Rangers International Football Club Plc is the holding company of the leading Scottish football club, Glasgow Rangers. On 13 March 2017, the Takeover Appeal Board (the Board) published its decision in Rangers International Football Club Plc & Mr David Cunningham King, dismissing Mr King's appeal and upholding the prior rulings of both the Panel Executive and the Hearings Committee of the Takeover Panel that Mr King had acted in concert with three other shareholders in acquiring an aggregate holding of 34.05% of the shares in Rangers. Mr King was therefore obliged to make a mandatory offer to the remaining Rangers shareholders to purchase their shares pursuant to Rule 9.1 of the City Code on Takeovers and Mergers (the Code). The three other shareholders were Mr George Letham, Mr George Taylor and Mr Douglas Park.
Mr King's relationship with Rangers both as a fan and subsequently as a substantial investor and non-executive director goes back many years. Mr King has supported the club through its last few turbulent years and now sits on the board as chairman.
In October 2014, Mr King and Mr Letham with others had put forward a consortium funding proposal to gain control of Rangers in return for a major injection of capital, but the proposal, co-ordinated in part by Mr Letham, was rejected by the Rangers board. Mr King, Mr Letham and others then proposed to acquire a shareholding in Rangers of at least 25% which would effectively operate as a blocking stake, but that proposal came to nothing. However, Mr Letham and Mr King stayed in touch.
The three other shareholders purchased shares at 20p per share on 31 December 2014, taking their aggregate shareholding to 19.48%. Mr Letham admitted that he had acted in concert with Messrs Taylor and Park. Mr King then purchased a 14.57% stake from three institutional shareholders on 2 January 2015, through New Oasis Asset Limited (NOAL), a company incorporated in the British Virgin Islands and wholly-owned by Sovereign Trust International Limited (incorporated in Gibraltar), which was the trustee of Mr King's family trust established in Guernsey (the Glencoe Investments Trust). The share purchases were again all at 20p per share.
After the share purchases, the existing directors of Rangers were removed by the shareholders at an EGM in March 2015 and Mr King's nominees were appointed as directors of Rangers. In May 2015 Mr King was appointed chairman of Rangers.
The Panel Executive investigated allegations that there had been a breach of the Code and ruled on 7 June 2016 that Mr King had been acting in concert with Mr Letham, Mr Taylor and Mr Park and that Mr King should make a Rule 9 offer to buy all the issued shares of Rangers held by other Rangers shareholders at the price of 20p per share. The share purchases on 31 December 2014 and on 2 January 2015 were not co-incidental or unconnected, but were co-ordinated by Mr King and Mr Letham, as evidenced by emails passing between them. In the circumstances of the case, the Executive decided that it was just for Mr King alone to incur the obligation to extend a Rule 9 offer.
The Rangers board expressed the view to the Panel Executive and the Hearings Committee that there was no concert party and that a mandatory offer was not in the interests of Rangers or its shareholders. Mr King denied that he acted in concert with the other three shareholders and they denied that they acted in concert with him.
Mr King requested the Hearings Committee to review the Executive's decision, which it did and which it upheld. Mr King appealed to the Board.
The grounds for Mr King's appeal
Mr King's appeal included arguments that:
- NOAL had acquired the shares. Mr King contended that NOAL was an independent party whose interests he was not in a position to advance and in whose shareholdings he had no interest. NOAL was therefore not a concert party. Mr King did not acquire or control voting rights in relation to the acquired shares.
- The earlier funding proposal was an entirely different proposition and was not relevant in determining whether he had been acting in concert.
- Mr King's motivation in making the recommendation to NOAL was to work with supporters groups to restore proper standards of corporate governance to Rangers.
- A mandatory offer of 20p was of no benefit to shareholders as the shares were now worth more than 20p and subsequent changes in the shareholdings in Rangers would result in the mandatory offer being unfair to existing shareholders.
The relevant code provisions
Rule 9.1 provides when a mandatory offer is required. It states:
'Except with the consent of the Panel, when:
(a) any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which persons acting in concert with him are interested) carry 30% or more of the voting rights of a company;
…such person shall extend offers…to the holders of any class of equity share capital whether voting or non-voting…'…
Rule 9.2 deals with the obligations of other persons to make an offer by providing that:
'In addition to the person specified in Rule 9.1, each of the principal members of a group of persons acting in concert with him may, according to the circumstances of the case, have the obligation to extend an offer.'
Interests in securities
'a person will be treated as having an interest in securities if:
(1) he owns them;
(2) he has the right (whether conditional or absolute) to exercise or direct the exercise of voting rights attaching to them or has general control of them;'
Acting in concert
The Board's decision turned on the meaning of 'acting in concert' for the purposes of Rule 9.1:
'Persons acting in concert comprise persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control…of a company or to frustrate the successful outcome of an offer for a company. A person and each of its affiliated persons will be deemed to be acting in concert all with each other.
…the following persons will be presumed to be persons acting in concert with other persons in the same category unless the contrary is established:
…(5) a person, the person’s close relatives, and the related trusts of any of them, all with each other;'
'any undertaking in respect of which any person:
(d) has the power to exercise, or actually exercises, dominant influence or control'.
'an interest, or interests, in shares carrying in aggregate 30% or more of the voting rights…of a company, irrespective of whether such interest or interests give de facto control.'
