Lawyers blast Takeovers Panel decision

By Deborah Hill Cone

Friday 10th September 2004

Dorchester managing director Brent King yesterday defended a $600,000 "deposit" paid by Bridgecorp's Rod Petricevic as part of the pair's controversial lock-up agreement to acquire extra shares in the listed finance company.

King said the payment showed the transaction was at arm's length. "Why would I do it otherwise if I'm not getting a fee?" King said.

"Bridgecorp can't exercise that [option] without giving everyone else $3.30; if there is a bid everyone will get it I'm not sure the [Takeovers] Panel understood that."

King has support from the legal fraternity who question how the panel can clamp down on the lock-up agreement even though its own website says lock-ups are fine.

Top commercial lawyers say they are struggling to see technical reasons for the panel's move in which it seems to be saying King and Petricevic are associates solely because they entered into a lock-up agreement (a commitment that if a bidder makes an offer on certain terms it will be accepted).

The panel has yet to release its reasoning, but on the face of it the two parties do not appear to have associate status, with the only link being the lock-up agreement.

Other lock-up agreements, including deals between Graeme Hart and New Zealand Dairy Group and Contact Energy and Origin, did not cause a ripple.

But the Dorchester deal may have raised the ire of the panel, headed by the code's champion John King, because it goes against its objective that all shareholders be treated the same.

In one of the transactions under scrutiny, Petricevic has a lock-up agreement to buy a 5.05% stake in Dorchester from King at $3.30 a share before June next year.

If Petricevic still owned the 19.99% stake he bought earlier from King, he would trigger the 20% threshold and have to make a full takeover offer to all shareholders.

But it was not widely known Bridgecorp had already paid King an additional $600,000 for the lock-up agreement, which meant King would pocket $3.80 per share making the deal inequitable for "mom and pop" shareholders.

But takeover specialists say not liking that outcome is not sufficient reason for the anti lock-up ruling.

"The panel is trying to extend the scope of its jurisdiction," Simpson Grierson partner Peter Hinton said.

Kensington Swan partner Rob Noakes said it may come down to "how you hold your mouth when you draft the agreement."

Another commercial lawyer, who asked not to be named, said he was in the process of drafting a lock-up agreement for a client and this ruling made it very unclear.

"We need to nip this in the bud. Otherwise why does any other pre-bid commitment not make parties associates?" he said.

The Dorchester-Bridgecorp deal has had the market buzzing as the most exciting play for some time with sources telling NBR:

Former DF Mainland broker Stuart Cairns stitched the $17 million-odd deal together, including organising for shareholders such as 42 Below investor Grant Baker to sell out, and got a commission for his work;

The entire deal was put together in only two-and-a-half hours as King rushed to get it signed on the Friday before Dorchester's annual meeting;

The reason King bought a further 0.9% in Dorchester from market for $3.30 a share rather than on-market at the cheaper price of $2.80 was to fill in for shares within his 19.99% parcel that were part of the staff option scheme and had charges over them;

Small shareholder advocate Bruce Sheppard has upped his stake to 1% so his shares could not be forcibly acquired if Bridgecorp had to make a full takeover offer; and

Opportunistic punters have piled into the stock, with First New Zealand Capital Nominees taking a 4% position on behalf of an anonymous investor, and ACC is increasing its stake. ACC's funds are managed by finance company specialist Stephen Montgomery, who is on the board of major player Marac.

The law fraternity is very interested to see the panel's reasoning in the case, hoping this will explain why Dorchester and Bridgecorp were getting this treatment.

"How do you know whether the panel simply don't like the colour of your tie?

"It's getting close to that," one lawyer said.

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