Financial Times
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London SE1 9HL.
Letter for publication: Takeover Panel failed to heed Orb warnings
Sir,
The sentencing of Gerald Smith of the Orb group to eight years’ imprisonment for his part in the £34m fraud at Izodia (report, 12 September) and the prospect of confiscation hearings will be some solace to Izodia shareholders. However an aspect of the Orb scandal which has attracted little public attention is the failure of the Takeover Panel to respond appropriately to the warnings it received about Orb from private shareholders.
During August 2002, the month when Izodia’s cash was stolen, Orb was also seeking to gain control of Alexanders Holdings, another cash-rich AIM-listed company. Orb’s circular describing its scheme to gain control of Alexanders was approved by the Takeover Panel before being sent to shareholders. Following publication of the scheme, a group of shareholders led by myself pointed out that the proposals appeared to breach several parts of the Takeover Code. The “independent” directors of Alexanders were demonstrably not independent; one such “independent” director had agreed to receive an extraordinary payment from an offshore company associated with Orb; offshore companies which had recently acquired shares in Alexanders appeared likely to have undisclosed connections to Orb. In these circumstances, we objected to the Panel’s approval of Orb’s scheme to gain control of Alexanders.
The Panel dismissed our appeal on 15 August 2002 – ten days after Izodia’s cash had been stolen - and granted a discretionary waiver from the Takeover Code to enable Orb to complete the scheme. The extraordinary agreement to make a payment from an Orb-related offshore company to an “independent” director – which should have been fatal to the scheme under the provisions of the Takeover Code – was airbrushed away by a supposed retrospective “cancellation.” In a statement on its website, the Panel characterises this pretence as “a pragmatic solution.” The result of this solution was that Alexanders’ cash balances of over £10m were rapidly dissipated into the Orb group. Within five months, the company was suspended from its AIM listing, never to return; a few months later, it went into insolvent liquidation.
The scheme to gain control of Alexanders’ cash depended entirely on the discretionary waiver which the Panel granted to Orb. As private shareholders, we were left with the strong impression that the Panel had treated all our complaints as obstacles to be finessed by sophistry, rather than reasons to consider withholding its discretionary approval from Orb’s scheme.
We do not know if the Panel has learned anything from subsequent events, but we think that it should have done.
Guy Thomas