BOSTON, April 1, 2016 /PRNewswire/ -- Highfields Capital Management ("Highfields"), a value-oriented investment management firm that continues to hold more than 9% of the outstanding shares of Delta Lloyd N.V. ("Delta Lloyd")(AMS: DL), today made public its letter to Delta Lloyd's Executive and Supervisory Boards in which it requests answers to a range of questions related to Delta Lloyd's 16 March Heads of Agreement ("Fubon Agreement") with Fubon Life Insurance Co. Ltd. ("Fubon") and the Extraordinary General Meeting ("EGM") held later that same day. Highfields has asked for the responses to the questions by the close of business on Monday 4 April 2016.
As was clear from the vote results, Delta Lloyd would have failed to obtain the required 67% shareholder approval for its EUR 650 million Rights Offering without the support of Fubon, which held a 7.13% ownership stake. Delta Lloyd Chairman Hans van der Noordaa secured Fubon's support barely 36 hours after Fubon had voiced its fierce opposition to the Rights Offering at a 14 March 2016 hearing at the Enterprise Chamber of the Amsterdam Court of Appeals and just hours before the shareholder vote. Highfields feels strongly that shareholders deserve clarification on the specifics of the Fubon Agreement.
In its press release, Delta Lloyd explained that, "Fubon and Delta Lloyd have agreed to explore opportunities for business co-operation for the benefit of both groups, for example asset management opportunities, reinsurance agreements and knowledge exchange." At the EGM, various shareholders including Highfields voiced serious concerns about the Fubon Agreement, the process by which it was entered into, and what was offered to Fubon for its vote. In particular, shareholders questioned whether Fubon was afforded any special privileges, advantages or consideration in exchange for its support of the Rights Offering. To date, Delta Lloyd has not provided any detailed description of the terms of the Fubon Agreement, nor has it confirmed whether the Fubon Agreement is the complete arrangement between Delta Lloyd and Fubon.
As Highfields and Fubon both argued before the Enterprise Chamber, Delta Lloyd is already adequately capitalized and has at its disposal several far less punitive actions that would increase its capital ratio even further. The fact that Delta Lloyd's management would have lost the Rights Offering vote without entering into the Fubon Agreement is further evidence that shareholders lack confidence in this management team. The Fubon Agreement and its opacity only raise additional questions.
The full text of Highfields' letter to Delta Lloyd's Executive and Supervisory Boards follows below:
[Highfields Capital Management LP Letterhead]
Delta Lloyd N.V.
Attn. Executive Board
Attn. Supervisory Board
1096 BC AMSTERDAM
30 March 2016
Re: Rights Offering– Questions concerning EGM and Fubon Arrangement
Dear Sirs, Dear Mesdames,
As you are aware, Highfields Capital Management LP ("Highfields" or "we") has owned shares of Delta Lloyd N.V. ("Delta Lloyd" or the "Company") since September 2013. The investment funds Highfields Capital I LP, Highfields Capital II LP and Highfields Capital III L.P., all of which are managed and represented by us, currently hold over 9% of the Company's outstanding ordinary shares.
We refer to the facts previously set out in (i) our letter of 2 March 2016 ("Notice of Objections"), (ii) our request for an enquiry into the management and affairs of the Company that was submitted to the Enterprise Chamber of the Amsterdam Court of Appeals ("EC") on 4 March 2016 ("Request"), and (iii) the facts and circumstances discussed at the hearing that was held before the EC on 14 March 2016 ("Hearing") in the currently pending proceedings before the EC ("EC Proceedings").
Further, we refer to the facts and circumstances surrounding the Extraordinary Shareholders Meeting of 16 March 2016 ("EGM"), and in which, following the EC's decision of 14 March 2016 ("EC Decision"), the Company put to a vote the EUR 650 million rights offering as announced on 24 February 2016 ("Rights Offering"). Although issued share capital represented at the EGM was recorded to be 48.03%, the Company announced that the Rights Offering was approved with the 2/3rds majority vote prescribed by the Company's articles of association.
As became clear during the EGM, the Company would not have been able to secure shareholder approval for the Rights Offering without the support of Fubon Life Insurance Co. Ltd. ("Fubon"), which held a 7.13% ownership stake. As was widely reported in the press during the morning of the EGM, Delta Lloyd Chairman Hans van der Noordaa managed to secure Fubon's support barely 36 hours after the latter had voiced its fierce opposition to the Rights Offering as an interested party at the Hearing.
In a press release by Delta Lloyd that same morning, the Company announced that it had signed a heads of agreement with Fubon, in which the latter committed to exercise all the rights in respect of its shareholding and to vote in favor of the proposed Rights Offering ("Fubon Heads of Agreement"). According to the press release, the Fubon Heads of Agreement encompasses the following points:
(i) Delta Lloyd agreed to support Fubon's intention to acquire further ordinary shares of the Company and rights to ordinary shares of the Company ("Rights") in the open market or in any rump placement in connection with the Rights Offering;
(ii) subject to applicable approvals and employee consultation, Delta Lloyd agreed to nominate (through its Supervisory Board) one individual designated by Fubon for appointment to Delta Lloyd's Supervisory Board if Fubon reaches a 15% ordinary share ownership position on a fully diluted basis;
(iii) Delta Lloyd agreed to negotiate with Fubon in good faith to enter into a relationship agreement on an arm's length basis in the event that Fubon reaches a 15% ownership position; and
(iv) Fubon is allowed to act as a sub-underwriter of the Rights Offering in respect of all the rights that would be allocated to it in respect of its shareholding.
