TIDMOTMP TIDMCSGP
RNS Number : 4439V
Takeover Panel
01 December 2023
2023/13
OFFER BY
COSTAR GROUP, INC.
FOR
ONTHEMARKET PLC
RULING OF THE CHAIRMAN OF THE HEARINGS COMMITTEE
This Panel Statement sets out the Ruling of the Chairman of the
Hearings Committee of 29 November 2023. The period for appeal to
the Takeover Appeal Board has expired without any such appeal
having been made. It is now published in accordance with paragraphs
6.5 and 6.6 of the Hearings Committee Rules of Procedure (with
redactions where appropriate).
Introduction
1. On 19 October 2023, CoStar Group, Inc. ("CoStar") announced a
recommended cash offer by its wholly owned, indirect subsidiary,
CoStar UK Limited, of 110 pence per share for OnTheMarket Plc
("OTM") ("the Acquisition"). The Acquisition values OTM at
approximately GBP99 million and is to be implemented by a scheme of
arrangement. The shareholders' meetings to vote on the Acquisition
are scheduled to be held on 4 December 2023 and, in the event
shareholders' approval is given, a court hearing to sanction the
scheme is scheduled for 7 December 2023.
2. OTM is an AIM listed, United Kingdom residential and
commercial property portal which operates and provides services
through the OnTheMarket.com portal. The services it provides are
not dissimilar to other property portals such as Rightmove and
Zoopla. The majority of OTM's share capital is owned by estate
agents who have acquired their shares with the agreement of OTM at
the time of entering into contracts with OTM to list properties on
the OnTheMarket.com portal. Such agreements also provide for the
agents to pay fees to OTM. The number of shares issued, the fees
payable and the contract term will vary from agent to agent.
3. CoStar is a data and portal conglomerate based in Washington DC.
4. Mr Brett Stone ("Mr Stone") requests that the Hearings
Committee ("the Committee") be convened to review certain rulings
of the Executive of the Takeover Panel ("the Executive") made, or
at least anticipated, in connection with the Acquisition. Mr
Stone's application is set out in a submission dated 27 November
2023. Although by then the Executive had explained its position in
relation to the complaints raised by Mr Stone, it had not issued a
ruling which could serve as a subject for possible review by the
Committee under the Committee's Rules of Procedure. Accordingly, by
its submission of 28 November 2023 made in response to Mr Stone's
request to convene the Committee, the Executive set out a ruling
that determined what it understood to be Mr Stone's complaints.
That ruling is set out below.
5. In light of the unusual sequence in which matters have
developed and the fact that the Executive's ruling post-dated Mr
Stone's original submission, I allowed Mr Stone and the Executive
to serve supplementary submissions by 5pm on 28 November.
6. Rule 1.1 of the Committee's Rules of Procedure states where relevant as follows:
"The Hearings Committee may be convened in the following
circumstances:
(a) If a party to a takeover, or any other person affected by a
ruling of ... the Executive ... and with a sufficient interest in
the matter, wishes to contest a ruling of the Executive, that party
or other person is entitled to request that the Hearings Committee
be convened in order to review the matter;
(b) ...
(c) ...
(d) in other circumstances where the Executive or the Hearings
Committee considers it appropriate for it to be convened."
7. Rule 2.1 of the Committee's Rules of Procedure states in relevant part as follows:
"The chair of a hearing or prospective hearing may, without
convening the Hearings Committee, reject a request that the
Hearings Committee be convened on any matter if he or she
considers:
(a) that the person making the request is not affected by the ruling of the Executive;
(b) that the person making the request does not have a sufficient interest in the matter;
(c) ....
(d) that the matter has no reasonable prospect of success."
Rule 2.2 states that
"In such cases, the chair of the hearing may determine the
application or request without an oral hearing."
8. The Executive opposes Mr Stone's request for the Committee to
be convened on three grounds:
(i) that he is not a person affected by the Executive's ruling;
(ii) that he does not have a sufficient interest in the matter; and
(iii) that his complaint has no reasonable prospect of success.
9. Although (a) and (b) of Rule 2.1 contemplate potentially
distinct grounds of objection, in many cases, including the
present, they may involve similar considerations.
