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Opinion: Wine spat saga continues after court ruling

By Kate Perry of NZPA

Friday 2nd December 2005

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When Peter Yealands first started whining about the takeover process for Oyster Bay Marlborough Vineyards, it looked like a simple case of sour grapes.

After all, he'd just been pipped at the post in his effort to gain a majority stake in Oyster Bay by rival bidder Delegat's Wine Estate.

But when fellow Oyster Bay shareholder David Rankin chimed in with concerns about the Oyster Bay valuations that were presented to shareholders, the Takeovers Panel started to take the matter seriously.

What followed was a drawn out saga that culminated in the Takeovers Panel heading to the High Court about potential breaches of the Takeovers Code - the first time it has done so since the code came into force in July 2001.

On Tuesday, the High Court in Wellington scrapped Delegat's $4 a share partial takeover - despite the fact Delegat's had already won acceptances that would take its stake to over 51% of the company.

The Takeovers Panel senior executive officer Kerry Morrell told NZPA while it had taken four years for the panel to turn to the courts, the Oyster Bay case would not necessarily open floodgates for future cases.

"In a way, the decision seems to be seen by the market as sort of validating the panel's approach when it found breaches by Oyster Bay, and the court has in the end endorsed the approach that the panel recommended to remedies," he said.

He said potential court action was part of the structure of the Takeovers Act. "It's how it's designed to work."

He said the panel would only go to court if necessary.

"We are funded to do so and will do so if needed."

In a wrap up of the case on its website, law firm Chapman Tripp - which represented Rankin - agreed it was likely most takeover issues in the future would continue to be dealt with by the panel, rather than the courts.

"It remains likely that disputed takeovers will come before the courts only rarely - it has taken over four years for the first case to get that far. But Oyster Bay provides a first example of when and how the courts may be required to intervene, to help achieve the policy outcomes envisaged for the [Takeovers] Code," the law firm said.

The firm went on to say the New Zealand system was preferable to the Australian regime, where the Australian Takeover Panel has broad powers.

Morrell said the Australian panel intervenes in what they call "unacceptable circumstances".

"They have a broad brief... and when they intervene they would have powers similar to a court. They are able themselves to cancel and offer or have it restarted, whereas this panel is not able to do that, the courts have the power to do that here," he said.

He said there had been cases in the past here where the panel came close to taking court action - citing an incident last year when Bridgecorp fell foul of the panel when it bought a 19.99% stake in finance company Dorchester Pacific.

The panel had a problem with the "lock- up" agreement Bridgecorp had with Dorchester Pacific founder Brent King and other shareholders relating to the sale - which effectively gave Bridgecorp an option to buy another 5.05% of the company within a certain timeframe. The Takeovers Code requires investors who take their stake above 20% to make a full or partial takeover, which did not happen.

Morrell said court action was avoided with Bridgecorp when the various parties involved gave undertakings to dispose of shares and change some contractual arrangement.

"That could have ended up in the court had an outcome not been achieved by other mechanisms available to us," he said.

He said because the arrangement only involved a few parties it was easier to mediate a resolution outside of court.

"The panel certainly couldn't intervene in a big takeover transaction involving many hundreds of people in the way that the court is able to do," he said.

The Oyster Bay case involved a few more parties - each one surrounded by a possie of lawyers.

The case centred around concerns about valuations used in Oyster Bay's target company statement (TCS). Yealands and Rankin contended the vineyards could be worth up to twice the valuations in the statement that was sent out to shareholders.

The variation turned around whether the valuations were taken on an encumbered or unencumbered basis. The encumbered valuation of $45 million - which was used in the target company statement - took into account long term contracts Oyster Bay has to supply grapes to Delegat's (one third owner before the battle began).

According to Yealands and Rankin, Oyster Bay has an "unencumbered" valuation of $90m, excluding its supply contracts with Delegat's.

Although the panel originally only wanted a corrective TCS to be issued and that shareholders be given the right to revoke their acceptances of Delegat's offer, it changed its mind when it saw more information about the grape prices.

It changed its recommendation to the court, asking instead that the takeover offer be scrapped - a recommendation that the court followed.

The court also received an irrevocable undertaking from Mr Yealands he would launch a takeover offer for Oyster Bay for at least 50% of the company at a price not below $4.50 a share.

This week, he let his November 1 notice of takeover lapse, saying he had not finalised financial arrangements, but committed to make a fresh offer before Christmas.

A Delegat's spokesman said earlier this week the company was mulling what it would do next and had no immediate plans to appeal the decision. There was no word on whether the company would relaunch its takeover offer.

Sitting down and talking things through with Yealands over a glass or two of chardonnay seems highly unlikely.

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