Broadcaster ARN Media has been found to be in contravention of takeover rules in its acquisition of shares in target SCA.
The Takeovers Panel has ruled “unacceptable” how ARN acquired shares in SCA from fund manager Allan Gray.
ARN and Allan Gray say the contraventions of the rules were “inadvertent”.
However, the panel is now considering what action to take, which could stop ARN’s bid for SCA for six months..
ARN, backed by private equity firm Anchorage Capital Partners, last month launched a takeover bid for competitor SCA.
SCA shareholders are being offered 94 cents per share. The offer, valuing SCA at $330 million, is made up of 0.753 of an ARN share and 29.6 cents cash for each SCA share.
The breach of the rules goes back to the middle of this year when ARN Media acquired an interest of 14.8%, or 35,505,074 shares, in SCA for $38.3 million.
ARN then described the buy as a "strategic equity investment".
Those shares were acquired from Allan Gray, which also had 20.04% of ARN, and others.
As a result of the ARN acquisition, fund manager Allan Gray’s voting power in SCA, directly and through its ARN holding, increased to 31.24% from 21.71%.
This is well above the 20% rule. Section 606 of the Corporations Act prohibits the acquisition of a relevant interest in voting shares if a person's voting power increases from under 20% to more than 20%.
Unless there is a takeover offer. The bid didn’t come for another three months.
Investment and financial services group Keybridge Capital, which complained about the transaction, wants ARN and its associates stopped from acquiring any SCA shares for six months after the sale of the vested shares.
The Takeovers Panel usually orders the divestment of any shares above the 20% limit.
This could further delay ARN's takeover plans.
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