Takeover Panel Armour Group plc - Criticism of Mr Bob Morton (6001F)

TIDMAMR

RNS Number : 6001F

Takeover Panel

23 February 2015

2015/3

 
                     ARMOUR GROUP PLC ("ARMOUR") 
 Introduction 
 This is a public statement of censure by the Panel Executive 
  of Mr Bob Morton for his failure to make an offer under 
  Rule 9 of the Takeover Code (the "Code") in compliance 
  with the Code in connection with the purchases of shares 
  in Armour by Mr Morton's four sons in June and August 2011, 
  and certain associated breaches of Rule 5 and Rule 2. 
 Background 
 The Executive became aware in late November 2014 of the 
  share purchases which gave rise to the breaches of the 
  Code described below. 
 As a result of a placing of new Armour shares in February 
  2011 (the "Placing"), Mr Morton and persons acting in concert 
  with him (the "Morton Concert Party") became interested 
  in shares carrying approximately 39.1% of the voting rights 
  of Armour. This issue of new shares to the members of the 
  Morton Concert Party was approved by a vote of independent 
  shareholders at a general meeting of Armour on 23 February 
  2011 and the obligation for the Morton Concert Party to 
  make an offer for Armour that would otherwise have arisen 
  under Rule 9.1(b) was "whitewashed" in accordance with 
  Note 1 of the Notes on the Dispensations from Rule 9. 
 In the whitewash circular published by Armour on 28 January 
  2011 in connection with the Placing (the "Whitewash Circular"), 
  the Morton Concert Party was disclosed as including: 
 (a)    Mr Morton; 
 (b)    Mrs Sue Morton, his wife; 
 (c)    Hawk Investment Holdings Limited ("Hawk"), a company 
         wholly-owned by Mr and Mrs Morton; 
 (d)    the Hawk Pension Fund; 
 (e)    Groundlinks Limited, a company owned by the trustees 
         of a trust for the benefit of Mr Andrew Morton, Mr 
         Morton's son; 
 (f)    Retro Grand Limited, a company owned by the trustees 
         of a trust for the benefit of Mr Edward Morton, Mr 
         Morton's son; and 
 (g)    Serrafina Holdings Limited, a company owned by the 
         trustees of a trust for the benefit of Mr Charles Morton, 
         Mr Morton's son. 
 The Executive understands that, later in 2011, certain 
  investors who had participated in the Placing wished to 
  sell their shareholdings in Armour. Mr Morton told the 
  Executive that he was asked if he would like to buy these 
  shares. Mr Morton declined to do so because he was aware 
  that he would not have been able to acquire an interest 
  in any further shares without incurring an obligation to 
  make an offer for Armour under Rule 9.1(b). Instead, believing, 
  incorrectly, that his adult sons would be regarded by the 
  Panel as independent of him (and not as part of the Morton 
  Concert Party) and that it was an opportunity to purchase 
  Armour shares at a good price, Mr Morton arranged for an 
  aggregate of approximately 6.8 million shares in Armour 
  to be purchased in the names of his four sons from the 
  sellers in August 2011. Mr Morton took this action despite 
  knowing that the trusts set up for the benefit of three 
  of his four sons were part of the Morton Concert Party 
  disclosed in the Whitewash Circular. Separately, in June 
  2011, Mr Charles Morton purchased 385,174 shares in Armour. 
  These share purchases together resulted in Mr Morton's 
  four sons each then becoming interested in 1.8 million 
  shares in Armour which, collectively, carried 7.4% of the 
  voting rights of Armour (in addition to the pre--existing 
  interests of the Morton Concert Party referred to above). 
 Mr Morton made gifts of an equal sum of money to each of 
  his sons, which were used to purchase the Armour shares 
  referred to above. 
 Neither Mr Morton nor his sons consulted the Executive 
  nor sought advice regarding the implications of these share 
  purchases under the Code. 
 Relevant provisions of the Code 
 The definition of "acting in concert" 
 Under the Code, persons acting in concert comprise persons 
  who, pursuant to an agreement or understanding (whether 
  formal or informal), co-operate to obtain or consolidate 
  control of a company or to frustrate the successful outcome 
  of an offer for a company. 
 The Executive's long-standing practice is to treat a person's 
  close relatives as acting in concert with that person unless 
  it can be demonstrated clearly that there has been a breakdown 
  in the relationship between that person and other members 
  of the family. 
 The requirement for a mandatory offer - Rules 9.1(b), 9.2 
  and 2.2(b) 
 In summary, Rule 9.1(b) provides that, except with the 
  consent of the Panel, when any person, together with persons 
  acting in concert with him, is interested in shares which 
  in aggregate carry not less than 30% of the voting rights 
  of a company but does not hold shares carrying more than 
  50% of such voting rights and such person, or any person 
  acting in concert with him, acquires an interest in any 
  other shares which increases the percentage of shares carrying 
  voting rights in which he is interested, such person shall 
  make an offer for each class of the remaining equity share 
  capital of the company in cash. 
 The prime responsibility for making an offer under Rule 
  9.1 normally attaches to the member of the concert party 
  who makes the acquisition which triggers the requirement 
  to make the offer. However, Rule 9.2 provides that, in 
  addition, each of the principal members of the concert 
  party may, according to the circumstances, have an obligation 
  to extend an offer. The Note on Rule 9.2 provides that 
  if the person who makes the triggering acquisition is not 
  a principal member of the concert party, the obligation 
  may attach to the principal member or members. 
 Rule 2.2(b) provides that an announcement is required to 
