The Takeovers and Mergers Panel (Panel) upheld the Takeovers Executive's (Executive) ruling that the completion of certain transactions between ArcelorMittal, a substantial shareholder of China Oriental Group Company Limited (China Oriental), and counterparties involving shares of China Oriental on 30 April 2014 did not give rise to a mandatory general offer obligation under the Code on Takeovers and Mergers (Takeovers Code) by ArcelorMittal to acquire all the shares of China Oriental (Note 1).
Following a general offer by ArcelorMittal for shares in China Oriental in 2008, ArcelorMittal and Mr Han Jingyuan, chairman of China Oriental, held 47% and 45% shares of China Oriental, respectively. As a result, the minimum public float requirement under the Listing Rules of the Stock Exchange of Hong Kong was not satisfied.
ArcelorMittal subsequently sold 9.9% and 7.5% of shares in China Oriental it owned to ING Bank (ING) and Deutsche Bank (DB), with a view to satisfying the requirement of the Listing Rules. As part of the transactions at the time, ArcelorMittal granted ING and DB put options entitling them to sell back the shares of China Oriental to ArcelorMittal at the original purchase price (with adjustments) (Note 2).
The put options expired on 30 April 2014 and ArcelorMittal proposed to extend the arrangement with the put option with ING for one year on amended terms. It also proposed to close the arrangement with DB and enter into an arrangement with Macquarie Bank Limited (Macquarie) which was similar to the amended arrangement with ING. These transactions were to be completed simultaneously (Note 3).
As a result of the new arrangements between ArcelorMittal and the counterparties, i.e. ING and Macquarie, the independent non-executive directors of China Oriental applied to the Executive for a formal ruling that a mandatory general offer had been triggered by ArcelorMittal.
The Executive ruled on 21 August 2014 that ArcelorMittal had not triggered a mandatory general offer. On 1 September 2014, the independent non-executive directors of China Oriental applied to the Panel to review the Executive’s ruling.
The Panel met on 25 September 2014 to consider the matter and concluded that the completion of the agreements between DB and ArcelorMittal on the one hand and ArcelorMittal and Macquarie on the other did not result at any time in ArcelorMittal acquiring additional voting rights as these voting rights passed directly from DB to Macquarie.
The Panel also ruled that Macquarie and ArcelorMittal are presumed to be acting in concert by virtue of the financial arrangements between them and the presumption had not been rebutted. The Panel further ruled that given the similarity of the arrangements, it would follow that both ING and DB were also parties presumed to be acting in concert with ArcelorMittal (Note 4).
Since ArcelorMittal and its concert parties, i.e. DB, ING and Macquarie, held a combined 47% stake in China Oriental throughout the existence of such arrangements, the Panel concluded that the arrangements did not increase the concert parties’ aggregate holding; and did not cause any member of the concert party group to cross a mandatory offer trigger point, or any significant change to the concert party with the substitution of Macquarie for DB. As a consequence, a mandatory offer obligation had not arisen.
A copy of the Panel's decision can be found on the SFC's website (Note 5).
Notes:
- Under the Takeovers Code, a mandatory offer is normally triggered when a person or persons acting in concert cross a takeover offer trigger point, being either 30% or, if holding not less than 30% but not more than 50%, increasing a shareholding by more than 2%.
- The put option granted by China Oriental was fully cash collaterised as in each case the collateral was netted off against the purchase price so that no cash changed hands with the result that ING and DB acquired a shareholding interest in China Oriental without any financial outlay.
- ArcelorMittal, whose shareholding in China Oriental was 29% at the time, consulted the Executive who confirmed on a consultation basis that a mandatory general offer would not be triggered as a result of these transactions.
- Under the Takeovers Code, persons acting in concert comprise persons who, pursuant to an agreement or understanding, actively cooperate to obtain or consolidate “control” of a company (i.e. holding 30% or more of its voting rights) through an acquisition of voting rights. The Takeovers Code presumes a person (other than an authorised institution under the Banking Ordinance) who provides financial assistance to another for the acquisition of voting rights to be acting in concert with each other, unless the contrary is established.
- The decision can be found in the "Takeovers and Mergers Panel and Takeovers Appeal Committee decisions and statements" section of the SFC website. From the home page, follow the path: "Regulatory functions" > "Listings & takeovers" > "Takeovers & Mergers" > "Decisions & statements" to go to the section.