Osim trading bungle: Credit Suisse, Morgan Lewis Stamford rapped

SIC found the actions of advisers Credit Suisse and Morgan Lewis Stamford led to Osim founder Ron Sim's offer vehicle purchasing 2.3 per cent of the issued share capital of Osim above the stated final offer price on April 5.
SIC found the actions of advisers Credit Suisse and Morgan Lewis Stamford led to Osim founder Ron Sim's offer vehicle purchasing 2.3 per cent of the issued share capital of Osim above the stated final offer price on April 5.PHOTO: OSIM

Banking giant Credit Suisse and law firm Morgan Lewis Stamford failed in their responsibilities as advisers for Osim International's privatisation earlier this year, the regulator said yesterday.

Their actions resulted in Osim founder Ron Sim's offer vehicle purchasing 2.3 per cent of the issued share capital of Osim above the stated final offer price of $1.37 a share ($1.39 on a cum-dividend basis) on April 5.

This was despite telling shareholders that it would not increase the offer.

Putting an offeror in a position where it would be required to revise its offer after it has made a "no increase" statement counts as a breach of the takeover code.

Some shareholders who missed out on the higher price demanded that Osim make up the difference.

SIC noted that "Credit Suisse should have been alert to the erroneous use of the dates in the context of market purchases and exercised independent judgment".

SIC also called out Morgan Lewis Stamford for giving "erroneous advice"... It erroneously used the books closure date as the reference date, which was not relevant for the purpose of determining the maximum price for market purchases.

The Securities Industry Council (SIC) convened a hearing to see if the offeror had breached the relevant rule of the code and if each adviser had failed in its responsibility to ensure that the offeror complied with the code.

The findings of the hearing committee - chaired by Mr J.Y. Pillay - were released yesterday.

SIC said Morgan Lewis Stamford and Credit Suisse - as advisers to the offeror - had collective responsibility to ensure that the offeror complied with the code.

Credit Suisse had said the April 5 purchases in the $1.38 to $1.39 price range were made "inadvertently". It was acting on advice from Morgan Lewis Stamford, which is helmed by managing partner Lee Suet Fern.

Neither adviser was aware that Osim shares started trading ex- dividend on April 4, although the ex-dividend date had already been announced.

SIC noted that "Credit Suisse should have been alert to the erroneous use of the dates in the context of market purchases and exercised independent judgment".

"This was fundamental knowledge that a financial adviser undertaking code-related work was expected to have been able to determine," it added.

Credit Suisse was also not alert enough to spot the error and failed to exercise its independent judgment when advising the offeror to buy Osim shares at the cum- dividend price.

SIC also called out Morgan Lewis Stamford for giving "erroneous advice". The law firm was responsible for advising the offeror on any legal, compliance and regulatory issues relating to the offer and code.

It erroneously used the books closure date as the reference date, which was not relevant for the purpose of determining the maximum price for market purchases, SIC said.

It added: "Legal advisers are expected to perform the necessary due diligence and checks prior to providing any advice in connection with takeovers."

However, SIC said it would not take further action against Morgan Lewis Stamford and Credit Suisse as Osim shareholders did not suffer a loss as a result of the bungle.

After the complaints in April, moves were quickly taken to compensate those shareholders who had sold their stock at the lower price, and the offer price was revised upwards again to $1.39 on an ex-dividend basis.

As the offeror compensated all shareholders who had sold their shares below $1.39 on April 5, SIC said no further action was being taken against the offeror.

Mr Sim had increased the offer price to $1.41 on a cum-dividend basis and to $1.39 on an ex-dividend basis. This meant he coughed up an additional consideration of up to $4.7 million to be paid to shareholders.

He also paid about $100,000 to compensate all shareholders who had sold their shares below $1.39 on April 5.

SIC also noted that both Morgan Lewis Stamford and Credit Suisse have since taken steps to improve their internal processes and controls to prevent a similar incident from happening.

A version of this article appeared in the print edition of The Straits Times on November 25, 2016, with the headline 'Osim trading bungle: Credit Suisse, Morgan Lewis Stamford rapped'. Print Edition | Subscribe