Phone tape proves Lion broker jumped the Montana buy gun

Friday 6th April 2001

By Nick Stride

At least one of the tapes sought by the committee investigating Lion Nathan's takeover of Montana provides clear evidence of a breach of Stock Exchange rules, according to a sharebroking source.

The tapes record conversations between Lion's sharebroker, Credit Suisse First Boston, and selected institutional shareholders in Montana on the night of February 8 and 9.

At that time Lion already held 28% of Montana's shares. It countered a surprise $4.40 a share bid by Allied Domecq for 100% of the winemaker with an offer of $4.65 to take its stake to 51%.

Under notice and pause provisions of the Stock Exchange's listing rules Lion would have been prohibited from buying shares until midnight on February 9, a Friday.

But it secured from the exchange's surveillance panel a waiver allowing it to buy from midnight on February 8.

When trading opened the next day it announced it already had 51%.

Montana and Allied Domecq have asked the exchange to investigate whether CSFB jumped the gun and secured undertakings from institutional investors before midnight.

The exchange has appointed a committee comprising two retired judges and a lawyer. A hearing was scheduled for Monday, Tuesday, and Wednesday of this week but it has been delayed until next month.

The committee has ordered participants in the inquiry to keep all inquiry proceedings strictly secret. Any hearing will be held behind closed doors.

At issue are the tapes and transcripts of the tapes. Although five weeks have passed since the committee was appointed CSFB claims it has had practical difficulties in preparing transcripts.

The committee's spokesman, lawyer David Quigg, said the transcripts were the key documentation the committee needed before it could consider whether a hearing was necessary.

One sharebroking source claimed yesterday at least one of the tape-recorded conversations, held well before midnight, demonstrated the CSFB broker and the shareholder were agreed a parcel of Montana shares had been bought, at $4.65, on behalf of Lion Nathan.

If that is the case it presents a huge potential problem for CSFB.

Lion Nathan has consistently denied any shares were bought before midnight in breach of the listing rules.

"Our instructions (to CSFB) were that they should act in accordance with the waiver, which was ... no stock to be purchased before midnight," investor relations manager Warwick Bryan said.

Were it to be proved CSFB acted otherwise Lion could have a basis for action against CSFB on the grounds it acted in Lion's name but without its authority.

CSFB claimed another reason for the delay in delivering the tapes and transcripts was the necessity to obtain consent from the institutions that had been taped.

That is presumably a matter of client confidentiality.

The committee has wide-ranging powers but it is proceeding with maximum caution.

The listing rules governing defaulter securities have never been tested and the fate of Montana, valued at $946 million by Allied's bid, is at stake.

Although CSFB isn't subject to the listing rules it is an exchange member firm and can be required, under the Sharebrokers Amendment Act, to hand over evidence to the exchange.

The committee need not wait until it has it. Under the powers delegated to it by the exchange, via the surveillance panel, it can give notice to Lion that it believes Lion to be a defaulter, provided it sets out "general grounds" for that belief.

Lion's Mr Bryan said yesterday no such notice had been received.

A notice would specify "a reasonable time" within which the recipient must produce evidence that satisfied the committee it was not a defaulter. If it failed to do so the committee could declare it to be a defaulter without further evidence.

If Lion was found to be a defaulter Montana could give it one month to sell the shares, after which it could itself sell the shares through the exchange or "in some manner approved by the exchange."

Allied Domecq has said it is still interested in buying Montana. It acknowledged other industry players are also interested and may act in the event of a default.

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