Standing under the Committee's Rules of Procedure
10. Mr Stone is the sole managing partner of Edengen, a private
investment partnership. He has strong views on the Acquisition and
has written open letters (to some of which he refers in his
original submission) to various public figures, groups and
organisations. These letters include a letter of 9 November 2023 to
shareholders of OTM informing them of his views on the Acquisition
and a further letter of 24 November 2023 in which he was highly
critical of a press release published on OTM's website and through
the RNS. In October of last year, Mr Stone sent to the chair of OTM
a reasoned proposal for a [Redacted] underwritten capital raise
which had involved considerable work and which he intended as
helpful. Mr Stone maintains that his proposal was effectively
ignored.
11. There is no doubt, therefore, that Mr Stone is a person who
has taken an interest in and has spent considerable time and energy
in opposing, the Acquisition. But this does not mean that he is a
person affected by the Acquisition (or specifically, a person
affected by the Executive's ruling in relation to the Acquisition).
Nor does it mean that he is a person with a "sufficient interest"
in the matter within the meaning of Rule 1.1 of the Committee's
Rules of Procedure.
12. Mr Stone is not a party to the offer, nor does he own any
shares in OTM. According to the Executive, Mr Stone is on record as
saying that he has no intention of acquiring shares in OTM
[Redacted]. However, in view of Mr Stone's clarification of his
intentions in his supplementary submission and his statement that
he remains interested in acquiring a significant number of OTM "new
shares" I attach no weight to this. Nevertheless, it remains the
case that Mr Stone is not a current shareholder of OTM affected by
the offer. Nor does Mr Stone hold shares in CoStar.
13. Mr Stone stated in his original submissions that it is his
public-spirited interest in the success of small business
member-shareholders of OTM and in the long-term development of the
United Kingdom property commerce category that has caused him to
voice his opposition to the Acquisition.
14. These may be very worthy considerations, but they do not
mean that Mr Stone is a person affected by the Executive's ruling,
as distinct from someone taking it upon himself to speak on behalf
of those he believes will be affected. Neither the ruling nor the
Acquisition generally has a direct impact on Mr Stone.
15. Mr Stone has no greater claim to a sufficient interest in
the Acquisition than any other person with the relevant background
or expertise who has strong views on the merits or demerits of the
takeover or the conduct of the parties. If an interest such as this
were to qualify as a "sufficient interest" for convening the
Committee, any well-informed or not so well-informed member of the
public with strong views would have standing to invoke the relevant
machinery and to intervene in the process. This would not be
conducive to the efficient regulation of takeovers. Mr Stone's lack
of standing to have the Committee convened is not, therefore, a
purely technical objection to his application, as there are sound
policy reasons for limiting those who are entitled to have the
Committee convened.
16. Accordingly, Mr Stone does not have standing within the
Committee's Rules of Procedure to request that the Committee be
convened, and his application is rejected for that reason.
No reasonable prospect of success? - General Principle 1(1) and
Related Matters
17. The above findings would be sufficient to dismiss Mr Stone's
application, but in light of the measured manner in which he has
developed his submissions I will address briefly Mr Stone's
substantive objections to the Executive's ruling.
18. By its initial ruling of 28 November 2023, the Executive stated as follows:
"(a) Notwithstanding that many of the shareholders in
OnTheMarket are also agents who have entered into bespoke
agreements with the Company to list properties on the
OnTheMarket.com portal prior to the Company entering into
discussions with CoStar, General Principle 1(1) will be complied
with if each agent who is also a shareholder receives 110 pence per
share in connection with the Acquisition, and there is no
requirement for the agent's other pre-existing relationships with
the Company to be taken into consideration; and
(b) the arrangements which OnTheMarket has entered into with
agents who are also shareholders since it commenced discussions
with CoStar were in the ordinary course of business and were not in
breach of General Principle 1(1).".
19. That ruling was made in response to Mr Stone's complaint
that the arrangements outlined in the scheme circular would
contravene General Principle 1(1) of the Code which states
that:
"All holders of the securities of an offeree company of the same
class must be afforded equivalent treatment."
