LIBERAL Party state treasurer and one of Australia's richest businessmen, Andrew Abercrombie, bought shares in a public company at the same time it was in secret takeover talks with a firm he controlled, documents reveal.
The confidential company documents obtained by The Age show that Mr Abercrombie's 2008 share purchases in Perth communications firm Amcom occurred while the firm was having confidential discussions with Mr Abercrombie about buying a company he directed and majority owned, Digital River Networks.
Mr Abercrombie was appointed treasurer of the Liberal Party's Victorian branch in May, with the support of Premier Ted Baillieu. BRW magazine recently estimated his wealth at more than $400 million, with the bulk of it coming from the listed leasing and finance company he founded, FlexiGroup.
Documents obtained by The Age regarding his Amcom share trade show:
A July 2008 email he sent his fellow Digital River directors shortly before he bought Amcom shares warned them not to trade in Amcom stocks because the directors were privy to information about the private negotiations
Confidential draft legal advice obtained by Digital River states that Mr Abercrombie may have breached his director's duties and Australian laws by buying the Amcom shares.
In the July 23, 2008 email, Mr Abercrombie warned his fellow directors not to buy shares in Amcom because of the secret takeover discussions between the Perth firm and Digital River.
"Hi guys . . . now is the time [for Digital River] to engage seriously with Amcom. It was made clear to me by Amcom chairman Tony Grist, that knowledge of what is happening here makes us insiders, so trading in Amcom shares/options now would be illegal."
Five weeks later, on September 1, as takeover talks continued, Amcom announced to the ASX that a company solely owned and directed by Mr Abercrombie, AJA Super IW, bought a 6.55 per cent stake in Amcom.
AJA Super IW bought more Amcom shares on December 15, 2008, bringing Mr Abercrombie's total holding in the firm to 8.5 per cent, worth about $4.6 million at the time.
Amcom has never alerted the market about its private dealings with Mr Abercrombie and Digital River. The discussions ultimately collapsed in the second half of 2009 and the takeover did not go ahead.
Mr Abercrombie declined to answer a list of detailed questions sent by The Age to explain his trading in Amcom shares. Instead, his lawyer sent The Age a letter threatening to sue the paper for defamation if the story was published.
"It is not for Mr Abercrombie to establish, either to The Age or elsewhere, that he did not breach the provisions of the Corporations Act. He is in no different a position to any other person in the community in this regard," the letter says.
"On the basis of our instructions, it is our advice to Mr Abercrombie that there has been no breach of the Corporations Act in his dealings with Amcom Telecommunications Limited or Digital River Network Pty Ltd."
A communication stock analyst told The Age that if Amcom had told the market that an acquisition was being discussed, it is likely it would have resulted in a rise in Amcom shares because the takeover would give the Perth firm control of Digital River's valuable east coast broadband infrastructure.
A confidential Digital River letter to the federal government in March 2009 also disclosed that takeover discussions with an ASX company which The Age has confirmed was Amcom were serious and ongoing and, if realised, would be "beneficial" to Amcom.
Mr Abercrombie unsuccessfully attempted last year to gain preselection for former federal treasurer Peter Costello's seat of Higgins. He was elected unopposed as treasurer of the Liberal Party's state branch in May.
As treasurer, Mr Abercrombie has ultimate responsibility for the party's fund-raising activities and compliance with electoral laws relating to such activities.
The leaked company documents show that at least four months before Mr Abercrombie made his Amcom share purchases, the secret discussions between Digital River and Amcom were well afoot and Mr Abercrombie was deeply involved in them. The discussions continued for many months after his share purchases.
Private company emails sent in November 2008 show that between Mr Abercrombie's first and second purchase of Amcom shares, Amcom had made an "informal" offer to take over Digital River.
An email sent on November 26, 2008, to Mr Abercrombie by Amcom chief executive Clive Stein states: "Gents, please find attached a document which summarises the key commercial points of discussion to date. Our main driver is to maintain an accretive transaction, as well as not to try to delay the transaction due to shareholder approval."
The leaked emails also reveal that when Mr Abercrombie's share purchases were uncovered by other Digital River executives, they immediately sought legal advice about the legality of his dealings.
