The tenders for PCM shares demonstrate a weakness of the law

The rules regulating changes of share price leave much room for interpretation. Something which, seemingly, serves the best interests of selling shareholders may end up turning against them.

Tuesday witnessed a drop, by several percent, of shares in Prime Car Management (PCM). One day earlier, subscriptions had concluded in the tender announced by PKO Leasing. After the close of the market on Monday, it transpired that it will not be buying shares in the company operating in the fleet management sector under the business name Masterlease, in that the offer had not been taken up by investors holding at least 66% of the shares (one of the conditions for the tender). The tender by Hitachi Capital Polska had concluded only on Friday, 22 February; after trading had ceased for the day, Hitachi likewise forewent purchase of PCM shares, motivating this decision in the same way as PKO Leasing a few days later.

A certain piquancy is provided for by the fact that, over the past few days, entities interested in PCM were driving up the price for the leasing company’s shares. All this started when, on Wednesday, 20 February 2019, a third suitor for PCM made itself known in the person of Pollen Street Capital (PSC), which announced subscriptions in March and April, offering PLN 20 per share – almost 11% more than Hitachi, which hereuntil had the highest offer. On Thursday, one day before the end of its tender, Hitachi upped the ante to PLN 22.25. The day after that, the one on which Hitachi’s offer ended and the penultimate day of its own, PKO Leasing offered PLN 23 per share. On Monday, the last day of the PKO Leasing offer, PSC threw in another PLN 0.25. The very same afternoon, the Polish Financial Supervision Authority (KNF) issued a statement reminding all and sundry that tenders to purchase are almost unrivalled in their capacity to drive up prices and that, accordingly, they should be issued in a deliberate and responsible manner. The KNF also pointed out in its communique that changes of the tender price before commencement of subscriptions – i.e. before it has become possible to actually respond to the call – may constitute manipulation within the meaning of MAR.

“Such assessment shall extend, in particular, to situations in which the entity announcing the tender withdraws from its previous proposals before acceptance of subscriptions has actually commenced, precipitating verification of the offer and a price drop”, the Polish Financial Supervision Authority communique states.

How to count five days

The final paragraph of the KNF communique is a naked admonition of Pollen Street Capital PSC. The fund will begin subscriptions in over two weeks’ time, but it changed the price almost immediately after announcing the tender. The 2017 regulation of the Minister of Finance and Development concerning template tender forms, meanwhile, states that “within the timeframe of the tender, the price may be changed not more frequently than once per five business days”. PSC did this on the third business day after announcing its offer.

On Monday, 25 February 2019, we addressed a query to the Polish Financial Supervision Authority; no reply is forthcoming.

Yet lawyers argue that PSC comported itself correctly (…)

“The regulation states that the restrictions on frequency of tender price changes do not apply if ‘another entity has announced a tender for the same shares’. In my opinion, this provision should be applied respectively, also in a situation where another entity raised its price in a tender which it had announced. In such an event, another offeror is within its rights if it decides to react and change its price, even if five business days since announcement of its tender, or since the last change of its tender, have not elapsed”, confirms Leszek Koziorowski, partner in GESSEL. (…)

The entire article by Kamil Koziński is available in the Puls Biznesu issue of 27.02.2019.