Report on statement by ABN AMRO Capital (Belgium) N.V. in Freightways Limited's Prospectus [2004] NZSecCom 8 (1 August 2004)

Last Updated: 9 November 2014

Report on Statement by ABN AMRO Capital (Belgium) N.V. in Freightways Limited's Prospectus

August 2004

TABLE OF CONTENTS

• Introduction
• Background to this Report
• Placement
• Securities Commission's comments and opinion

Report On Statement by ABN AMRO Capital (Belgium) N.V.
in Freightways Limited's Prospectus

1. The Securities Commission has reviewed the circumstances of a placement of 15,659,830 shares in Freightways Limited ("Freightways") by ABN AMRO Capital (Belgium) N.V. ("ABM AMRO Capital") in February 2004. This review followed news media reports on the placement and a complaint from a member of the public.
2. This review was carried out under
   • section 10(c) of the Securities Act 1978, which states that a function of the Commission is "To keep under review practices relating to securities, and to comment thereon to any appropriate body"; and
   • section 10(caa) of the Securities Act 1978, which states that a function of the Commission is "To keep under review activities on securities markets, and to comment on those activities to the appropriate body".

Under section 28A of the Securities Act the Commission may publish any report or comment made in the exercise of its functions.

Background

3. In August 2003, Freightways launched an initial public offer ("IPO") of its shares. It was to be conducted by way of a sale of 77.5 million ordinary shares (approximately 70% of the company) by its then largest shareholder, ABN AMRO Capital (Belgium) N.V., as well as a raising of $17.5 million by Freightways.
4. ABN AMRO Rothschild and First NZ Capital were appointed Joint Lead Managers of the IPO.
5. The offer document of the IPO was a combined registered prospectus and investment statement (the "prospectus").
6. Following completion of the IPO, ABN AMRO Capital retained a 19.2% stake (23,487,620 shares) in Freightways. The prospectus, at page 7, included a letter from ABN AMRO Capital which contained the following statement:

"The Foundation Shareholders [which included ABN AMRO Capital] will retain their significant shareholdings for at least 12 months following completion of the Offer."

7. The Details of the Offer at page 12 of the prospectus noted that the transfer restrictions applying to the shares held by Foundation Shareholders were set out on pages 91 and 92 of the prospectus.
8. Page 91 of the prospectus included details of an agreement between ABN AMRO Capital and the Joint Lead Managers affecting the 19.2% stake retained at the close of the IPO. The agreement included, among other things, a restriction on disposing of the shares within 12 months of 29 September 2003 (the date of listing on NZSX). However, the description at page 91 also stated that this restriction did not apply in certain circumstances, one of which was if the written consent of the Joint Lead Managers was obtained before the shares were sold by ABN AMRO Capital

Placement

9. On 27 February 2004, before the sharemarket opened, it was announced that ABN AMRO Capital had sold 15,659,830 of its Freightways shares via an overnight placement to institutional and retail investors. The Joint Lead Managers had given the required prior written consent.
10. The transaction occurred independently of Freightways Limited.
11. The escrow arrangements in respect of ABN AMRO Capital's residual 7,827,790 shares remain in place.

