REG - Takeover Panel OnTheMarket plc CoStar Group, Inc. - Statement re On The Market Ruling

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01/12/2023 14:15

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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 £99 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 £30 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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