Breaches of the Takeovers Code
Under Rule 22 of the Takeovers Code, the parties to an offer and their respective associates, during an offer period, is required to disclose their dealings in relevant securities of the offeree company. And for the purpose of the Takeovers Code, an “Associate” includes “any bank and financial and other professional adviser…to the offeree company”. As such, upon the verbal engagement of Goldman Sachs by Wing Hang Bank on 8 November 2013, Goldman Sachs became an “associate” of Wing Hang Bank and was required to disclose its dealings in the relevant securities of Wing Hang Bank. Thus the non-disclosure of its trades in the relevant securities of Wing Hang Hank resulted in a breach of Rule 22.
Rule 21.5 of the Takeovers Code provides that “during an offer period, except for the exempt fund managers and exempt principal traders, no financial adviser…to an offeree company shall, except with the consent of the Executive…purchase offeree company shares or deal in convertible securities, warrants, options or derivatives in respect of such shares”. Some of the trades in the securities of Wing Hang Bank were principal trades falling outside the scope of dealings covered by the exempt fund manager and exempt principal trade status granted to the various Goldman Sachs entities, Goldman Sachs should have obtained the Executive’s consent prior to carrying out the trades.
Note 4 to Rule 8.1 of the Takeovers Code explained that a financial adviser to an offeree company should stop issuing research reports on the offeree company except with the Executive’s prior consent to safeguard against abuse by financial advisers who are connected with an offeree company. A financial adviser is not required to retrieve research reports already distributed prior to an offer period but all entities within the financial adviser’s group should stop distributing old reports and removed them from the websites. Goldman Sachs issued three research reports covering Wing Hang Bank on 17 September, 11 October and 22 November 2013 and a research commentary on Wing Hang Bank on 6 January 2014 (“Research Reports”). Prior to the issuance of the report dated 22 November 2013 or the research commentary dated 6 January 2014, Goldman Sachs did not obtain the Executive’s consent. And it also failed to remove the research reports dated 17 September and 11 October 2013 from its research portal immediately upon its appointment, which was also a breach against Note 4 to Rule 8.1.
Under Rule 10 of the Takeovers Code, where a document to shareholders includes information that constitutes a profit forecast, the party issuing the forecast must obtain and publish an accountant’s report and financial adviser’s report on the forecast in accordance with Rule 10.4 of the Takeovers Code. The Research Reports contained information relating to Wing Hang Bank’s earnings that constitutes profit forecasts but no reports on the profit forecasts were prepared by an accountant and a financial adviser in breach of Rule 10.3 (b) of the Takeovers Code.
Lessons to learn
The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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