Breach of Takeovers Code for Late Announcement

Last week SFC's Takeovers Executive issued a public notice criticising the failure of Bonus Raider Investments Ltd to make a timely announcement in connection with the acquisition of shares in iMerchants Ltd (8009), which constitutes a breach of Takeovers Code.

The story as follows:

• Bonus Raider is a wholly-owned subsidiary of China Water Industry Group Ltd (1129).
• On 12 Dec 2007, China Water, Bonus Raider and iMerchants jointly announced the possible unconditional mandatory cash offers by Bonus Raider for iMerchants' shares.
• The possible offers related to an agreement under which Bonus Raider had conditionally (subject to approval of China Water's shareholders in a general meeting) agreed to aquire 67.32% (i.e. exceeding the 30% trigger point) in iMerchants from its then controlling shareholder.
• On 12 Feb 2008, China Water announced that its shareholders had approved the acquisition in iMerchants but did not mention the date of completion of the acquisition agreement.
• On 21 Feb 2008, Bonus Raider and iMerchants despatched a composite offer document setting out the terms of the unconditional mandatory general cash offers and indicating that the acquisition agreement had already been completed on 14 Feb 2008.

Under Rule 3.6 of Takeovers Code, Bonus Raider was required to announce the completion of the acquisition agreement on 14 Feb 2008 but it failed to do so. This was a funny mistake. According to Bonus Raider, the breach was due to the fact that the parties had focused their efforts on completing the acquistion agreement and preparing the composite offer document, thus omitting the announcement.

SFC's concern was that during the period from 14 Feb 2008 to 21 Feb 2008 the stock market had not been informed of the acquisition. However, I don't think whether the market had been totally unaware of the matter if Bonus Raider announced the approval of China Water's shareholders to acquire iMerchants' shares. This incident appeared to be a technical breach and thus a public criticism was appropriate.