Dealing with the needs and objectives of major shareholders, including where there are competing bidders, has resulted in a variety of imaginative and, in some cases, complex change of control structures being employed to get transactions over the line.
Structures have previously been implemented to facilitate a variety of different imperatives, such as:
- neutralising a significant hostile shareholder who may be a
competing bidder (for example, Huon Aquaculture);
- providing an optimal exit structure for the exit of an existing
major shareholder (for example, Carsome Group's takeover of
iCar, Coca-Cola European Partners' takeover of Coca-Cola
- allowing management or major shareholders to rollover and maintain their investment to take the business forward in an unlisted vehicle (for example, Village Roadshow).
These bespoke takeover structures or features are becoming increasingly accepted by the market and regulators as a result, even though they are mainly seen on larger transactions due to their complexity. Bidder funding requirements can also influence the extent to which they may be available as a tool.
Historically, when faced with a significant hostile shareholder who could block a scheme proposal, one solution was to make a takeover bid with a 50.1% minimum acceptance condition, which might evolve into a scheme or other structure at a later point in the transaction when the major shareholder 'flipped'.
Other common structures have included 'stub equity' structures designed to allow major shareholders and management of the target to roll their shareholdings into the bid vehicles, but where all shareholders are offered the opportunity to do so in order to avoid class creation issues.
More recently, bidders have been prepared to go to the additional expense and complexity of proposing alternative or parallel structures upfront.
These parallel structures typically involve proposing the bidder's preferred structure as Option A, alongside an alternative Option B structure which has a higher likelihood of proceeding due to:
- lower acceptance/approval requirements (for example, a takeover
offer with a 50.1% minimum acceptance condition, or an asset sale
and return of capital); or
- the ability for the major shareholder to vote (as they are only treated differently under Option A but not under Option B).
Shareholders are sometimes incentivised to approve the bidder's preferred structure by incorporating a slightly higher price, but this is not always the case. Ultimately, the objective of the alternative structures is to encourage approval of the preferred structure on the basis that other shareholders are no worse off under it than the bidder's less-preferred structure, which is likely to proceed in any event.
There remains some residual risk that the Option B structure is open to challenge on the basis that the major shareholder is associated with the bidder. However, the increasing acceptance of these types of structures by the courts and regulators has made such structures less doubtful.
Some examples of recent parallel structures have included:
- Huon Aquaculture's acquisition by JBS -
the major shareholder held approximately 50% and a competing bidder
acquired approximately 20%, so three parallel structures were
offered, all at the same price. This was partly to facilitate the
major shareholder selling at a higher level than the listed entity
level, but also to deal with the significant competing
- Village Roadshow acquisition by BGH Capital - where the principal held approximately 40% and wished to roll over their investment. Two alternative schemes were proposed with some ability for minority shareholders to rollover into the bid vehicle.
At the more complex end of the market, we expect to continue to see diverse and imaginative structures used (subject, of course, to ASIC, the courts and the Panel continuing to be comfortable with the particular features of each transaction).
This article first appeared in Corrs' M&A 2023 Outlook. Find the full report here.
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