The draft external legal advice from Shiff & Company lawyer Julia Adams to the Digital River board concluded Mr Abercrombie's Amcom share dealings had presented him with "a conflict of interest" that "increased the possibility" that he had broken laws which require company directors to never use their position to gain an advantage for themselves. "This is particularly the case given we are instructed that the director [Mr Abercrombie] has been instrumental in negotiating with Amcom," she said.
During a brief conversation with The Age last month, Mr Abercrombie denied Digital River was involved in secret takeover talks with Amcom. "There were no confidential acquisition talks. Amcom had expressed interest in expanding to the east coast, they were talking to lots of people," he said.
However, the March 2009 letter from Digital River to the federal government states that the firm had been "approached by an ASX listed telecommunications company for a potential merger and while we are approached regularly, the company engaged with this particular entity due to the natural synergy between the two organisations."
"Whilst Digital River has taken several steps towards a potential merger with the ASX-listed telecommunications company, including the execution of a non-binding indicative offer and providing due diligence material to the party, at this stage the transaction has stalled, mainly due to differences in valuation." Digital River was sold three months ago to another listed telecommunications operator, Vocus Communications, for nearly $4 million.
Frequently Asked Questions about this Article…
What happened when Andrew Abercrombie bought Amcom shares during takeover talks with Digital River?
According to leaked company documents, Andrew Abercrombie bought shares in ASX-listed Amcom in 2008 while confidential takeover discussions were ongoing between Amcom and Digital River, a company he directed and majority owned. A July 23, 2008 email from Abercrombie warned fellow Digital River directors not to trade in Amcom because they were insiders. Amcom later disclosed on September 1, 2008 that a company solely owned by Abercrombie, AJA Super IW, had bought a 6.55% stake, and further purchases on December 15, 2008 brought his holding to about 8.5% (roughly $4.6 million at the time). The proposed deal ultimately collapsed in the second half of 2009.
Does the article suggest Abercrombie's Amcom trades could be insider trading or a breach of director's duties?
The article reports that confidential draft legal advice obtained by Digital River said Abercrombie's Amcom share dealings 'may have breached' his director's duties under Australian law and presented a conflict of interest. Abercrombie declined to answer detailed questions and his lawyer later said there had been no breach of the Corporations Act on the basis of their instructions. The situation, as described in the article, remained contested rather than legally resolved.
Did Amcom alert the market about the private takeover talks that might have affected Amcom shares?
No. The article states Amcom never alerted the market about its private discussions with Abercrombie and Digital River. A communications stock analyst told The Age that if Amcom had told the market an acquisition was being discussed, it likely would have caused a rise in Amcom shares because the takeover could have given Amcom control of valuable east-coast broadband infrastructure.
What evidence in the article shows the takeover talks between Amcom and Digital River were serious?
The article cites multiple pieces of evidence: private company emails and draft documents outlining commercial points of discussion; a March 2009 confidential letter from Digital River to the federal government confirming it had been approached by an ASX-listed telecommunications company (confirmed to be Amcom) and that non-binding indicative offers and due diligence had occurred; and emails indicating Amcom made an 'informal' offer to take over Digital River during late 2008.
How did Digital River's directors react when Abercrombie's Amcom purchases were discovered?
When Abercrombie's purchases were uncovered by other Digital River executives, they immediately sought external legal advice. Draft advice from Shiff & Company lawyer Julia Adams concluded that Abercrombie's dealings created a conflict of interest and 'increased the possibility' he had broken laws that prohibit directors from using their position for personal advantage.
What role did Abercrombie's political position and business background play in the story?
The article notes that Andrew Abercrombie was appointed treasurer of the Liberal Party's Victorian branch in May (with responsibilities for fundraising and electoral compliance) and that BRW had estimated his wealth at more than $400 million, largely from the listed leasing and finance company he founded, FlexiGroup. Those details provide context about his public profile and potential conflicts when his private business dealings overlapped with confidential corporate negotiations.
What did Digital River say publicly about the merger talks with an ASX-listed company?
In a March 2009 letter to the federal government, Digital River stated it had been approached by an ASX-listed telecommunications company and that it had engaged with that party because of 'natural synergy.' The letter said Digital River had taken steps toward a potential merger, including executing a non-binding indicative offer and providing due diligence material, but the transaction had stalled mainly over valuation differences.
What ultimately happened to Digital River after the discussions with Amcom?
The article reports that Digital River was sold three months before publication to another listed telecommunications operator, Vocus Communications, for nearly $4 million.
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