After shareholder activists were defeated at Management Resource Solutions (LSE:MRS) a fortnight ago, questions were asked around whether an undisclosed concert party was exerting board control over the company. If such a concert party existed then this would be a matter for the Takeover Panel to investigate. The Takeover Panel oversees the application of the Takeover Code in public markets. According to information seen by ValueTheMarkets.com, a number of requests have been made to the Panel to take up this issue. We’ve now been asked to provide other concerned shareholders with information on how they can add their voices to this effort.
The matter at stake here is whether or not a mandatory bid now needs to be made for MRS.
The Takeover Code describes certain conditions under which a group of individual holders, working in concert, must make a mandatory bid for a company. This is known as a “Rule 9 bid”, named after Rule 9 of the Code.
A Rule 9 bid is triggered when an individual or concert party collectively holds greater than 30pc of a company’s issued share capital. There are certain exemptions applied to this threshold, the most well known of which is called a “whitewash”. However, a whitewash requires prior approval from the Takeover Panel and from shareholders at a vote in a general meeting. As such, the exemption does not apply in this instance. This means that if a concert party did exist at the time of May’s general meeting, and it held over 30pc of MRS’ shares, then we are well into mandatory bid territory.
Under the requirements of a Rule 9 bid the price of any such takeover offer must be made at the highest price an individual member of the concert party paid for shares in the preceding 12 months. In the case of MRS, this would mean that any bid would be set at least at 6.5p. This was the price of last July’s accelerated bookbuild in the company, which was only taken up by “directors, employees and contractors”.
Of course, the requirement for a mandatory bid all hinges on the Takeover Panel determining whether or not a concert party existed at all.
Publicly available information makes a compelling case.
I will begin the definitions of a concert party, as defined in the Takeover Code, which I have included in full the bottom of this article. You can read those for yourself to take a view on whether or not you believe a concert party existed, but Definition 9 stands out. It says those working in concert include;
“(9) shareholders in a private company who sell their shares in that company in consideration for the issue of new shares in a company to which the Code applies, or who, following the re-registration of that company as a public company in connection with an initial public offering or otherwise, become shareholders in a company to which the Code applies.”
This is particularly relevant to MRS following the highly controversial Alerion acquisition. Under the terms of this deal, MRS paid £1.32m in shares for a company that had only existed since August 2018, had made an £88,000 loss, and only had tangible assets of £47,650.
This deal enraged MRS’ shareholder base and was the catalyst for the failed shareholder action. However, there could now be a sting in the tail for MRS’ board.
To complete the acquisition, MRS issued 26.4m shares to the owners of Alerion. These were subject to a lock in period. It seems almost certain they were used to vote in favour of the board at the general meeting to defeat the activists’ resolutions.
We know from MRS’ website that at the time of the general meeting there were 39,899,653 MRS shares “not in public hands”. This effectively means stock held by directors, family members and other parties connected to the board. If you add the 26.4m Alerion shares to this stock then this equals 66,299,653 MRS shares. This equated to 29.7pc of MRS’ issued share capital, a shade under the 30pc Rule 9 mandatory bid threshold.
Where things get interesting is when you consider who else voted in support of the board and whether or not they might be viewed as having acted in concert. We know from this announcement that Mr Leon Hogan had an extensive set of business and personal connections to MRS, its board and the Alerion vendors. We also know that 90,977,822 MRS shares were used to vote against the 22 May resolutions. According to MRS’ website, at the time of this vote, Mr Hogan held 17,574,467 MRS shares. It seems a reasonable assumption that he used these shares to support the MRS board.
Whether or not Mr Hogan, or any other board supporter, was working in concert with the MRS board and the Alerion vendors is a matter for the Takeover Panel to decide. However it is worth noting the following provision in the Code:
“The definition of “acting in concert” contains a list of persons who are presumed to be acting in concert unless the contrary is established.”
In other words, if a group of individuals conforms to one or more of the definitions described below then they are presumed to have formed a concert party and the responsibility falls to them to prove otherwise.
Since we can be certain the Alerion shares were used in concert with those “not in public hands” (i.e. effectively controlled by the board) and that this group represented 29.7pc of the issued share capital, there seems to be a fairly compelling case to answer. If the Takeover Panel investigates this and identifies another 0.3pc of MRS’ issued share capital was used in concert to support the board, then the 30pc threshold will have been breached and a mandatory bid must follow.
If you are a concerned MRS shareholder and wish to contact the Takeover Panel about this then either send an email to [email protected] or call +44 (0) 207 382 9026.
Feel free to use the email template below as part of your request
Dear Sir or Madam,
My name is XXXXXX and I am a shareholder in Management Resources Solutions (LSE:MRS). I am writing to you to request that you investigate whether or not an undisclosed concert party in the company existed at the time of the recent general meeting on 22 May 2019, which defeated the resolutions tabled by a legitimate shareholder action group.
Based on publicly available information and the Takeover Code, I am concerned that such a concert party existed between:
The current directors of MRS
The former owners of Alerion Consulting Limited, which MRS acquired for shares in April 2019
Certain other current and former employees and contractors to the company, who participated in an accelerated bookbuild on 06 July 2018, which was solely taken up by directors, employees and sub contractors at the time – https://www.investegate.co.uk/management-res-sol–mrs-/rns/accelerated-bookbuild/201807061538409150T/
I now request that you please confirm the following:
Whether such a concert party existed in MRS on 22 May 2019, as defined under the Takeover Code
If such a concert party existed, whether or not it controlled greater than 30pc of the issued share capital of MRS, thereby triggering the requirement for a mandatory bid under Rule 9 of the Takeover Code.
Thank you and I look forward to your response.
The Takeover Code – Definitions – Acting in Concert
“Without prejudice to the general application of this definition, the following persons will be presumed to be persons acting in concert with other persons in the same category unless the contrary is established:
(1) a company, its parent, subsidiaries and fellow subsidiaries, and their associated companies, and companies of which such companies are associated companies, all with each other (for this purpose ownership or control of 20% or more of the equity share capital of a company is regarded as the test of associated company status);
(2) a company with its directors (together with their close relatives and the related trusts of any of them);
(3) a company with any of its pension schemes and the pension schemes of any company described in (1);
(4) a fund manager (including an exempt fund manager) with any investment company, unit trust or other person whose investments such fund manager manages on a discretionary basis, in respect of the relevant investment accounts;
(5) a person, the person’s close relatives, and the related trusts of any of them, all with each other;
(6) the close relatives of a founder of a company to which the Code applies, their close relatives, and the related trusts of any of them, all with each other;
(7) a connected adviser with its client and, if its client is acting in concert with an offeror or the offeree company, with that offeror or offeree company respectively, in each case in respect of the interests in shares of that adviser and persons controlling#, controlled by or under the same control as that adviser (except in the capacity of an exempt fund manager or an exempt principal trader);
(8) directors of a company which is subject to an offer or where the directors have reason to believe a bona fide offer for their company may be imminent. (See also Note 5); and
(9) shareholders in a private company who sell their shares in that company in consideration for the issue of new shares in a company to which the Code applies, or who, following the re-registration of that company as a public company in connection with an initial public offering or otherwise, become shareholders in a company to which the Code applies.”
Author Ben Turney