Takeovers Code gives Chows room to waive mop-up provisions

Takeovers Panel chief executive Margaret Bearsley said the voluntary path was built into the Takeovers Code.

NBR Rich Lister John and Michael Chow are the first dominant owners of a company in recent memory to give shareholders the option of selling out of what was a shell company when they crossed the 90% threshold in a reverse listing of part of their property empire.

Typically, when a shareholder becomes the dominant owner – holding 90% or more of a company's shares – they will use mop-up provisions forcing the remaining investors to sell.

But the Takeovers Code allows for a voluntary sale process where investors have the option of selling but don't have to. The Chow brothers lodged their acquisition notice yesterday, offering the minority shareholders 1.1c a share while encouraging investors to reject the offer at what's required to be a "fair and reasonable" price.

Takeovers Panel chief executive Margaret Bearsley said the voluntary path was built into the Takeovers Code to provide flexibility for minority shareholders and a dominant owner to keep that structure though she can't recall another time when the compulsory mop-up provision wasn't used.

"The code provides two avenues, and the one that's almost always invariably followed is what's called a compulsory sale, so the dominant owner compulsorily acquires the rest and takes the company private, as you would expect would happen," Ms Bearsley said.

"The code is flexible enough to allow for the possibility that minority shareholders might want to stay in and that the dominant owner might want minority shareholders to stay in."

The Chow brothers took control of what was RIS Group when they sold two South Auckland buildings in an accommodation complex to the company in exchange for shares amounting to about 95%, before renaming the entity Chow Group. Since then, they've reduced their combined stake to 88.4% by distributing shares to family members.

When RIS [NZAX: RIS] shareholders were asked to vote on the reverse listing, Campbell MacPherson's independent adviser's report noted the transaction would make the Chow brothers dominant owners but that they had no desire to exercise their right to compulsorily acquire the outstanding shares.

In a separate report accompanying yesterday's acquisition notice, Campbell MacPherson called the circumstances "rare and somewhat counter-intuitive" in that the Chow brothers' interests had undertaken a reverse takeover to list their assets and weren't seeking to enforce their right to mop up the shares.

Chow Group's NZAX-listed shares fell 1.5c, or 21%, to 5.5c  today, still a premium to the Chow brothers' offer.