Securities Commission's comments and opinion

12. The intentions of a substantial shareholder, whether in the process of exiting or accumulating a shareholding, can often affect the share price of a listed company. Similarly, just the presence of a substantial shareholder can affect the share price of a listed company. Consequently, statements about the future actions of such parties are likely to be a key factor for investors deciding whether or not to purchase or sell certain shares.
13. ABN AMRO Capital stated in its letter to investors, included in page 7 of the prospectus, that the Foundation Shareholders (which included ABN AMRO Capital) would retain their significant shareholdings for at least 12 months after the IPO. However, ABN AMRO Capital did not retain their significant shareholding for at least 12 months after the IPO, but sold the majority of it within 6 months.
14. The Commission considered whether or not the statement in the prospectus by ABN AMRO Capital in the letter to investors in the prospectus was misleading, as it did not include nor refer to the circumstances in which ABN AMRO Capital could sell its shareholding prior to the 12 month period.
15. The Commission considered both written submissions and oral submissions of Freightways Limited, ABN AMRO Capital, ABN AMRO Rothschild and First NZ Capital in relation to this matter.
16. A basic requirement of securities law in this country is that offer documents must not be likely to mislead people. Issuers and their directors are responsible for ensuring that offer documents comply with this and other relevant obligations. In this case both Freightways and ABN AMRO Capital were issuers for the purposes of the Securities Act 1978.
17. In terms of section 55 of the Securities Act 1978, a statement included in a registered prospectus is deemed untrue if -
    1. it is misleading in the form and context in which it is included; or
    2. it is misleading by reason of the omission of a particular which is material to the statement in the form and context in which it is included.
18. Whether or not any statement is misleading in terms of section 55 of the Securities Act, is therefore, to be considered in the form and context in which it is made.
19. ABN AMRO Capital submitted that the statement in the letter should not be viewed in isolation and that when viewed in the context of the prospectus as a whole the statement was not misleading.
20. The Commission agrees that any statement in a prospectus or investment statement must be considered in the context of the document as a whole. However, the Commission is also of the view that the consideration of a statement "in the form and context in which it is included" in the document may also require an examination of the placement and prominence of the statement within the document.
21. In this case, the rights of ABN AMRO Capital to exit its shareholding were fully set out on page 91 of the prospectus. This told investors what ABN AMRO Capital was entitled to do. The statement on page 7 was addressed from ABN AMRO Capital, signed by a director, and said what ABN AMRO Capital would do. The statement on page 7 was unqualified. It represented, as a statement of fact, that ABN AMRO Capital would retain its shareholding for 12 months.
22. ABN AMRO Capital have told the Commission that the statement was included as a statement of the intentions of ABN AMRO Capital at the date of the prospectus. ABN AMRO Capital also submitted that trade investors would be familiar with ABN AMRO Capital's ability to exit their shareholding, and would not have given weight to the statement in the seller's letter.
23. The Commission notes that the offer document was a combined investment statement and registered prospectus. Where issuers choose to combine these documents they must bear in mind that the purpose of the investment statement is to provide information to the prudent but non-expert investor. In other words the audience for the document is retail as well as trade investors. In the absence of clear words of intention in the statement the Commission is of the opinion that the reasonable prudent but non-expert investor may have been misled by the statement in the seller's letter to believe that the foundation shareholders would, as a matter of fact, retain their shareholdings for at least 12 months. As the statement on page 7 did not carry any qualifying words, or refer readers to the circumstances in which the foundation shareholders might exit their holding, the Commission does not consider that the statement on page 91 saves the statement on page 7.
24. Consequently, the Commission is of the view that the statement by ABN AMRO Capital that the Foundation Shareholders would retain their substantial shareholding for at least 12 months was misleading in the form and context in which it was included.
25. Freightways Limited gave evidence that its Board had at the time of the IPO made inquiries and had been satisfied that the Foundation Shareholders would retain their shareholding for not less than 12 months. The Commission accepts that the directors of Freightways who were independent of the selling shareholder, ABN AMRO Capital and the Joint Lead Managers had made inquiries and satisfied themselves that the statement in ABN AMRO Capital's letter that it would remain a shareholder for not less than twelve months was accurate. The Commission is also satisfied that neither Freightways Limited nor the directors who were not associated with ABN AMRO Capital played any part in the sell-down and were not aware of the sell-down until the afternoon of the day on which the shares were sold.
26. The Commission notes the performance of Freightways shares since listing, and that subscribers to the IPO have not suffered a loss on their initial investment. This means that civil liability for loss resulting from any reliance on a misleading statement is unlikely to be incurred in the present case. The Commission considers that while the subsequent performance of the share price may have protected shareholders from a loss in this case, this does not lessen or remove the obligation on issuers and their directors not to mislead at the time of the offer of the securities.
27. The Commission is publishing this report to highlight the potential serious consequences of misleading statements in offer documents in all circumstances.
28. The Commission promotes the integrity of New Zealand's capital markets. The Commission considers that the matters described in this report do not reflect well on practice in New Zealand capital markets.
29. This report is published pursuant to section 28A of the Securities Act.