A High Court judge on Wednesday approved for Severn Trent Water’s £84m takeover bid for Dee Valley Water. The ruling blocked an unprecedented exploitation of a legal loophole by Dee Valley shareholding employees that enabled them to outvote other shareholders at an earlier meeting to consider Severn Trent’s offer.
The green light for the acquisition has been postponed until today (Friday) to give time for an appeal. The judge’s decision has widespread – possibly global – implications for future acquisition moves.
The judge, Sir Geoffrey Vos, ruled that the Dee Valley employees were voting to protect their jobs rather than in the interests of all shareholders. He said n 'intelligent and honest' shareholder would reasonably approve Severn Trent’s offer.
The Dee Valley board had earlier recommended the Severn Trent 1825p a share offer after the Coventry-based water giant gazumped an earlier recommended 1706p a share offer by investment manager Ancala Fornia.
Subsequently a shareholding employee reported as Huw Cashmore distributed some 440 shares among objectors to the Severn Trent acquisition potentially enabling them to vote down the bid at the shareholders meeting.
The loophole arose because the bid was following takeover rules that require the bidder to win the support of the majority measured by value of shares held as well as by the number of votes.
The Severn Trent offer had the support of the major institutions holding stakes in Dee Valley so they easily won the share value vote. But had the votes of the recipients of Cashmore’s distributed shares been allowed to count, the majority of shareholder votes by number would have been to reject the bid. The judge today ruled that those votes should not count so Severn Trent won the day.
The workers could launch an appeal at a hearing tomorrow.
Vos alluded to the possibility that had Cashmore’s move proved successful it could have become a more widely deployed tactic for objectors to takeovers of small businesses by large, predatory firms where the so-called Scheme of Arrangement rules were used as in the Dee Valley .instance.
’This could take off. Imagine the impact on shareholders around the world,” said Vos. In making judgment, Vos said: ‘Members voting at a class meeting directed by the court must exercise their power to vote for the purpose of benefiting the class as a whole, and not merely individual members only.”