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Securities watchdog censures advisers in failed 2018 Delong buy-out; CEO revives cash offer

THE chief executive of Delong Holdings revived his bid to privatise the company on Monday, even as the Securities Industry Council (SIC) ruled that an aborted buy-out attempt in late 2018 breached Singapore’s takeover code.

Delong CEO Ding Liguo - who is also executive chairman of the company - has again made a voluntary conditional cash offer of S$7 a share, through an offer vehicle that he owns with his spouse, Zhao Jing.

The offeror and its concert parties together now hold an 81.48 per cent interest in the mainboard-listed steelmaker, which the deal values at S$771.3 million.

Meanwhile, a five-person committee put together by the SIC has censured all those involved in the original, failed deal - that is, the offeror; its financial adviser, PrimePartners Corporate Finance; and its legal adviser, Shook Lin & Bok.

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The SIC committee also accepted Shook Lin & Bok partner David Chong’s offer to abstain from takeover code-related work for 15 months, as well as PrimePartners Corporate Finance’s Mark Liew and Yong Chin Vei’s offer to do so for nine months. Both abstention periods began on April 23, 2019.

The Dings pulled out of their earlier offer on Oct 11, 2018, after just two weeks, as Shook Lin & Bok realised that a concert party of offer vehicle Best Grace Holdings had bought a 15.04 per cent stake in Delong at a higher price of S$7.42 a share in June 2018 - or less than six months before the offer.

Under the Singapore Code on Takeovers and Mergers, the offeror was thus obliged to make a cash offer to shareholders at an offer price of S$7.42, but did not do so. While the SIC gave it the chance to raise the initial offer price, the offeror could not secure the financing needed and the offer was scuppered.

After an SIC probe into the matter, the regulator’s hearing committee found that Shook Lin & Bok fell short of the standards expected of a legal adviser under the code.

The firm had advised both the offeror and PrimePartners Corporate Finance, at two earlier meetings, that the offer should be made at the highest price paid for shares in the three months prior to the offer, under a different part of the takeover code.

Shook Lin & Bok did not recognise, until contacted by a third party, that the offeror’s cash purchases from two other firms triggered a longer six-month reference period, the SIC said in its statement, calling this failure by the law firm a serious lapse.

Meanwhile, the SIC hearing committee found PrimePartners Corporate Finance “relatively less culpable” than Shook Lin & Bok in the breach of the takeover code.

The committee acknowledged that the financial adviser - which had been tasked with making sure that the offeror could fulfil the conditions precedent for the financing for the offer - was entitled to receive advice from Shook Lin & Bok on the offer price. Still, it “should have exercised due care and independent judgment in relying on the advice it received”, the SIC added.

PrimePartners Corporate Finance and Shook Lin & Bok, as professional advisers to the offeror, “had collective responsibility to ensure that the offeror complied with the code”, the SIC noted.

“In advising their clients, advisers have to be vigilant and exercise due care at all times. Advisers must be conversant not only with the requirements of the code, but also how these requirements are applied in practice. This is fundamental, and cannot be over-emphasised.”

The SIC added that advisers are expected to have proper processes and controls in place to ensure that all the relevant provisions of the code are taken into account.

Best Grace has since been given a waiver by the SIC from the rule that bars an offer from being re-introduced within 12 months of a withdrawal. It relaunched its offer on Monday, with Stirling Coleman Capital replacing PrimePartners Corporate Finance as the financial adviser.

Shook Lin & Bok said in a statement to the press that Best Grace and its affiliates “continue to instruct our firm on the relaunch of the offer ... and also various new matters”, while adding that the firm can still advise on work both related to the takeover code and otherwise, as its mergers and acquisitions practice has more than 10 partners and more than 20 associates.

“Shook Lin & Bok recognises the importance of compliance with the code, including its general principles and spirit,” it said in its statement. “We have enhanced our processes and prudential standards to better discharge our professional duties to our clients.”

The SIC committee has decided not to make anyone compensate Delong shareholders, given what it deemed “the limited impact of the breach”, as the rule-breaking was spotted soon after the announcement of the offer, and the offer was pulled before the offer document was sent out.

Also, a trading halt in Delong shares was called within three business days of the offer announcement, and lifted only after the offer was withdrawn, the committee noted.

But “the hearing committee emphasises that its decision in this case should not be regarded as establishing any precedent”, the SIC added. “Any future cases where the issue of compensation may arise will be considered solely in the light of the circumstances of the particular case.”

Best Grace noted in a separate bourse filing that its revived cash offer, which marks a 16.5 per cent premium over the last transacted share price, would give shareholders the chance to cash out of their investments in Delong, “which may otherwise be difficult due to the low trading liquidity of the shares”.

Taking Delong private would save on listing-related compliance costs and give the offeror more management flexibility, Best Grace added, although it has no plans right now to shake up the company’s business, re-deploy its fixed assets, or cut staff.

Trading in Delong shares has been suspended since July 24. The counter last closed at S$6.01.