By Gavin Robertson
The single matter on which I am consulted most frequently is compliance by listed public companies with their continuous disclosure obligations under the ASX Listing Rules.
There are often difficult matters of judgment involved:
- Is the information price-sensitive? (Listing Rule 3.1)
- Even if the information is price-sensitive, would a reasonable person expect that it be disclosed, is information confidential, does the information concern an incomplete proposal or does it comprise matters of supposition, etc.? (Listing Rule 3.1A).
- If the information is required to be disclosed, how should it be presented so as to not mislead?
The difficulties involved in assessing these matters were demonstrated recently by two announcements made by David Jones Limited ("the Company" or "David Jones") to ASX on Friday, 29 June 2012.
On 28 May 2012, the Company received an unsolicited letter from EB Private Equity ("EBPE") containing what David Jones described as "a highly conditional, uncertain and incomplete expression of interest". The Company responded by seeking further information and EBPE replied that it would be in further contact.
No further contact was received until 28 June when the Company received a further expression of interest from EBPE which was expressed to be "an unconditional offer subject only to legally required due diligence". According to David Jones, no details of EBPE's financial capacity, its management or any terms of the residual equity which was part of the offer were provided.
On the next morning of Friday, 29 June, David Jones became aware that information concerning the expression of interest could be known to parties outside the Company. Accordingly, at market open the Company released an announcement stating that the Company had received the unsolicited offer and that:
"The Directors do not believe they currently have relevant information to enable them to qualify or value the approach but, should this change, will advise the market accordingly. In the meantime the Directors recommend that shareholders treat any related market comment cautiously."
Later that day, the Company became aware that international media outlets had details of the expression of interest and that a UK blog site was intending to publish those details. The Company also became aware that EBPE's name and the Proposed Value were being reported by SMH Online.
At 1:50pm the Company put out a second announcement which provided the relevant details of the unsolicited offer and stated:
"No details of EBPE's financial capacity, its management or any of the terms of the residual equity have been made available. No further details in relation to the proposal have been provided."
During the course of the day the Company's share price shot up by nearly 15% to $2.59.
On the afternoon of Monday, 2 July, the Company received a letter from EBPE stating that it had decided to withdraw its proposal and the Company then requested a trading halt. The withdrawal of the proposal was announced to the market, and the stock tumbled to as low as $2.33.
The two announcements released by the Company on 29 June were both cautiously worded and appear to accurately reflect the circumstances then confronting the Company.
However, they were of necessity prepared in haste and their release appears to be inconsistent with David Jones' own Continuous Disclosure Policy which states:
"As a general policy, the Company will not comment on market rumours or speculation unless specifically required to comply with its obligations under the ASX Listing Rules. (see paragraph 4.3 above)."
Paragraph 4.3 refers to the ASX Listing Rules in some circumstances requiring the Company to clarify misinformation in the marketplace and appears to be a reference to Listing Rule 3.1B whereby ASX may ask an entity "to give it information to correct or prevent a false market". There has been no suggestion that ASX made such a request.
Nevertheless, ASIC deputy chairman Belinda Gibson has stated that ASIC's "consistent message is that entities should be quick to ensure that the whole market knows about a deal once it seems that some of the trading market knows." (SMH, 4 July 2012).
Was there a better approach?
With the benefit of hindsight it could be argued that a preferable approach to putting out the two announcements would have been to call a trading halt before the market opened on Friday, 29 June.
This would have allowed the Company more time (including over the weekend) to clarify the position with respect to the bidder and to formulate a more considered announcement to the market.
It would have had the further obvious benefit of avoiding the speculative trading that occurred on the 29th.
It is not clear whether a trading halt would have been granted in any event. ASX Guidance Note 16 gives as an example of where a trading halt would be granted, being where "media comment about the company is sufficiently specific and detailed to warrant a response but the company is not able to make the response immediately."
At the time of the first announcement the Company was not aware that the media comment was specific and detailed.
On 3 July ASIC announced that it was examining the proposed takeover offer for David Jones and "looking at potential issues regarding disclosure and trading in David Jones stock..."
We will learn in due course what ASIC's view of the matter is. Was David Jones' response appropriate in the circumstances or should a trading halt have been called?
This matter further highlights the difficulties confronting boards of listed public companies and their advisors when dealing with their continuous disclosure obligations.