that market participants comply with Australian laws of general application, particularly those relating to the acquisition of securities. This promotes a level playing
field for all market participants.
- The Harbinger entities' non-compliance gave them an advantage during the Sinosteel takeover bid which they would not otherwise have had.
- Subsequent approval under FATA of any acquisition by the Harbinger entities does not change the situation in relation to the circumstances with which the Panel is concerned.
- The purchase of the Midwest shares by the Harbinger entities over the 15% FATA threshold appeared to the Panel to:
- have been a material factor in maintaining the Midwest share price at a level above which it would not otherwise have been, if the Harbinger entities had not purchased those Midwest shares, during the relevant period
- by reason of the effect on the Midwest share price, have influenced the view that market participants would be likely to take regarding the relative merits of the proposed Murchison/Midwest merger and the Sinosteel takeover offer during the period that the Harbinger entities were purchasing the excess Midwest shares and
- have materially affected Sinosteel's ability to compulsorily acquire Midwest, by allowing the Harbinger entities to acquire very close to a blocking stake in Midwest when they would not otherwise have been able to do so.
The Panel did not consider it against the public interest to make the declaration, and in making it had regard to the matters in s657A(3).
The Panel did not conduct proceedings on the part of the application by Sinosteel relating to an association for Corporations Act purposes between the Harbinger Entities and Murchison. Sinosteel did not demonstrate a sufficient body of evidence of association to warrant the Panel conducting proceedings on this part of the application.
Orders
The Panel has made orders that the Harbinger entities not vote their 4.27% interest in Midwest while the Sinosteel bid is on foot. If the Harbinger entities fail to obtain FATA approval from the Treasurer by 11 July 2008, they must divest their 4.27% interest in Midwest within 3 trading days. Divestment can cease if FATA approval is received during the 3 day period. The Harbinger entities may apply for a variation of the divestment order in the event that the Sinosteel bid is extended.
The sitting Panel for the proceedings was Graham Bradley (President), Brett Heading and Alastair Lucas.
