Final orders could reshape DGR Global’s control structure

• Combined voting power found to have reached 45.43%
• Panel found contraventions of takeover and disclosure rules
• May Vendors’ shares acquired at a 52% premium
• Tenstar and Samuel Holdings notices found deficient
• Final orders remain under consideration

Takeovers Panel declares DGR circumstances unacceptable

DGR Global Limited (ASX:DGR) now faces an unresolved control question after the Takeovers Panel found that entities linked to managing director Nicholas Mather and Tenstar investment manager Paul Simpson acted as associates in acquiring a substantial interest in the company. The Panel said the arrangements took their combined voting power to 45.43% and declared the circumstances unacceptable.

The decision follows an application by Jeremy Raper and arrives after a Federal Court deadline extension kept the Panel’s decision-making window open until 30 September. The Panel is still considering whether to make final orders, and has not indicated what remedy it may impose.

May acquisitions lifted voting power above takeover thresholds

The dispute centres on DGR’s use of proceeds from the sale of its SolGold shareholding. After repaying a loan from Samuel Holdings, DGR had received approximately $45 million and expected a further $23 million. The Panel found that, after shareholders holding 8.78% of DGR challenged the proposed use of those funds, Mather helped arrange for Samuel Holdings, Tenstar and DGR contractor Benn Whistler to acquire their shares and options.

Under the arrangements reached around 11 May, Samuel Holdings acquired shares representing 3.65% of DGR, Tenstar acquired 3.00% and Whistler acquired 2.13%. The shares were bought at $0.0425 each, a premium of approximately 52% to DGR’s last closing price before the transactions, excluding an additional commitment offered by Samuel Holdings. The Panel found that the acquisitions increased the associated parties’ voting power from 36.65% to 43.30%.

The Panel then found that Samuel Holdings had a relevant interest in Whistler’s shares after lending him $1,492,214.22 to fund his purchase and agreeing to make an offer for the shares six months later. That arrangement lifted the combined voting power identified by the Panel to 45.43% and constituted a further contravention of section 606 of the Corporations Act.

Disclosure failures deepen the control dispute

The Panel also found contraventions involving substantial holder notices and ownership tracing. It said notices lodged by Samuel Holdings and Tenstar were late or inaccurate, failed to disclose the association between the Mather and Simpson parties, and omitted information about relevant interests and transaction documents. Tenstar’s response to a DGR tracing direction also failed to identify Tenstar Management, the entity holding Tenstar as trustee.

The Panel said the transactions meant DGR’s control had not changed in an efficient, competitive and informed market, while shareholders did not know the identity of the parties acquiring the substantial interest. Its alternative finding was that Mather had substantial influence over Tenstar and that his role in the acquisitions created an unacceptable control effect. The eventual orders will determine whether the practical consequences include restrictions on voting or disposal, divestment, corrected disclosure or other action.

Bottom Line?

The declaration establishes the Panel’s adverse findings, but the investment outcome now turns on the final orders and any effect they have on DGR’s voting structure.

Questions in the middle?

• Will the Panel require any shares or options to be sold, neutralised or otherwise restricted?
• How will final orders affect the voting power and control position of the Mather and Simpson parties?
• What further disclosure or tracing information will DGR shareholders receive about Tenstar’s ownership?