Dick's Tricks at Harvey Nicks
13 November 2002
We last wrote about this group in our article Clicks and Tricks on 6-Jul-00, regarding a previously undisclosed connected transaction between HK-listed Dickson Concepts (International) Ltd and a company controlled by Dickson Poon (Mr Poon), its Chairman.
Thankfully, the proposed GEM spin-off of Dickson Cyber Concepts Ltd was never inflicted on the investing public, and the flagship "Cyber store" at Kowloon Station which was opened with much fanfare by HK Chief Executive Tung Chee-hwa has now become Dickson Warehouse, where you can find a mixture of odd lots in an odd setting.
Now over to London where Mr Poon is trying to privatise the Absolutely Fabulous Harvey Nichols Group PLC (HVY), of which he owns 50.1%, which he claims is having a terrible time in the UK retail sector, so terrible in fact that it has recently opened a 65,000 sq ft store in Edinburgh.
His initial proposal to privatise HVY at 250p per share was an all-or-nothing Scheme of Arrangement under the UK Companies Act, which requires approval of a majority in number of the minority shareholders who hold at least 75% of the voted shares in the shareholders' meeting.
This scheme was blocked by minority shareholders including Deutsche Asset Management, which owns about 30% of the free float. Last Friday, the last business day before the meeting, Mr Poon tried to head off the vote he was sure to lose, with a proposed adjournment of the meeting. Nevertheless, the meeting went ahead on Monday without adjournment, and the Scheme was voted down.
Now you might think that was the end of it, but HVY's board, which had already recommended Mr Poon's previous proposal, was willing to recommend another proposal, this time by means of a general offer for all the shares he doesn't own, at the same price. That recommendation mean the UK Panel can waive the UK Takeover Code Rule 35.1 which requires a period of 12 months before a subsequent offer, and it has apparently done so. It would certainly be something of a stretch to call the new offer a variation of the old one, since the old one had been voted down.
The difference between a general offer and a scheme of arrangement is that the offer can be accepted or declined by each shareholder individually, while a scheme of arrangement is an all-or-nothing deal. The new offer does not require any vote and is conditional on acceptances for 50% of the shares Mr Poon doesn't own (taking his holding to 75%), although that condition could be waived.
The Big Squeeze
In the UK, under the UK Listing Rules, Rule 1.21 allows the board of a listed company to simply withdraw the company from listing after giving 20 business days' notice to shareholders that it will do so. It sounds like a licence for abuse.
By contrast, the voluntary delisting of a HK company (with no other listing elsewhere) under Listing Rule 6.12 requires the approval of 75% of shares voted by independent shareholders other than the directors, chief executive and controlling shareholders.
The offer announcement for HVY states:
"In the event that the Offer becomes or is declared to be unconditional in all respects it is probable that the listing of Harvey Nichols Shares on the Official List will be cancelled...A decision in relation to de-listing will be made by the Board of Harvey Nichols following the Offer becoming or being declared unconditional in all respects; shareholders will be informed of that decision at the appropriate time."
In other words, take the offer or risk holding unlisted shares. Of course, that is not an attractive option - without the UK Listing Rules, a company has much lower disclosure requirements (for example, no interim reports or announcements of transactions) and no market for the shares. In Hong Kong, we called this the Hobson's Choice on Privatisations that was used to force minorities into accepting low-ball privatisation bids.
Following such pressure, the Hong Kong Takeover Code was overhauled and in Feb-02 the loophole was closed. Now, under Rule 2.2 of the Code, an offer can only result in a delisting if the offeror acquires enough shares to exercise, and actually exercises, its legal rights of compulsory acquisition, thereby owning 100% of the company. To exercise those rights, an offeror for a HK-incorporated or UK-incorporated company would have to acquire 90% of the free float, and in the case of HVY, Mr Poon would have to own 97.5% before he could buy the remaining 2.5%. Otherwise, the listing would be maintained.
Just for once, it's nice to note that Hong Kong regulators have closed a loophole that is still open in London. Still, Hong Kong is famous for its exports, and bad governance techniques seem to be our latest product. The UK regulators had better close this loophole and give minority shareholders a veto over voluntary delisting, otherwise they can look forward to a string of imitations.
Your Editor is a member of the Hong Kong Takeovers and Mergers Panel.
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