Update 14 March 2011: The Company’s legal advisors have confirmed to Manifest that all shareholders are entitled to vote on the single resolution to approve the transaction. The votes will be counted twice – the first time to satisfy the requirements of the special resolution and the UKLA Listing Rule Class 1 transaction. The votes will then be counted again, with those shareholders who also own shares in Gartmore excluded from this second count, in order to satisfy ASX Listing Rule requirements.

Shareholder rights at risk with Henderson/Gartmore merger meeting

Shareholders in Henderson Group also holding shares in Gartmore Group were surprised this week to be told by Henderson’s advisors that they would not be entitled to vote at the upcoming Henderson EGM to approve the acquisition of Gartmore. An in-depth investigation by Manifest into these suggestions raised some worrying and complex issues.

Henderson is incorporated in Jersey, tax resident in Ireland and its shares have a Premium Listing on the London Stock Exchange. A majority of its shares are however held in the form of CHESS Depositary Interests and these CDIs are listed on the Australian Stock Exchange.

A separate meeting of Gartmore shareholders will be held under Cayman Islands law to approve the scheme of arrangement, being the mechanism chosen to effect the acquisition – Gartmore being incorporated in the Cayman Islands.

It is the structure of the Henderson meeting and the content of the voting exclusion statement that has raised some eyebrows in the investor community. Henderson shareholders are being asked to vote on a single special resolution relating to the proposed acquisition of Gartmore Group, to approve an increase in the authorised share capital and an authority to issue shares.

The resolution seeks to authorise the company to issue up to 245,000,000 shares (and CDIs) which will be issued as consideration for the acquisition. To comply with ASX Listing Rules, the meeting notice includes a voting exclusion statement, albeit deeply buried. The exclusion states that Henderson shareholders will not be able to vote on the proposal if they also hold shares in Gartmore.

Given the bundling of three related items into a single resolution, Manifest believes that Henderson is in breach of its Articles of Association as some shareholders are being prevented from voting on matters which are subject to shareholder approval. Furthermore the resolution falls short of UKLA Listing Rules.

The three components of the Henderson resolution are:

  • Acquisition of Gartmore – as the acquisition of Gartmore is considered to be a Class One transaction under the UKLA Listing Rules, shareholder approval is required.
  • Increase in authorised share capital which is required to be a special resolution under the Company’s Articles.
  • Authority to issue shares which is required to be approved by way of an ordinary resolution under the Articles of Association. This provision is not present in Jersey law, but is included in the Articles to broadly replicate English law.

The decision of Henderson to propose a meeting notice with only one resolution is the key issue here. Investors which hold both Gartmore  and Henderson shares are being excluded from voting on the elements of the proposal for which approval is required by UKLA Listing Rules and the Articles of Association. Full compliance with shareholder rights under company law and articles and listing rules can be achieved by the inclusion of a separate resolution as required under the ASX Listing Rules.  The remaining resolutions to approve the acquisition under the UKLA Listing Rules and to increase the authorised share capital could then be subject to the approval of all shareholders, as provided for under the Articles.

The company has stated to Manifest that it considers the fact that the resolution is a special resolution shows that they are not trying to slip anything past shareholders and they note that (disenfranchised) shareholders can vote at the Gartmore meeting. Further they point to the approval of the UKLA of the circular as indicating that their approach is valid. Manifest contends that the UKLA may have erred in approving the circular in its current form.

For shareholders to let a company or its advisors unilateraly compromise their property rights would set an unfortunate precedent. Manifest recommends that shareholders request the circulation of a revised agenda which includes a separate resolution to meet the ASX Listing Rules requirement. As currently drafted Manifest is concerned that UKLA Listing Rules and the company’s Articles of Association are being made subordinate to the rules of an overseas commercial trading facility. While the merger is likely to meet with the full endorsement of shareholders, this may not always be the case in future meetings.

We have no doubt there will be grumbles about costs, nit-picking and over-zealous interpretation of the rules. Governance by principles is all well and good, up to a point, but company law and articles are the last protection of shareholders and are tampered with at our peril. Manifest has therefore referred the matter to the Financial Reporting Council for their consideration.

Last Updated: 10 March 2011
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