At the EGM, various shareholders including Highfields voiced serious concerns about the Fubon Heads of Agreement and the process by which it was entered into. In particular, shareholders questioned whether Fubon was afforded any special privileges, advantages or consideration in exchange for its support of the Rights Offering. This was denied at the EGM by Delta Lloyd's counsel, Mr. Jan Louis Burggraaf. A representative of the underwriters, however, acknowledged that Fubon had indeed been afforded the option to act as a sub-underwriter for the Rights Offering and that this was agreed subject to standard market conditions, indicating that Fubon was to obtain its share in the 2-3% underwriters fee.
Subsequently the prospectus that was issued on 23 March 2016 in relation to the Rights Offering ("Prospectus") included the following statement on page 6:
"Having obtained prior agreement in principle of the Joint Bookrunners, the Company agreed with Fubon in the Fubon Heads of Agreement to cause the Joint Bookrunners to include Fubon as a sub-underwriter in connection with the Offering. However, Fubon has confirmed to the Company and the Joint-Bookrunners that it decided not to participate as a sub-underwriter and, for the avoidance of doubt, will not receive any fee from the Company or Underwriters in respect of the Offering."
Although the reasons for Fubon's relinquishment of its right to act as a sub-underwriter in the Rights Offering (which in the Prospectus is called: "Offering") remain unstated, shareholders are left with the distinct impression that this was done to address the criticisms expressed by shareholders at the EGM in relation to the Fubon Heads of Agreement.
Although the Fubon Heads of Agreement is now discussed in cursory fashion in the Prospectus,1 to date the Company has not provided any detailed description of the terms of the agreement, nor has it confirmed whether the Fubon Heads of Agreement is the complete arrangement between Delta Lloyd and Fubon, or whether Fubon has been or will be provided with special incentives in exchange for its support for the Rights Offering.
In view of the absence of any meaningful disclosures, Highfields insists that Delta Lloyd provide answers to the following questions to its shareholders:
1. In the weeks leading up to the EGM, up to 32% of shareholders were reported in the press as opposing the Rights Offering. At the EGM itself, however, the group of shareholders opposing the Rights Offering seemed to have decreased significantly.
a. In relation to the EGM, what was the exact tally of proxies that were received by Delta Lloyd in advance of the EGM, i.e.:
i. What was the number of "no" votes and what was the number of "yes" votes that were received by proxy before the EGM?
ii. Excluding the aforementioned proxies, how many "no" votes and "yes" votes were actually cast at the EGM itself?
b. What date or time was the cutoff for accepting proxies, and was any distinction made between "no" votes and "yes" votes?
c. Were any proxies refused or disregarded for procedural reasons?
i. If so, for what reasons?
ii. How many of those proxies disregarded or refused concerned "no" votes?
d. How many of the "no" votes received by proxy prior to the EGM were changed to "yes" votes?
i. How many of those changed votes were provided through revised proxies?
ii. How many of those changed votes were cast at the EGM itself?
2. As far as Highfields is aware, Mr. Van der Noordaa did not await or attend the public pronouncement of the 14 March 2016 judgment of the EC, but instead travelled to Taipei the same evening to secure Fubon's support for the Rights Offering.
a. At what point in time did Delta Lloyd know that it needed to secure Fubon's support in order to gain approval for the Rights Offering?
b. To what extent was Delta Lloyd's knowledge that it needed Fubon's support for the Rights Offering based on the results of the voting proxies that Delta Lloyd received in advance of the EGM?
c. In view of the answer to the question under paragraph b. above, how is it possible that Delta Lloyd at the beginning of the EGM still claimed not to know the tally of proxies received (i.e. which proxies were in favor and which were against the Rights Offering)?
3. Was Mr. Van der Noordaa's travel to Taipei an impromptu move, made solely with a view to securing Fubon's support for the Rights Offering at the EGM, or was it the product of previously existing negotiations or a longer-term strategy?
a. If the first, why did Delta Lloyd rush into the Fubon Arrangement rather than engaging in good faith with shareholders to address their serious concerns about the Rights Offering?
b. Did Delta Lloyd explore any alternatives to the Fubon Arrangement?
i. If so, which alternatives were explored, with whom, and when?
ii. If not, why not?
4. In exchange for Fubon's support for the Rights Offering, did Delta Lloyd offer Fubon or agree with Fubon any incentives of whatever kind, whether formally or informally, whether in the Fubon Heads of Agreement or otherwise?
