CS Credit Suisse Group

By Alex MacDonald and Shayndi Raice 

LONDON--In a rare public censure, the U.K. body that regulates deals said Thursday the financial and legal advisers involved in the creation of a troubled Indonesian coal miner breached the takeover code of the City of London.

The body, known as the U.K. Takeover Panel, said investment banks Credit Suisse Group AG, J.P. Morgan Chase & Co. and law firms Freshfields Bruckhaus Deringer LLP and Holman Fenwick Willan LLP, failed to disclose that Bumi PLC's founding shareholders were potentially acting as so-called 'concert parties' when the deal was announced in 2010.

Three of the firms--Credit Suisse, Freshfields and HFW--were formally censured for providing misleading statements to the panel after the deal was announced.

Cooperating parties with more than 30% voting control of a company are considered to be acting in concert with one another, according to the U.K. takeover code. While not forbidden, the code requires parties acting in concert to make a general offer for the remaining shares of the company as part of an effort to protect minority shareholder interests. The panel often waives the requirement to make an offer for all shares as long as there is an independent vote at a shareholder meeting.

"All of the Advisers knew that the Indonesian Transactions would trigger a requirement for a mandatory offer to be made" if the panel determined the parties were acting in concert, the statement said. Yet the parties did not discuss the possibility with the panel before announcing the deal, as required by City rules. The statement also chided the advisers for "not taking all reasonable care not to provide the Panel with incorrect, incomplete or misleading information."

No fines or penalties were levied on the firms. But the panel's censure--which very rarely targets advisers--carries a stigma in the City of London.

"The City is a small place and people's reputations are very important," said Scott Hopkins, a London-based partner with the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

Rules governing M&A in the U.K. are determined by the Takeover Panel, which currently has 26 members include bankers, lawyers and other industry players. Although the panel is independent of government, it has statutory power and its rules are compulsory.

City deal makers say the censure of advisers, particularly legal advisers, is incredibly rare. The most recent case of public criticism leveled at an advisory firm was in 2007 against NM Rothschild & Sons Ltd.

"There's a high degree of compliance with the code," said Mr. Hopkins, who was seconded to the takeover panel from 2008 to 2010.

Bumi was shepherded into existence back by Nathaniel Rothschild, the scion of a European banking dynasty, who listed an investment vehicle called Vallar PLC in 2010. Vallar engineered a $3 billion reverse takeover of two Indonesian mining firms that gave Indonesia's politically influential Bakrie Group and Indonesian shareholder Rosan Roeslani a more than 30% stake in the London-listed entity that was renamed Bumi PLC once the deal closed in 2011.

Bumi, renamed Asia Resource Minerals PLC in 2013, was taken private this year after nearly defaulting on its debt.

During the series of acquisitions that created Bumi, bankers and lawyers did not properly advise their clients of the requirement to confer with the panel, nor did they inform the panel of the connections between the parties before the deal was announced, according to the panel's statement.

Further breaches occurred after the deal was announced, according to the panel's statement. Credit Suisse became concerned that the Indonesian entities did indeed represent a concert party and even determined internally that it was necessary to consult the panel. Despite that, Credit Suisse did not inform the panel about its concerns and later, along with the law firms, provided misinformation to the panel.

The panel admonished J.P. Morgan for its involvement in the deal but stopped short of public censure on grounds that its conduct was disappointing but not sufficiently serious to merit public criticism.

A J.P. Morgan spokesman declined to comment.

Statements from Credit Suisse, Freshfields and HFW said the firms cooperated fully with the investigation. A Credit Suisse statement added the firm "regrets its conduct" and has "accepted the Panel's findings and has taken appropriate action to ensure that its high standards of conduct are upheld at all times in relation to the U.K. Takeover Code and to prevent repetition."

A Freshfields statement said the panel's criticism resulted from a failure to "provide the Takeover Panel with some information relevant in considering the submission, but accepted that there was no intention on the part of any of the advisers to mislead the Panel."

An HFW spokeswoman noted the Takeover Panel's statement and said it was issued with the firm's consent but declined to comment further.

Write to Alex MacDonald at alex.macdonald@wsj.com and Shayndi Raice at shayndi.raice@wsj.com

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(END) Dow Jones Newswires

November 05, 2015 11:44 ET (16:44 GMT)

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