A distinctly old-fashioned approach to regulation

OPINION:The takeover panel's secrecy over ICG allegations is typical of an approach that is detrimental to investors, writes John McManus

THE DECISION by the takeover panel not to hold a hearing into the allegations of concert party activity in the battle for Irish Continental Group raises at least as many questions as it answers.

In its usual enigmatic style the panel released a short statement on December 23rd saying that "following its extensive inquiries, the panel has decided in light of the available evidence not to hold a hearing under Section 11 of the Irish Takeover Panel Act 1997 into the matters raised in the letter referred to above. In the event of a change in circumstances, the panel will review its decision."

The letter in question was sent to the panel by a third party in October and it set out details of an alleged concert party arrangement between the Moonduster consortium and the London-based Arkaga fund. The letter was based on a conversation between the third party and someone connected with the Arkaga fund. Moonduster, lead by Philip Lynch's One51, had consistently rejected the allegations.

The consequences for Moonduster of being found to have been part of a concert party were extremely serious because a concert party involving itself and Arkaga would have controlled more than 29.9 per cent of the company, triggering a mandatory bid. Alternatively the panel might have forced it to sell down its entire shareholding. Either way given the decline in ICG's share price since the bid was first mooted, One51 was looking at a very substantial hit.

Shareholders in ICG are now left to figure out for themselves what exactly the takeover panel thinks happened.

The obvious and fair presumption is that the statement means the panel has taken the view that the allegations are false and One51 has no case to answer. But that is a presumption and not a statement by the panel.

The alternative reading of the statement is that the panel could not get to the bottom of the matter and has parked it for the time being. But, if that is the case it seems odd that the panel did not hold hearings in order to try and gather more evidence.

The ambiguous nature of the statement is particularly unfair on Philip Lynch and One51 whose reputation is very much on the line in this matter. One51 is now put in the position of saying that the panel ruling amounts to vindication, but those who wish to can, for whatever purpose, choose to dwell on the last sentence of the statement.

But perhaps the biggest question is that if there was no concert party, then what was actually going on at ICG and what is the panel doing about it? This in turn raises a whole host of other questions: Are the allegations made against One51 by Arkaga completely false? If so, why were they made? And if they were made for some sort of improper purpose, is that not in itself a matter for the panel in so far as it has a bearing on the takeover of ICG.

Maybe the panel is looking into all this. Maybe they aren't. Who knows? Certainly not the ordinary shareholders in ICG. Chances must be that we will never find out what actually happened and the issue looks likely to be let drop now that One51 appears close to a joint bid for the group with its erstwhile rival Eamonn Rothwell.

The takeover panel's obsession with secrecy has once again left shareholders in a listed Irish company in the dark as to very serious allegations concerning the conduct of a takeover. The subtext being that the shareholders are either too stupid to understand fully the weighty issues with which the panel is wrestling or not important enough to be told.

Instead they are expected to trust the panel which in its wisdom will take whatever action is necessary to protect them, even if that means keeping them in the dark. It's a distinctly old-fashioned approach to regulation and seems to have more to do with keeping the lid on embarrassing information that might damage the perception of the Irish market than it does with transparency, holding people to account and reassuring shareholders that their interests are being looked after.

This patrician approach is the Achilles' heel of financial regulation in Ireland and time and again it is consumers and small investors who get burnt as a consequence of it. The most recent incident being the financial regulator's decision to quietly try and sort out the issue of Seán FitzPatrick's non-disclosure of €87 million in loans from Anglo Irish Bank. It's a reasonable proposition that if shareholders had been made aware of this in January - when the regulator uncovered it - they might not have stuck around to be wiped out in the following months.

It is to be hoped that there will be some reform of the financial regulatory structure once the dust has settled around the banks. The way the takeover panel does its business needs to be included in these reforms.