20. To understand Mr Stone's complaint and the Executive's
ruling it is necessary to explain a little of the background.
21. OTM is the parent company of Agents' Mutual which was formed
in 2013 by several leading estate and lettings agents with the
intention to create a new residential property portal as a
challenger to the two existing major portals, Rightmove and Zoopla.
Agents' Mutual was constituted as a company limited by guarantee
and was wholly owned by its member agents.
22. In September 2017, Agents' Mutual underwent a reorganisation
through a scheme of arrangement pursuant to which the members
received shares in OTM in exchange for their member interests in
Agents' Mutual. As a result of this reorganisation, Agents' Mutual
became a wholly owned subsidiary of OTM.
23. In February 2018, OTM's shares were admitted to trading on
AIM ("the Admission"). OTM also carried out a placing of new shares
in order to raise GBP30 million of new funds.
24. Following the Admission, a majority of the issued share
capital of OTM was owned by agents, and this continues to be the
case today. Although he suggests that his figures be checked,
according to Mr Stone, as of 17 January 2023, OTM had more than
3,600 shareholders who are estate agents, owning an aggregate of
45,628,757 shares (representing approximately 60% of the Company's
issued share capital at that time).
25. At the time of the Admission, approximately 5,500 branches
of estate agents listed properties on the OnTheMarket.com portal.
3,039 of these agents had agreed new five-year contracts as part of
the 2017 reorganisation. Of the balance, 1,253 branches had
existing contracts with more than two years to run and the
remainder was on rolling shorter-term contracts.
26. In OTM's admission document, the directors stated that in
order to encourage other agents to list properties on
OnTheMarket.com, the intention was to use a combination of new
share issues to selected key agents in return for them entering
into long term listing agreements. Shorter term free or discounted
listing arrangements were to be agreed with other agents.
27. OTM continues this strategy today. It uses a combination of
share issues and flexible fee arrangements to encourage agents to
list. Each contract is individually negotiated and regulates the
number of shares granted to the agent, the fees payable by the
agent and the term of the contract, with all such components
varying from contract to contract.
28. OTM has continued these practices since CoStar's approach.
Consistently with OTM's normal course of business, new listing
contracts have been entered into and existing free of charge or
limited term contracts have been converted into new agreements.
29. Against this background, Mr Stone had two concerns relevant to the Code.
The first was [Redacted].
30. Mr Stone's more general concern was that the bespoke
inter-connected fee and share issue agreements which it was OTM's
practice to negotiate with agents, meant that a flat payment of 110
pence per share to all shareholders would not afford equivalent
treatment to all shareholders of the same class and would,
accordingly, contravene General Principle 1(1). Mr Stone submitted
that the number of shares held by an agent was part of a
contractual package and was inextricably linked to other components
of the agent's contract such as fees and the duration of the
listing. The result was that a flat payment to all shareholders
would ignore other aspects of their contractual rights and fail to
achieve equivalent treatment of all shareholders. The same flat
payment to all shareholders would, according to Mr Stone, be unfair
to some shareholders unless each shareholder was afforded the most
favourable terms granted by OTM to any of its member-agents.
31. The Executive was undoubtedly correct, in my view, to reject
this argument. General Principle 1(1) requires equivalent treatment
of all shareholders of the same class with regard to their shares,
that is to say qua shareholder: it is not concerned with ensuring
that shareholders are afforded equivalent treatment as regards
other aspects of their contractual relationship with the company.
This remains the position notwithstanding arrangements under which
the number of shares issued to a member is contingent upon other
aspects of the member's contract with the company such as the fees
payable for listing rights and the duration of those listing
rights. Such other rights, even if agreed as part of a package that
includes the grant of a certain number of shares, will no doubt be
contractually enforceable against the company, but they do not fall
within the ambit of General Principle 1(1).
32. In the 2007 case of Eurotunnel PLC ("Eurotunnel") (TAB
Statement 2007/2) the Committee and Takeover Appeal Board
distinguished between rights attaching to shares and other personal
rights conferred under a contractual arrangement with the company.
