Untrue or Incomplete Information in Offer Prospectus

On 22 November 2017, the Swiss Takeover Board issued a ruling regarding untrue or incomplete information with respect to the offeror contained in the offer prospectus published by HNA in connection with the public tender offer for all shares in gategroup.

By Hans-Jakob Diem / Andreas Hinsen (Reference: CapLaw-2018-32)


1) Public Tender Offer for gategroup Holding Ltd.

On 11 April 2015, HNA Aviation (Hong Kong) Air Catering Holding Co., Ltd., Hong Kong (HNA) published the pre-announcement of its public tender offer (Offer) for all publicly held shares of gategroup Holding Ltd, Kloten, Switzerland (gategroup). The offer prospectus (the Offer Prospectus) was published on 20 May 2016.

The offer price was set at CHF 53.00 in cash for each registered share of gategroup and the Offer allowed for dividend payments in the aggregate amount of CHF 0.30 as was resolved by the ordinary general meeting of gategroup in April 2016. The Offer was, inter alia, subject to a minimum acceptance level of 67% as well as approval by all competent merger control authorities or expiry of the applicable waiting periods.

The initial acceptance period was open until 1 July 2016, with the additional acceptance period ending on 21 July 2016. On 22 July 2016, HNA published the definitive final result according to which, after the additional acceptance period, 96.1% of all gategroup shares were held by HNA. However, due to outstanding merger control approvals, completion of the Offer had to be postponed to the end of the third or beginning of the fourth quarter 2016. By ruling dated 18 November 2016, the Swiss Takeover Board granted an additional extension to complete the Offer until 31 December 2016. In the meantime, the tendered gategroup shares were traded on a separate trading line.

Finally, after all required approvals were obtained, on 20 December 2016, the separate trading line for the tendered gategroup shares was closed and the settlement (i.e. payment of the offer price) occurred on 22 December 2016.

2) Shareholders of HNA according to the Offer Prospectus

As required under Swiss takeover law, the Offer Prospectus contained the following description of the shareholders directly or indirectly controlling HNA:

“[HNA] is an indirectly controlled subsidiary of HNA Aviation. […] HNA Aviation is directly held and controlled by HNA Group. HNA Group is directly and indirectly controlled by Hainan Airlines Company Limited Employees Union Committee (HNA Employees Union) and Hainan Province Cihang Foundation (Cihang Foundation), which together own approximately 70.25% ownership interest in HNA Group. […] HNA Employees Union indirectly owns approximately 47.50% of HNA Group. […] Cihang Foundation indirectly owns approximately 22.75% of HNA Group. Bharat Bhisé […] indirectly owns approximately 17.40% of HNA Group. Jun Guan […] indirectly owns approximately 12.35% of HNA Group.”

Summarizing the above, HNA was, according to the information published in the Offer Prospectus indirectly controlled by HNA Employees Union (47.50%), Cihang Foundation (22.75%), Bharat Bhisé (17.40%) and Jun Guan (12.35%).

3) Subsequent Financial Times Articles

In a Financial Times article which was published on 2 June 2017 with the title “Who owns HNA, China’s most aggressive dealmaker?”, the ownership structure of HNA Group was described somewhat differently. According to this article, and by making reference to Chinese corporate filings, 13 individuals – all except one members of the top management of HNA Group – held together 76% of HNA Group. In particular, Chen Feng and Wang Jian each supposedly held 15% and Jun Guan approximately 29% in HNA.

Upon learning of this article, and in light of the possible untrue or incomplete information on the shareholders of HNA contained in the Offer Prospectus, the Swiss Takeover Board requested HNA on 12 July 2017 to comment on this Financial Times article. On 24 July 2017, HNA published its then current ownership structure, stating that, inter alia, Chen Feng and Wang Jian each hold 14.98%, Hainan Cihang Charity Foundation holds 29.5% and Hainan Procinve Cihang Foundation holds 22.75% in HNA (in each case indirectly).

In an additional article published by the Financial Times on 25 July 2017, the CEO of HNA Group, Tan Xiangdong, was quoted as follows: “The [29.%] stake is [HNA’s] own stake. For the whole time, [Mr Guan and Mr Bhisé] had just held the stake for us. That’s why I can move the shares”. After a further exchange of information between HNA and the Swiss Takeover Board, HNA confirmed on 19 October 2017 that (i) Bharat Bhisé and Jun Guan were acting as nominee shareholders and (ii) in December 2015 a 47.5% interest in HNA Group was transferred from Hainan Airlines Company Limited Employees Union Committee to Chen Feng, Wang Jian, Tan Xiangdong, Li Xianhua, Li Qing and Chen Wenli (together the Co-Founders) based on a share option scheme concluded in 2008.

4) Ruling by the Takeover Board

In its ruling dated 22 November 2017, the Swiss Takeover Board concluded that the Offer Prospectus contained untrue or incomplete information on the ownership of HNA, in particular since Bharat Bhisé and Jun Guan were acting as nominee shareholders and the Co-Founders should have been disclosed as group controlling HNA. Since the Offer was already closed in December 2016, i.e. almost one year since the date of this ruling, the Swiss Takeover Board did not require HNA to publish an updated version of the Offer Prospectus. In addition, Ernst & Young AG was mandated to confirm whether the Co-Founders as well as Bharat Bhisé and Jun Guan complied with the minimum price rule and the best price rule. However, the Swiss Takeover Board explicitly stated that (i) due to the lack of a legal basis no fine would be imposed but (ii) it would inform FINMA and the Disclosure Office of SIX Exchange Regulation of this ruling. It should be noted that untrue or incomplete information in the report of the board of directors of the target would be subject to a fine of up to CHF 500,000 under applicable Swiss takeover laws.

Hans-Jakob Diem (hans-jakob.diem@lenzstaehelin.com)
Andreas Hinsen (andreas.hinsen@lenzstaehelin.com)