  be made immediately upon an acquisition of any interest 
  in shares which gives rise to an obligation to make an 
  offer under Rule 9.1. 
 Restrictions on share purchases - Rules 5.1(b) and 5.2 
 In summary, the effect of Rule 5.1(b) is that an acquisition 
  of an interest in shares which triggers an obligation to 
  make an offer under Rule 9.1(b) can only be made if one 
  of the exceptions in Rule 5.2 applies. 
 Application of the Code in this case 
 The definition of "acting in concert" 
 Mr Morton and his sons are close relatives. Mr Morton arranged 
  and/or financed the purchase of Armour shares by his sons 
  in June and August 2011. Trusts set up for the benefit 
  of three of his four sons were part of the Morton Concert 
  Party described in detail in the Whitewash Circular published 
  a few months previously. In the light of the facts in this 
  case and the Executive's long-standing practice in respect 
  of close relatives, the Executive concluded that Mr Morton 
  and his sons should be regarded as acting in concert with 
  each other. 
 The requirement for a mandatory offer - Rules 9.1(b), 9.2 
  and 2.2(b) 
 Immediately prior to the first of the share purchases by 
  Mr Morton's sons in June 2011, the Morton Concert Party 
  held shares carrying approximately 39.1% of the voting 
  rights of Armour. Each of the purchases of shares in Armour 
  by Mr Morton's sons in June and August 2011 triggered an 
  obligation to make an offer under Rule 9.1(b) and to make 
  an immediate announcement under Rule 2.2(b). No such offer 
  was made and no announcements were published. 
 In December 2014, the Executive ruled that an offer must 
  be made for Armour in accordance with Rule 9 at 4.75p per 
  share, being the highest price paid by any of Mr Morton's 
  sons for Armour shares in the period between June and August 
  2011 and in the 12 months previously (in accordance with 
  Rule 9.5). Mr Morton was a principal member of the Morton 
  Concert Party and he accepted that he was responsible for 
  making this offer. 
 On 24 December 2014, Hawk, a company wholly-owned by Mr 
  and Mrs Morton and the largest shareholder in Armour, announced 
  a cash offer at 4.75p per share for Armour shares not held 
  by the Morton Concert Party. On 16 January 2015, Hawk published 
  its offer document. The offer became unconditional on 3 
  February 2015 and closed on 20 February 2015, at which 
  time the Morton Concert Party held and had received acceptances 
  in respect of an aggregate of 62,718,210 shares carrying 
  64.62% of the voting rights of Armour. 
 Restrictions on share purchases - Rules 5.1(b) and 5.2 
 No exemption under Rule 5.2 applied to the purchases of 
  shares by Mr Morton's sons in 2011. Rule 5.1(b) was breached 
  as a result. 
 Conclusion 
 The Executive considers that the failure by Mr Morton to 
  make an offer under Rule 9 in compliance with the Code 
  in connection with the purchases of shares in Armour by 
  Mr Morton's four sons in June and August 2011, and the 
  associated breaches of Rule 5 and Rule 2, were serious 
  breaches of the Code. 
 The Executive considers these breaches to be particularly 
  concerning in view of the following: 
 (a)       Mr Morton has a record of failing to comply with his 
            obligations under the Code. Mr Morton had, on two 
            occasions within the two years preceding the 2011 
            share purchases, committed other serious breaches 
            of the Code and, on each occasion, Mr Morton was sent 
            a private statement of censure by the Executive pursuant 
            to Section 11(a) of the Introduction to the Code. 
            In the first of these cases, Mr Morton was privately 
            censured by the Executive for a failure immediately 
            to announce under Rule 2.2(b) that an obligation to 
            make an offer under Rule 9.1(b) had been incurred; 
 (b)       Mr Morton is an experienced investor who has been 
            closely involved in several transactions subject to 
            the Code including, through Southwind Limited, mandatory 
            offers for Lorien plc in 2007 and PSG Solutions plc 
            in 2009. As the chairman of Armour, he was involved 
            in the "whitewash" of the Morton Concert Party in 
            respect of the Placing, a matter of months before 
            his sons first purchased Armour shares. This involved 
            a detailed description of the Morton Concert Party 
            being included in the Whitewash Circular, a document 
            for which Mr Morton was responsible. Mr Morton was 
            therefore aware that the trusts which he had set up 
            for the benefit of three of his four sons were regarded 
            by the Panel as acting in concert with him; and 
 (c)       Mr Morton had the opportunity to consult the Executive 
            and his advisers, but chose not to do so. 
 Mr Morton has apologised to the Executive for the breaches 
  of the Code in relation to Armour described above. Mr Morton 
  has co-operated fully with the Executive throughout its 
  investigation and has been open and transparent in his 
  dealings with the Executive. Mr Morton accepted that he 
  should be regarded as acting in concert with his sons and 
  agreed to make an offer for Armour. 
 Nonetheless, Mr Morton's actions showed a disregard for 
  the Code and his previous breaches of the Code must also 
  be taken into consideration in determining the appropriate 
  disciplinary sanction. 
 Mr Morton is hereby criticised for his conduct in this 
  case and his record of failing to comply with his obligations 
  under the Code. Mr Morton has agreed the facts set out 
  in this statement and has accepted this sanction in accordance 
  with Section 11(a) of the Introduction to the Code. 
 
 23 February 2015 
 
 

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