ASX listed provider of assisted reproductive services,
BGH Capital as manager and adviser to entities of theBGH Capital Fund 1 (BGH).- Virtus was obliged to notify
CapVest of any Competing Proposals, including all material terms and the identity of the proposing entity so thatCapVest would have an opportunity to provide a matching or superior proposal. Virtus had to allowCapVest 5 business days to provide the matching or superior offer. Virtus had to give reasonable consideration to theCapVest counter-proposals and notifyCapVest of their response within 2 business days and, if the Virtus board decided that theCapVest counter-proposal was acceptable, the parties had 3 business days to use best endeavours to settle the transaction documentation for theCapVest counter-proposal. - the "fiduciary out" only came into force 15 Business Days after the Data Room Open Date.
- Virtus promised to provide
CapVest with any known undisclosed information about Virtus' business which it provided to any other party in connection with an alternative proposal and which had not already been provided toCapVest . CapVest's ability to match or exceed any genuine competing proposal each time one was made could mean that the competing proposal never became a Superior Proposal and therefore could not trigger a "fiduciary out" at all.- did not require Virtus to disclose information that would be commercially sensitive information of a third party; and
- excused Virtus from notifying a competing proposal until after its Board had determined whether there was a genuine competing proposal in play.
since December last year.
The competing bids have been accompanied by various approaches to the
This article focuses on the
Key events leading up to the Panel deliberations
From the ASX announcements and the Panel's published reasons, the key events were:
Date | Event |
Virtus announces an unsolicited non-binding indication of interest from BGH-: | |
Meeting between BGH and Virtus | |
Virtus tells BGH that Virtus would consider BGH's proposal and reconnect in | |
Virtus announces it had received a non-binding indicative bid from | |
BGH applies to Panel for declaration of unacceptable circumstances concerning exclusivity arrangements in the Process Deed | |
Panel makes declaration of unacceptable circumstances | |
Virtus announces an amended Process Deed with | |
Panel publishes reasons for decision of unacceptable circumstances |
Reasons for decision
The Panel declared that circumstances in connection with the original Process Deed between CapVet and Virtus were unacceptable, concluding that the exclusivity arrangements overall would inhibit or be likely to inhibit the acquisition of control over voting shares in Virtus taking place in an efficient, competitive and informed market. The Panel ordered that Virtus and
What were the exclusivity arrangements?
Under the Process Deed:
What were the key concerns?
The likely timing of the Data Room Open Date was not disclosed by Virtus in its announcement on
Guidance note 7 states that "in the absence of a effective 'fiduciary' out, a no-talk restriction is likely to give rise to unacceptable circumstances". The process deed effectively precluded the board of Virtus from exercising the "fiduciary out" during the period
The Panel also considered that it was unclear whether the "fiduciary out" truly existed in circumstances where:
With respect to Virtus' obligation to share any information that it had not already shared with
With respect to the length of exclusivity arrangements, the Panel referred to the AusNet Services decision which had considered that 8 weeks was at the longer end of market practice. In Virtus' situation the Panel were concerned that the mechanisms in the Process Deed with respect to the exclusivity period, the diligence period and the end date could mean that some exclusivity arrangements were in place for a number of months. The Panel considered that given that there was only an indicative proposal from
Virtus submitted that the opportunities of running an auction for control were significantly impaired by virtue of BGH having acquired a 19.99% pre-bid stake and argued that without the Process Deed the Virtus board genuinely believed that
The orders, and what happened next
The Panel ordered that the no-talk, no due diligence, fiduciary carve-out, non-public information and notification obligation cease to be effective from
On
-
removed the delay affecting the "fiduciary out";
Key takeaways
In Guidance Note 7 the Panel provides guidance on a number of mechanisms used by bidders to "lock-up" the target to deal with them in priority to others, and emphasises that the Panel will consider substance over form. The Virtus decision illustrates how the Panel will consider such mechanisms, and emphasises that the "fiduciary out" should provide a genuine opportunity for target boards to consider credible alternative bids.
Footnotes
1 Reasons for
2 A "fiduciary out" allows the target board to breach exclusivity if the target receives an unsolicited proposal which is superior to the initial proposal. In such circumstances, the target's directors' fiduciary duties require them to evaluate the superior proposal, consistent with their duty to act in the best interests of shareholders.
3 Takeovers Panel Guidance Note 7 "Lock-up devices" https://www.takeovers.gov.au/content/DisplayDoc.aspx?doc=guidance_notes/current/007.htm&pageID=&Year=
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Ms
Level 23
Tel: 29253 9999
Fax: 29253 9900
URL: piperalderman.com.au
© Mondaq Ltd, 2022 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source