Certain shareholders of Eurotunnel enjoyed travel privileges
granted as a result of their investing in the company at the time
of its IPO or pursuant to a later rights issue. Under the offer
made by Groupe Eurotunnel SA to implement a group reorganisation,
shareholders who accepted the offer would lose these travel
privileges. This was alleged to contravene the principle of
equivalent treatment between shareholders, as shareholders who
forfeited their travel rights would be offered no more than those
who had no travel rights to lose. The Committee and Takeover Appeal
Board rejected this argument, holding that the travel privileges,
although granted as a condition of taking up shares, were in the
nature of personal rights and were not rights attaching to the
shares as such (such as voting rights and the rights to dividend
and capital). The argument that shareholders with travel privileges
constituted a different class from those without such rights was
similarly rejected.
33. Mr Stone correctly points out that there are many factual
distinctions between the present case and Eurotunnel; but the
distinctions he mentions do not affect the difference in principle
between rights attaching to shares and other rights granted to
agents as part of a package of contractual arrangements that
include the issue of shares. Such other rights are personal rights
enforceable by action under the contract between the agent and OTM,
but they are not rights attaching to the shares of OTM.
34. Accordingly, the Executive was correct to conclude that an
offer of 110 pence to all shareholders gave effect to General
Principle 1(1); and that the same flat offer to all shareholders of
the same class would be the only way of acting in accordance with
that General Principle.
35. The Executive was also justified in its conclusions on two other matters, namely that:
(i) OTM's business model and practices before it received the
approach from CoStar fell outside the jurisdiction of the Code;
and
(ii) it investigated the matter following Mr Stone's complaint,
and having done so, found no evidence to suggest that OTM's
practices since receiving the approach were other than practices
followed in the ordinary course of its business. It is significant
that despite Mr Stone's many public letters, no shareholder has
made the same or similar complaints.
36. In summary, Mr Stone has not in my view made out an arguable
case that the Code has been or will be contravened and, in the
circumstances, nothing would be achieved by convening the
Committee.
General Principle 2(1)
37. Before receiving Mr Stone's initial submission, the
Executive had not understood the nature of Mr Stone's complaint
under General Principle 2(1). This complaint was, accordingly,
addressed by the Executive in its supplementary submission.
38. General Principle 2(1) states that:
"The holders of the securities of an offeree company must have
sufficient time and information to enable them to reach a properly
informed decision on the takeover bid."
39. In my view, Mr Stone has no reasonable prospect of
satisfying the Committee that either the timing of the offer or the
information supplied to shareholders of OTM gives rise to a
contravention of General Principle 2(1).
40. As regards timing, the offer period commenced on 19 October
2023 and the scheme circular was published on 7 November. As noted
above, the shareholder meetings to approve the Acquisition have
been scheduled for 4 December. There is nothing unusual or
particularly demanding in this timetable.
41. As regards sufficiency of information, the scheme circular
has been approved by the board of OTM and contains a responsibility
statement in accordance with Rule 19.2 which includes the statement
that the scheme circular accords with the facts and omits nothing
likely to affect the import of the information provided. No
shareholder or agent has contacted the Executive to express
concerns about the timing or paucity of information.
42. Mr Stone observes that the views of [Redacted] which are
hostile to the Acquisition, have not been included in the scheme
circular. But other than in limited circumstances which do not
apply in this case, there is no requirement in the Code to publish
the views of specific shareholders. Furthermore, [Redacted] could,
if [Redacted] wished, publish [Redacted] views as Mr Stone has
done. There has been ample opportunity for debating the merits or
demerits of the Acquisition and it is not the purpose of the Code
either to facilitate or to impede takeovers.
43. In my view, therefore, Mr Stone has not made out an arguable
case that General Principle 2(1) has been contravened.
44. For the reasons stated above, Mr Stone's request to have the
Committee convened is dismissed.
45. Any appeal against this ruling must be filed with the
Takeover Appeal Board in accordance with its Rules of Procedure by
11 am on Thursday 30 November 2023.
Michael Crane KC
Chairman of the Committee
29 November 2023
Date of this Panel Statement: 1 December 2023
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