5. Did Delta Lloyd in advance of the EGM communicate with any other individual shareholders to persuade them to vote "yes" to the Rights Offering?
a. If yes, who were these shareholders?
b. Did Delta Lloyd offer any of these shareholders any incentives of whatever kind, whether formally or informally, in exchange for their "yes" vote?
6. When entering into the Fubon Heads of Agreement, did Delta Lloyd consider the potential consequences for (i) the likelihood of any future public bids being made by any third party, and (ii) the opportunity for Delta Lloyd's shareholders to secure a corresponding control premium?
7. Should the Fubon Heads of Agreement be seen as a long-term cooperation arrangement as defined in Article 2:107a(1)(b) Dutch Civil Code?
a. If not, why not?
b. If so, when was the Fubon Heads of Agreement submitted to the Company's Supervisory Board and when can Delta Lloyd be expected to submit the Fubon Heads of Agreement to the Company's general meeting of shareholders for approval?
8. In the Fubon Heads of Agreement, Delta Lloyd agreed to nominate through its Supervisory Board one individual designated by Fubon to the Supervisory Board and recommend that its shareholders vote in favor of, and otherwise use reasonable best efforts to cause, the election of such Fubon designee to the Supervisory Board. Delta Lloyd apparently agreed to do so as long as Fubon maintains at least a 15% ownership position on a fully-diluted basis in the Company, and subject to (i) Fubon's nominee passing the suitability test (geschiktheidstoets) and reliability test (betrouwbaarheidstoets) of DNB and ECB and (ii) finalization of the Company's mandatory employee consultation process.
a. Why did Delta Lloyd specify a 15% shareholding threshold for the Fubon nominee, and what is the arrangement for Fubon's Supervisory Board nominee if Fubon's stake at any time decreases below this threshold?
b. Did Delta Lloyd already secure any particular cooperation from the DNB and the Company's works council for the nomination process that was agreed with Fubon for the Fubon nominee?
9. According to the Prospectus, if Fubon reaches a 15% ownership position on a fully-diluted basis, Fubon and the Company are to promptly negotiate in good faith to enter into a relationship agreement on terms customary for other relationship agreements in the Dutch market ("Relationship Agreement"), including customary standstill agreements and provisions relating to the exchange of information and Fubon's nomination rights described above.
a. Is there any timeline within which Delta Lloyd expects to conclude the Relationship Agreement?
b. Will the Relationship Agreement be subject to shareholder approval as referred to in Article 2:107a(1)(b) Dutch Civil Code?
c. If so, when can the shareholders expect to be fully informed of all details of the Relationship Agreement?
10. According to the Prospectus, Delta Lloyd agreed to take all actions as may be reasonably requested by Fubon in order for Fubon to obtain clearance, including a declaration of no objection, from DNB and the ECB to increase its ownership above 10% and to reasonably support Fubon in obtaining the necessary legal and regulatory approvals in its home jurisdiction.
a. Is there any fallback arrangement with Fubon in case regulatory approval is not forthcoming?
b. Will the Company make similar commitments with respect to other shareholders that seek to increase their ownership level above 10%?
11. According to the Fubon Heads of Agreement as described in the Prospectus, all purchasers of rump shares in the Offering ("Rump Shares") will pay the same price per Rump Share.
a. Have the Company and Fubon agreed how many of the Rump Shares Fubon will buy?
b. What is the methodology by which participation in the rump offering will be conducted?
c. Will Fubon pay the same Issue Price as other shareholders purchasing Rump Shares and be subject to the same conditions?
d. If so, is there any particular quid pro quo for Fubon purchasing Rump Shares in addition to the arrangements currently known to the shareholders and the market?
12. Does the fact that Fubon apparently does not have the requisite permits to act as a sub-underwriter – or is yet in the process of securing such permits – play any role in its relinquishment of its right to act as such in the Rights Offering?
We look forward to your responses to the above questions by the close of business on Monday 4 April 2016.
Subject to the answers received, Highfields reserves its right to submit such additional questions and requests as it may deem necessary for shareholders to obtain a full clarification of the arrangements made between Delta Lloyd and Fubon, whether in or outside of the Fubon Heads of Agreement, and whether prior or subsequent to that arrangement.
Since Highfields is in any event entitled to ask questions and receive answers in the annual general meeting of shareholders that Delta Lloyd has scheduled for Thursday 19 May 2016 ("AGM"), we hereby request that the topic of Delta Lloyd's relations with Fubon, and in particular its deals with Fubon through the Fubon Heads of Agreement and any preceding or subsequent arrangements, be scheduled as a topic on the agenda of the AGM.
Please confirm by the close of business on Monday 4 April 2016 that the abovementioned topic will be scheduled as a topic on the agenda of the AGM.
Highfields Capital Management LP
About Highfields Capital
Highfields Capital Management is a $12 billion value-oriented investment management firm which manages private investment funds for endowments, charitable and philanthropic foundations, pension funds and other institutional and private investors. The Highfields funds invest worldwide in public and private companies across a wide variety of industries and security types. The firm was founded in 1998 and is based in Boston, MA.
1 Prospectus, pages 5 and 6.
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SOURCE Highfields Capital Management