Acting in concert revisited

United Kingdom

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

On 13 March 2017, the Takeover Appeal Board issued its decision in the appeal by David King as to whether or not he was acting in concert with certain other investors in Glasgow Rangers Football Club over the 2014/15 New Year period. What makes this case of particular interest is that Mr King did not personally make the purchase and, based on the representations of those involved, Mr King did not have apparent control over the entity which did make the purchase.

Key lessons from the decision are:

  • there is no hard and fast rule as to how a concert party can be formed;
  • the Takeover Code looks through corporate structures to try and identify the true controllers;
  • the Takeover Panel should be consulted whenever there is any question as to the interpretation of the Takeover Code (including whether or not a concert party has come into existence or ceased to exist); and
  • a mandatory offer must still be made even though the target board is opposed to it and it is made at a level which is significantly below the market value of the shares concerned.

Background

Glasgow Rangers football club Glasgow Rangers has had a turbulent time over the past few years, having gone into administration and liquidation, before subsequently re-emerging as a new AIM-listed entity, Rangers International Football Club plc, and working its way from the lower leagues back up to the Scottish Premier League. Despite the re-emergence of the club on the football pitch, Glasgow Rangers has continued to be dogged by past and present shareholder problems. It was in the context of the shareholder problems that the Takeover Appeal Board had to consider whether a concert party had arisen between the relevant shareholders.

Mr King had a long history as an investor in Glasgow Rangers, having originally invested in the club and become a non-executive director in 2000. Following its emergence from the liquidation of the original company, the new Glasgow Rangers ran into financial difficulties and by early 2014, the board was looking at fundraising options.

In October 2014, Mr King led a group which made a funding proposal to the board of Glasgow Rangers. That proposal would have led to the need to make a Rule 9 mandatory offer under the Takeover Code. In the view of the Takeover Panel, Mr King and the other participants were acting in concert for the purposes of the Takeover Code (though that was unsuccessfully disputed by Mr King). This proposal was ultimately rejected by the Glasgow Rangers board.

In December 2014, an opportunity arose to buy a substantial shareholding in Glasgow Rangers from a number of different shareholders, including Laxey Partners. These purchases were made in part by some of those who had been part of the October 2014 funding proposal and separately by an apparently independent company, New Oasis Asset Management Limited (NOAL), a BVI-incorporated company. Between them, on 31 December 2014 and 2 January 2015, the two blocs ended up with a combined 34.05% stake in Glasgow Rangers.

Acting in concert

NOAL purported to be a company independent of Mr King and his family. It was owned through a Gibraltar company which was the trustee of Mr King's family trust. Mr King was at pains to stress that he did not control or direct NOAL, and that any actions it took were independent of him.

Despite this structure, the Panel Executive, Hearings Committee and Takeover Appeal Board all ruled otherwise.  They all looked through the corporate structures, noting the presumption that a person and his related trust are acting in concert and the fact that the circumstantial evidence indicated that Mr King had made the decisions as a result of which NOAL acquired the shares. The conclusion was therefore that NOAL was acting in concert with Mr King and, through Mr King's actions and communications with the other shareholders, he was also acting in concert with those other shareholders.

Despite David King not having made the share purchases himself, the Takeover Appeal Board upheld the rulings of the Panel Executive and Hearings Committee that it is Mr King himself who is to make a Rule 9 mandatory offer, or to procure such an offer to be made.

Key considerations

This decision highlights a number of key points which those involved in Takeover Code situations need to bear in mind:

  • the Takeover Panel can look through corporate and trust structures and entities and decide who is (in its mind) the true controller, and can hold that person responsible for Takeover Code compliance as a result of the actions of what are otherwise legally independent entities;
  • there are no hard and fast rules as to how a concert party may come into existence, with the Takeover Appeal Board endorsing the Takeover Panel's statement in Guinness plc/The Distillers Company that "acting in concert" could come about through tacit understandings or "nods and winks" between those involved. A holistic view of the circumstances will be applied, rather than a strict "black letter law" judgment;
  • if there is any question as to whether or not a concert party has been (or may be treated as having been) formed, the Takeover Panel must be consulted (see section 6(b) of the Introduction to the Takeover Code and the Takeover Panel Statement on Asia Resource minerals plc (formerly Bumi plc), and any arguments against the existence of the concert party made. The core point is that if there is any doubt as to the application of the Takeover Code, the Takeover Panel must be consulted; and
  • where a concert party has been formed, it is important to agree with the Panel that it has ceased to exist.

Finally, both David King and Glasgow Rangers made the point that requiring Mr King to make a mandatory offer now at the price at which the shares were acquired in 2014/15 would be at a price below the current market value and would not be in the interests of either shareholders or Glasgow Rangers. However, the Takeover Appeal Board (again upholding the decisions of the Panel Executive and Hearings Committee) decided that the Takeover Code provisions are clear and are not tempered by outside influences, and therefore the mandatory offer was required to be made, even though it was likely to be meaningless in reality.