Trans Tasman Properties’ minority shareholders are not going to accept the latest takeover offer from Sea Holdings without a fight.

The target company, which listed as Robert Jones Investments in September 1982, has had more than its fair share of controversy. It hasn’t been able to shake off its notorious past and several reported share transactions over the past nine months have raised questions about major shareholdings.

A minority shareholder has asked the Takeovers Panel to rule on an important issue in relation to the latest offer. The panel, which has benefited hugely from the astute leadership of retired chairman John King, will have an important influence on Sea Holdings’ bid.

The latest round of developments began in September 2005 when Trans Tasman announced it was splitting the group into two separate companies. The New Zealand-listed company would focus on New Zealand and Australia while Asian Growth Properties, which would list on London’s AIM market, would concentrate on Hong Kong.

Trans Tasman Properties’ (TTP) shareholders were given the opportunity to transfer their shareholding into Asian Growth Properties (AGP) on the basis of one AGP share for every two TTP shares.

The AGP offer was accepted by 73.1 per cent of TTP’s shareholders and the number of TTP shares declined from 580.5 million to 156.2 million. Sea Holdings’ interest fell from 66.3 per cent to 51.9 per cent because it transferred a greater proportion of its holding than other TTP shareholders.

Investors that stuck with TTP have done much better as two shares are now worth $1.20 under the latest 60c a share takeover offer whereas AGP last traded at 39p ($1.07).

One of the issues raised during the AGP spin-off was the minority rights provisions of the Companies Act. Shareholders who vote against a special resolution to approve a fundamental change in a company’s structure, which is passed, can require the company to buy back their shares.

Notice was received from 22 shareholders, representing 2.1 million shares, seeking buyout rights under Section III of the act. TTP determined to pay 45.06c a share, which was the weighted average trading price of TTP shares for the month before the AGP offer announcement.

The issue went to arbitration in respect of 958,444 shares and the arbitrator determined that 56c plus costs was a fair and reasonable price. The company is appealing against this decision.

On June 16 last year, six months after the completion of the AGP spin-off, Hong Kong-based Sea Holdings announced a takeover offer for TTP at 50c a share. Following the completion of an independent appraisal report by Ferrier Hodgson, which valued TTP between 51c and 59c a share, the offer was raised to 55c.

The bid closed on October 10 with Sea Holdings having reached 80.6 per cent.
According to an NZX release there were several strange share transactions around the time of the offer. These included:
* On August 8, after Sea had raised its offer to 55c, the Accident Compensation Corporation (ACC) sold two million at an average price of 43.4c each.
* On November 8, just four weeks after the bid closed, ACC purchased one million shares at 53.2c. Why did a shareholder sell at 53.2c when they could have received 55c , with no brokerage payable, a few weeks earlier?
* On March 21 Sea announced it was making another offer for TTP at 60c a share. A later announcement said that Sea had a 90.6 per cent interest because it held 80.6 per cent in its own name and had a relevant interest in ACC’s 6.1 per cent and Lim Asia Arbitrage Fund’s 3.9 per cent.

In effect ACC and Lim have agreed to accept the 60c a share offer, which enables Sea to achieve 90 per cent and move to compulsory acquisition.

In a notice to NZX late on Thursday Sea declared the bid unconditional.

TTP has established a committee of independent directors, who have recommended the offer, and Ferrier Hodgson has been appointed as the independent adviser even though the bid is a foregone conclusion based on the 90.6 per cent relevant interest.
Christchurch investor Peter Rae, who has been a thorn in the side of several bidders, has written to the Takeovers Panel asking whether the ACC and Lim shares should be deemed to be controlled by Sea before the formal offer is made.

This is important because under clauses 56 and 57 of the code the compulsory acquisition price can be challenged if the offeror reaches 90 per cent but acquires less than 50 per cent of the outstanding shares.

There are two potential scenarios as far as TTP is concerned:
* The panel decides that the 10.1 per cent owned by ACC and Lim can be offered to Sea as part of the bid. If this is the case then the 10.1 per cent represents more than 50 per cent of the 19.6 per cent owned by minority shareholders.
* If Sea is deemed to control the ACC and Lim stakes before the bid is launched then 90.6 per cent is the starting point. If Sea receives less than half of the outstanding 9.4 per cent then non-accepting shareholders can object to the price.
In a similar situation three years ago Ngai Tahu reached 90 per cent of Shotover Jet at $1.03 a share but failed to obtain 50 per cent of the outstanding shares. Several shareholders, including Peter Rae, objected to the $1.03 compulsory acquisition price and received $1.18 after arbitration.

Rae is annoyed that ACC has entered an agreement with Sea that could ensure the success of the offer and remove the opportunity for minority shareholders to object to the compulsory acquisition price. He believes that ACC was in a strong position to extract a higher price from Sea.

Several shareholders are also annoyed that the offer has been made below net asset value of 62.6c a share and just after TTP adopted IFRS. Under these new accounting standards the earnings from development properties, which is now TTP’s main activity, will be slower to materialise.

Whatever the outcome of the Takeovers Panel’s decision on TTP the retirement of the panel’s long-standing chairman cannot go unnoticed.

The panel was established in 1995 under the Takeovers Act, with King as chairman. The code was not introduced until July 1, 2001 because of strong opposition from the National Government.

The code came into force in the middle of the controversial takeover battle for Montana Wines and from day one the panel established itself as an extremely competent, professional and decisive organisation. Much of this has been due to King’s leadership.

King’s performance has been quite remarkable in view of his position as a senior partner at Russell McVeagh. Many of his partners were totally opposed to the code and there must have been some heated debates around the firm’s board table.
King has left the panel in a very strong position – most of its long-standing opponents are silent and professional practitioners are queuing up to become members.
A decade ago they would have run a mile if offered a position. John King can be very satisfied with a job well done.