Watchdog stays hand in Gutnick intrigue by:ANDREW...

Watchdog stays hand in Gutnick intrigue

by:ANDREW BURRELL
From:The Australian
July 13, 201312:00AM

THE Australian Securities & Investments Commission refused to say yesterday whether it planned to halt a takeover bid for Melbourne-based Merlin Diamonds despite evidence that many shareholders were unaware that mining magnate Joseph Gutnick swapped sides during the offer period.

The corporate regulator had been monitoring the planned $60 million takeover by Singapore-listed InnoPac Holdings, but it was unclear last night whether it would take any action before the offer period was due to close at 7pm.

The Australian Shareholders Association has complained that Mr Gutnick, chairman of Merlin, did not keep his retail shareholders fully informed about his purchase of shares in InnoPac during the offer period.

ASIC's apparent reluctance to move on the InnoPac-Merlin deal came despite its success earlier this week in halting two other control transactions.

Commissioner John Price said on Tuesday that ASIC's intervention in the acquisitions of Laneway Resources and PR Finance Group showed the regulator was serious about ensuring that all shareholders had sufficient information to make an informed decision about a takeover.

Corporate lawyers contacted by The Weekend Australian said yesterday there appeared to be a strong case for ASIC or the Australian Securities Exchange to take action to temporarily halt InnoPac's offer for Merlin.

They said ASX had the power to issue a "please explain" about Mr Gutnick's share trading or to freeze trading in Merlin's shares if it suspected there had been a breach of the listing rules.

"The ASX and the Singaporean stock exchanges should be very concerned if not all of the information has been made public," said one leading corporate law expert who asked not to be named due to a potential conflict of interest.

"It's my view that the regulators have significant power to go to the court and ask for an injunction.

"Courts are pretty good at providing interim injunctions to try to protect the status quo.

"It seems to me that this is the type of scenario where you'd want your regulators moving very quickly and at least issuing a 'please explain' letter and maybe seeking an injunction, or even applying to the Takeovers Panel.

"This would protect shareholders in the companies involved and also protect the integrity of the market."

A report in The Australian this week detailed how Mr Gutnick had bought a major stake in InnoPac soon after the Singapore-listed firm announced a friendly bid for Merlin on January 31.

After paying $51m to emerge with 12 per cent of the Singapore firm, Mr Gutnick then sold down his controlling stake in Merlin to less than 1 per cent.

This meant he had effectively switched camps -- from takeover target to suitor -- during the offer period.

Mr Gutnick sold his Merlin stake in March to a group of Singaporean businessmen with links to InnoPac.

He sold for between 20c and 22c -- a significant discount to InnoPac's offer of 28c a share.

Mr Gutnick made the sales despite telling Merlin shareholders in March that he and his fellow directors had unanimously recommended the InnoPac deal.

The magnate disclosed his Merlin sales to the ASX, but shareholders in Australia were unaware -- unless they were reading substantial shareholder notices sent to the Singapore stock exchange -- that their chairman had become the biggest shareholder in InnoPac.

The shareholders did not know of Mr Gutnick's trading in InnoPac until April 11, when one paragraph in Merlin's target statement revealed that the chairman had a "potential conflict of interest" as an InnoPac shareholder and was therefore no longer participating in board discussions on the takeover.

The Australian Shareholders Association said it was concerned at the revelations.

"All shareholders should be equally informed when control transactions are in play," a spokesman said.

"It is disappointing that Mr Gutnick has switched sides without previously informing retail shareholders."

The chief financial officer at Merlin Diamonds, Peter Lee, has not responded to phone calls or emails during the past week.

Merlin, which owns a diamond mine in the Northern Territory, is a key plank of Mr Gutnick's long-time dream of making billions of dollars by exploring for the precious stones.