Structuring takeovers

Abstract

BVI law provides for a number of structuring mechanics that can be used to structure a takeover bid in addition to a simple offer for all the shares. A point of note for BVI takeovers is that there is no legislation specifically regulating takeover bids, such that the regulation of a bid will have three sources, common law, in statute under the BVI Business Companies Act and the target company's memorandum and articles of association (although the continuing obligations for the particular stock exchange upon which the target company is listed will also be relevant). Additionally, there is no prohibition on the use of poison pill defences by a BVI target, provided the poison pill is properly provided for within the articles. For a company looking to defend itself from a potential hostile approach by amending its articles to provide for a poison pill defence, an important consideration for the directors will be the need to ensure that, in approving the requisite amendments to the articles, they do not breach their fiduciary duties to act in the best interests of the company.

BVI law provides for a number of structuring mechanics that can be used to structure a takeover bid in addition to a simple offer for all the shares.

A point of note for BVI takeovers is that there is no legislation specifically regulating takeover bids, such that the regulation of a bid will have three sources, common law, in statute under the BVI Business Companies Act and the target company's memorandum and articles of association (although the continuing obligations for the particular stock exchange upon which the target company is listed will also be relevant).

Additionally, there is no prohibition on the use of poison pill defences by a BVI target, provided the poison pill is properly provided for within the articles. For a company looking to defend itself from a potential hostile approach by amending its articles to provide for a poison pill defence, an important consideration for the directors will be the need to ensure that, in approving the requisite amendments to the articles, they do not breach their fiduciary duties to act in the best interests of the company.

Simon Schilder

In structuring a BVI takeover, the principal structuring options are as follows:

An offer for all of the issued shares

Following an offer for all of the shares (Kudelski's recent takeover bid for OpenTV was structured as an offer for all the shares), a bidder having acquired 90% of the shares can (but is not required to) elect to squeeze out the minority shares under Section 176 of the Act. The squeeze out is structured as a compulsorily redemption of those shares. Shareholders whose shares are being squeezed out are however able to exercise dissent rights under Section 179 of the Act. These dissent rights are, significantly, limited to the ability to dissent from the price being offered and receive "fair value" as determined by independent appraisers, rather than a right to block the transaction.

A scheme of arrangement

A Section 179A scheme of arrangement is not dissimilar to the English law equivalent and has recently been successfully used for Amber Petroleum's reverse takeover of AfNat Resources.

Under a Section 179A scheme of arrangement, once approved by 75% of the BVI company's shareholders present and voting at a court-convened meeting and then sanctioned by the court, the scheme will be binding on all shareholders.

The dissent rights provided for in Section 179 of the Act are not available to shareholders in a company subject to a Section 179A scheme of arrangement, which is a clear attraction.

A plan of arrangement

A Section 177 plan of arrangement is similar to a Section 179A scheme, except that it can be instigated by the directors making an application to the court. And shareholders subject to a Section 177 plan of arrangement do have dissent rights under Section 179 of the Act and so, despite clearing the relevant shareholder approval threshold to satisfy the court, it may still be necessary for a bidder to cash out those shareholders that dissent from the proposed arrangement.

A statutory merger

A popular structuring tool, particularly in the US, is the use of the statutory merger regime under Sections 170 to 174 of the Act, pursuant to which two or more BVI companies (or a BVI company and a foreign company provided that the laws of the jurisdiction of the foreign company permit a statutory merger) can merge in accordance with a procedural process involving approval by each companies' directors and shareholders of a plan of merger and the filing of this plan, together with articles of merger, with the Registrar of Corporate Affairs in the BVI. Essilor International's recent takeover bid for FGX International Holdings has been structured in this way and previously Apax Partners takeover bid for Tommy Hilfiger was also successfully structured as a statutory merger.

Following a statutory merger, with effect from the effective date, the assets and liabilities of each constituent company automatically vest in the surviving company, whilst the shareholders receive the merger consideration in exchange for their shares. Shareholders again have dissent rights under Section 179.

A virtue of structuring a takeover as a merger is that the threshold for shareholder approval of the transaction is, subject to the articles, a simple majority.