The Founder, the Brother-in-Law and the 30% Line
Grandview Holdings Ltd is a Hong Kong-listed company. Its founder, Mr Lau, holds 28.4%. His brother-in-law, Mr Chan, holds 3.1%. Mr Lau and Mr Chan have a written voting agreement: Mr Chan votes as Mr Lau directs at general meetings in return for an annual fee. On 3 March, Mr Lau buys 1.8% from an institutional investor at HK$6.20 per share, taking him to 30.2%. On 10 March, Mr Chan buys 2.0% on-market at HK$5.80, taking him to 5.1%. No offer is announced. Mr Lau tells his adviser: 'I only crossed 30% by 0.2%, so the creeper rule lets me buy up to 2% in 12 months.' On 2 March, Mr Lau's personal assistant bought 150,000 Grandview shares in her own account after seeing a board paper about a possible privatisation at HK$7.50 per share. The board paper was marked 'strictly confidential'. The PA reports to Mr Lau's secretary, not to the board.
1. Is a mandatory general offer triggered? By whom, at what price, and why?
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Concert party and trigger. Mr Lau and Mr Chan are very likely acting in concert. A written voting agreement under which Mr Chan votes as Mr Lau directs, for a fee, is a classic form of co-operation to consolidate control. Their combined holding before March was 31.5%, already above 30%. Mr Lau's 1.8% purchase and Mr Chan's 2.0% purchase are therefore acquisitions by the same concert group. The creeper in Rule 26.1 applies to a person holding between 30% and 50% who acquires 2% or more in 12 months; the group acquired 3.8% in eight days, so the creeper is clearly breached. Even if they were not concert parties, Mr Lau's own purchase took him from 28.4% to 30.2%, crossing the 30% threshold and triggering a mandatory offer. His 'only 0.2%' argument is wrong: there is no de minimis tolerance, and the creeper is an additional trigger, not a safe harbour for a first crossing. The offer must be made to all shareholders, in cash or with a cash alternative, and at not less than the highest price paid by Mr Lau or any concert party in the six months before the offer: HK$6.20.
2. What are the consequences of Mr Chan's purchase and the failure to announce an offer?
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Consequences. Because a mandatory offer obligation arises, an announcement must be made immediately. The failure to announce is a breach of the Takeovers Code and may lead the Takeovers Executive to require an offer at the highest price, to criticize the parties publicly, or to take other disciplinary action. Mr Chan's purchase is not a way around the trigger; as a concert party, his acquisition is attributed to Mr Lau. The concert party relationship must be disclosed in the offer document and to the Executive. Mr Lau should also correct his misunderstanding in writing to his adviser. The board of Grandview should be informed, and an independent financial adviser should be appointed to advise the independent shareholders once an offer is made. If the group does not make an offer, the Executive can apply sanctions, including a 'cold shoulder' order, and the SFC can take action for breach of the Code.
3. Analyse the personal assistant's share purchase under the inside information regime.
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The PA's trade. The board paper about a possible privatisation at HK$7.50 is specific, confidential and likely price-sensitive. A reasonable investor would regard it as materially affecting the share price. The PA is an employee and therefore a connected person. She traded while in possession of inside information, so her conduct falls within the insider dealing regime in Part XIVA of the SFO. She cannot rely on any takeover safe harbour: she was not a party to the offer or an adviser, and she traded for her own account. The fact that she reports to Mr Lau's secretary rather than the board does not help; she saw the paper. The company should have had controls on board papers, restricted lists and pre-clearance. The firm should investigate, preserve the board paper and trading records, and report to the SFC. Mr Lau may also face questions about whether he tipped her or failed to prevent the trade.