Lion Nathan 'defaulter' in Montana share dispute

By Phil Boeyen, ShareChat Business News Editor

Tuesday 5th June 2001

The standing committee looking into Lion Nathan's (NZSE: LNN) raid on Montana (NZSE: MON) earlier this year has found a number of transfers did breach the NZSE's listing rules.

However the committee has not made a recommendation about what to do with the disputed shares, or whether their ruling applies to shares obtained outside the relevant period.

The decision represents a bitter-sweet victory for Allied Domecq, which owns around 26% of Montana and had complained about the way Lion's broker, Credit Suisse First Boston, went about securing a majority stake in the winemaker.

On the one hand the global liquor company has been vindicated in its complaint, but on the other no clear-cut resolution has been offered.

The dispute centred on whether Lion Nathan, via its broker CFSB, had entered into "transfers" for shares in Montana on the evening of Thursday, February 8, when it was not allowed to do so until midnight.

By entering into "transfers" before the allotted time, CFSB would be breaching the NZSE's notice and pause provisions.

The committee says counsel for Lion Nathan and CSFB submitted that all that the CSFB dealers were doing before midnight was seeking expressions of interest as to whether investors would sell to Lion the next day, and emphasising they had no authority to enter into binding agreements before midnight.

But the committee says that "what happened in the individual transcripts was much more than a mere enquiry as to the interest of an investor in the disposal of share at some different date."

It says that in the recorded conversations dealers told investors that CFSB was in a position "to take orders", or that they had "got a green light". In one case an investor was assured that it had "done the right thing" in making its shares available."

The committee says that great emphasis was placed on the need for investors to declare, prior to midnight, their willingness to sell.

"If they did not do so, they would not be considered when an allocation was made on 9 February and would have to take their chances of selling on the market, probably at a lesser price," the report says.

The committee also found that CSFB was acting on behalf on Lion when its dealers rang investors.

"In the committee's view, under well established principles of agency law, CSFB Equities was acting as agent for Lion Nathan when it solicited order from vendors even though, in the process, it may also have become agent for the vendors."

However while the committee has found Lion Nathan to be in default, the question of which of Lion's Montana shares may have to be divested remains unanswered.

Under NZSE listing rules a defaulter's securities may be sold by the issuer - in this case Montana - or the shares can be transferred.

Montana and Allied believe the rules apply to the 28.27% purchased before the relevant time period, the shares bought in the disputed time period, and the 4.9% purchased on market on Monday, February 12.

However the committee says at the request of Lion's counsel it has left open the question of whether shares acquired outside the relevant period should be included.

"If counsel are unable to agree upon this matter and it becomes relevant to the exercise by Montana of its rights, the committee will hear counsel further," the report says.

Montana is not yet commenting on the finding but deputy chairman, Barry Neville-White, says the independent directors would meet as soon as possible to consider the finding and take appropriate advice.

Lion is also studying the decision.

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