ASIC Intervenes in Federal Court Regarding David Jones Takeover
Wednesday 9 July 2014 @ 9.11 a.m. | Trade & Commerce
In a judgment yet to be released by the Federal Court but handed down on 2 July 2014, the Australian Securities and Investment Commission (ASIC) has had its bid to delay the takeover of David Jones by Woolworths denied.
Facts
ASIC intervened in South African retailer Woolworths' $2.2 billion takeover of David Jones and $213 million mop-up offer for Country Road. ASIC attempted to force David Jones and Woolworths to provide more information to shareholders before they meet on July 14 to consider the offer.
ASIC is concerned that Mr Lew (Solomon Lew, who threatened the original David Jones deal by emerging with a 9.9 per cent blocking stake) is set to receive a multimillion-dollar ''collateral benefit'' by selling his 11.8 per cent stake in Country Road to Woolworths.
Woolworths's $17 a share mop-up offer for Country Road is conditional on the David Jones scheme of arrangement becoming effective.
Reaction to the Federal Court Intervention
Shareholders and market participants believe the corporate cop may be doing more harm than good by threatening to withhold its consent to the scheme of arrangement, raising concerns at a coming court hearing or opposing the scheme altogether because of a multimillion collateral benefit to rag trader Solomon Lew.
"I think $4 a share is a full price, to be honest,'' Allan Gray managing director Simon Marais said:
"I can see it's not a great thing that's happened but do you want to kill the deal because of this? In this case it clearly does more harm than good [if the deal is blocked] but ASIC's case may be about trying to lay down the law for future deals.''
Next Steps for ASIC
After failing to convince the Federal Court of the need for an independent valuation of the collateral benefit to Mr Lew, ASIC is looking at several other options to protect the interests of David Jones’s shareholders.
ASIC does not have authority to stop Mr Lew from voting his shares in David Jones at a scheme of arrangement meeting on July 14. However, ASIC is expected to closely track developments over the next two weeks and monitor voting at the scheme meeting. Lawyers believe ASIC may also issue notices to David Jones, Woolworths, Mr Lew and their advisers to uncover evidence that has not been disclosed to shareholders or the court. Depending on the outcome of the shareholder vote, ASIC may withhold a letter of consent, raise matters of concern or oppose the scheme at a second court hearing on July 17.
ASIC’s concerns may be overruled by the court and the scheme may become effective if the judge believes that David Jones’s “non-interested” shareholders were fully informed. However, if David Jones shareholders also raise concerns about the scheme vote or the collateral benefit to Mr Lew, the court may be more inclined to heed their views.
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