Richard Inder: Takeovers decision a worry

The takeovers Panel ruling on the takeover of Oyster Bay Vineyards sets an awkward precedent.

The panel said on Thursday that it was not satisfied Oyster Bay had complied with the takeovers code because it omitted from the target company statement a valuation of its vineyards on the open market.

Independent directors, led by chairman Bill Falconer, had said it was inappropriate and misleading to include the information because the company held many long-term contracts with one of the bidders for the assets - Delegat's.

The key contract was for grapes, which effectively set the value of the asset (the value of an asset is ultimately tied to the income it produces).

The panel ruled that the information should have been included as it may have been material, and then froze the takeover.

Delegat's, which bid $4 a share for just over over 50 per cent of the equity, yet gained acceptances for more than 80 per cent, is now not allowed to take ownership of any of the securities. It is also not allowed to declare its offer unconditional.

Those investors who have accepted Delegat's offer will be sent an additional statement by Oyster Bay's independent directors stating the encumbered and the unencumbered value of the vineyards. They will be able to reconsider their acceptance.

Delegat's is perhaps the most obvious victim of the decision. It is being asked to pick up the tab for another's error.

These costs are very real, for if Delegat's does not float on the stock market by the end of the year, the interest rate on its bonds increases.

At the same time it will have to pick up the extra costs racked up by its advisers as the saga draws on.

Delegat's offer values Oyster Bay at $36 million. A 50 per cent stake is worth just $18 million. Fees on the transaction would, at a stretch, be $2 million and not enough to get top QCs excited.

Nevertheless, if a similar debacle had occurred in the middle of a larger bid, say one the size of Graeme Hart's bid for Carter Holt, the situation could be very different.

This is surely to give those contemplating bids in the future pause for thought.

Peter Yealands, who had bid $4 and made the complaint to the takeovers panel, has a rather more tenuous case.

He is calling for the panel to restart the process, claiming he would have bid more if the information had been included in the document. His case turns on shareholder anger at the value loss under the arrangements with Delegat's (Yealands says the directors have understated the value of the vineyards by $45 million).

Yealands, once in control of the business, presumably would have argued for Oyster Bay to renegotiate the grape supply contracts or opt out.

It is, however, by no means clear that he could have achieved either outcome.