The position of NOAL
The focus of the main grounds of appeal against the ruling was that Mr King and NOAL were separate, that Mr King did not have voting rights over the shares held by NOAL and that the Committee made impermissible inferences of acting in concert from different business propositions in October 2014.
There was, however, substantial email evidence demonstrating the co-operation of Mr King and Mr Letham and also of Mr King's control over NOAL. The Board decided that, even ignoring the documentary and circumstantial evidence suggesting that Mr King did in fact control NOAL in practice, there would be a clear presumption that NOAL and the entities comprising Mr King's family trust were acting in concert with Mr King, and hence with the rest of the concert party comprising Mr Letham, Mr Taylor and Mr Park.
NOAL did not make any application to be heard at the hearing or make any submissions, notwithstanding that Mr King had been informed that it was open to NOAL and the Sovereign Trust to apply to be heard and to make submissions.
The documents available did not disclose any involvement of NOAL, Sovereign Trust or the Glencoe Investments Trust in the proposals to invest in Rangers. In negotiating for the shares and instructing that the shares be put into the name of NOAL, Mr King acted as if NOAL, Sovereign Trust and the Glencoe Investments Trust were under his control in relation to the Rangers shares and so he was acting in concert with them and they with him. Mr King's denials were at odds with the evidence as to the acquisition of the shares and NOAL's requisition of an EGM which resulted in the appointment of the new board, both of which indicated that Mr King was in 'general control' over the shares within the terms of the Code's definition of interest in securities. Mr King decided on the number and price of the shares, instructed brokers to effect the purchases and caused his family trust to pay for the shares and put them in the name of NOAL. Mr King had a beneficial interest in the shares as a beneficiary under the Glencoe Investments Trust and had general control over the voting rights as evidenced by the requisitioning of the general meeting and the exercise of votes.
Relevance of the two previous funding proposals
Mr King had also argued that no relevance should be given to the two failed attempts to gain control of the Club in October 2014 and that the purchase of the shareholdings in January 2015 was an entirely separate business decision. The Board however agreed with the Committee that the prior communications between Mr King and Mr Letham were very relevant in determining the existence of an agreement between them to act in concert to obtain control. The two share purchases in December 2014 and January 2015 were the culmination of their concerted efforts.
Motivation of Mr King
The focus in the definition of 'acting in concert' is on the existence of the objective fact of persons co-operating to gain control of a company, not on their subjective personal motives or reasons for seeking control or for acquiring the shares. The facts relevant to acting in concert may be established by direct documentary or oral evidence and by reasonable inference from all the surrounding circumstances of the case.
Benefit to other Rangers shareholders
In requiring a mandatory offer to be made, Rule 9 operates according to its own terms, which do not include considerations of whether the shareholders will benefit from an offer in a particular case. That is not relevant to triggering an obligation to extend an offer under Rule 9.1. Mr King could not avoid the obligation to make an offer by reliance on an argument that a mandatory offer would not be in the best interests of the other shareholders or of Rangers.
Relationship with Mr Letham
There were in evidence contemporaneous documents, mostly emails, passing between Mr King and Mr Letham. The relationship between Mr King and Mr Letham from the time of the earlier proposals and the relevant events and communications was evidence of an agreement or understanding between them to co-operate and act in concert to obtain control of Rangers and to secure Mr King's appointment as chairman of the Rangers Board.
It was clear from Mr Letham's emails to Mr King that the two of them were co-operating directly with a view to purchasing a block of shares which would effect a change of control over the Rangers Board and that, when placed in the context of the earlier consortium funding and blocking stake proposals, "the case for concluding that Messrs Letham and King, at least, were acting in concert in purchasing the relevant shares becomes overwhelming".
The concert party
The existence and nature of an understanding between persons and whether their actions were concerted or co-incidental are often matters calling for the use of common sense in making reasonable inferences from all the surrounding circumstances. Those circumstances include the personal and working relationships between those who deny that they were acting in concert and their conduct.
The Board concluded, on the evidence that Mr King was acting in concert with Messrs Letham, Taylor and Park and NOAL was presumed to have acted in concert with Mr King and with those other persons with whom he had an understanding and was acting in concert (ie Messrs Letham, Taylor and Park). Mr Letham had admitted that he had acted in concert with Messrs Taylor and Park in relation to the acquisition of shares in December 2014. Point (5) of the definition of 'acting in concert' is that a person and a related trust are acting in concert with each other and an affiliated person (an undertaking over which the person exercises a dominant influence or control) is deemed to be acting in concert. However, over and above the presumption and deeming provisions it was clear that neither NOAL nor the family trust had any active role in the acquisition of the shares.
Who should make the offer
Mr King was a principal member of the group of persons acting in concert (ie Messrs Letham, Taylor, Park and Mr King) within the meaning of Rule 9.2 and, for that reason, was put under an obligation to extend the offer under Rule 9.1. The prime responsibility for making the offer was his.
The Hearings Committee commented on Mr King's lack of co-operation both with the Executive and with it. Mr King was required by the Board to announce an offer pursuant to Rule 9 to buy the remaining issued shares in Rangers by 12 April 2017. As at 13 April 2017, Mr King had not done so and the Takeover Panel accordingly issued enforcement proceedings in the Court of Session under Section 955 of the Companies Act 2006, a rare occurrence.