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Clayton, Dubilier & Rice (CD&R) now have until 5pm on August 20 to announce its offer for the UK supermarket chain or abandon the proposed takeover altogether. CD&R had previously made an offer of £5.5 billion but the offer was turned away by the Morrisons board. In June, the board said the bid of £5.5 billion significantly undervalued Morrisons and its future prospects. 

Since June, a rival consortium led by private equity company Fortress has overtaken CD&R with a £6.3 billion bid for the UK supermarket chain. On Friday, this offer by Fortress was raised to £6.7 billion as Fortress attempted to deter CD&R from making another offer. 

Originally, CD&R had until 5pm on August 9 to make an offer for Morrisons, however, this deadline has now been extended to August 20 by takeover regulators.

While the takeover remains subject to approval by Morrisons shareholders, the supermarket group’s directors are in strong favour of the agreement. Chairman of Morrisons, Andrew Higginson, has said he believes Fortress has a strong understanding and appreciation of the supermarket’s fundamental character.

A scheme document outlining the offer said that a court meeting and a general meeting of shareholders would be held on August 16. The offer by Fortress is worth 254 pence a share (252 pence in cash plus 2 pence share special dividend).

The UK supermarket chain has said that the special dividend would be paid two weeks after the takeover. The supermarket also said that it and Fortress were in talks with the trustees of Morrisons’ pension schemes.  Fortress is said to recognise the importance of the schemes as key stakeholders and understands the necessity of maintaining the support they currently receive.  

The bid was led by New York investment group Fortress which has partnered with Canada Pension Plan Investment Board and Koch real Estate Investments. Under the offer, shareholders would receive a 252p per share plus a 2p special dividend, which the supermarket chain said was a 42% premium on its share price before it was announced that Morrisons had rejected a takeover proposal from US private equity company Clayton, Dubilier & Rice last month. 

Fortress has previously invested in grocery retail in both the United States and Europe, and it has also invested in Majestic Wine in the UK. 

Chairman of Morrisons, Andrew Higginson, has said that the supermarket’s performance throughout the Covid-19 pandemic had boosted its standing and enabled the company to enter into discussions with Fortress from a strong position. Higginson has voiced his confidence in Fortress’ understanding and appreciation of Morrison's fundamental character. 

Although the takeover by Fortress is still subject to shareholder approval, the supermarket group’s directors are in strong favour of the agreement.

The Takeover Panel was required to look again at the use of conditions, including MAC, a subject on which it last provided substantive comment and guidance in 2001. Dean Harper, Consultant Solicitor at McCarthy Denning, explores the incident and what it means for M&A.

On 12 March 2020, Brigadier Acquisition Company Limited announced a recommended cash offer for Moss Bros at 22p per share, valuing the target at £22.6 million. The takeover was structured as a scheme of arrangement under Part 26 of the Companies Act 2006 requiring both court and 75% shareholder approval. Unlike in the more straight-forward offer structure, the target under a scheme has more control over the process and is required to prepare much of the scheme documentation. A scheme document, setting out the proposals and including the conditions to the Brigadier offer, was duly prepared and sent to Moss Bros’ shareholders on 7 April and a shareholder meeting called to approve the scheme.

The World Health Organisation had publicly declared the spread of coronavirus to be a pandemic the day before the Brigadier offer was announced. In the period between the announcement of the offer and the publication of the scheme document, the Government introduced the Coronavirus lockdown on 23 March. Moss Bros issued an announcement only a few days later on 25 March 2020 that, having seen a “significant reduction in footfall across our retail outlets”, the decision had been taken to temporarily close all its stores until further notice. The announcement also stated that “The Group expects that the effects of the COVID-19 will result in a significant reduction in revenue and profitability for the year ending 30 January 2021” but to which it added “…it is too early to determine the precise quantum at this stage.

The World Health Organisation had publicly declared the spread of coronavirus to be a pandemic the day before the Brigadier offer was announced.

On 22 April, Moss Bros announced that it had been informed by Brigadier that it was seeking a ruling from the Panel in order to invoke a condition of its offer and lapse its offer for Moss Bros. Withdrawing or lapsing an offer after it has been announced requires the consent of the Panel. The Panel’s has previously stated position is that the “normal assumption should be that shareholders and the market expect that protective provisions will not be invoked” so Brigadier was facing an uphill task from the outset.

The Brigadier Offer was made subject to a long list of conditions, some quite specific and some more general. One of those conditions was a MAC condition: “there having been…no material adverse change and no circumstances having arisen which would reasonably be expected to result in any material adverse change in, the business, assets, financial or trading position of profits, operational performance or prospects of any member of the Wider Moss Bros Group which is material in the context of the Wider Moss Bros Group taken as a whole”. Although it was not been made public at the time, we now know that Brigadier sought to invoke a number of conditions, including this MAC condition.

They also tried to rely on a condition relating to the enactment of legislation which materially adversely affected the business, finances or prospects of Moss Bros, the condition concerning Moss Bros admitting inability to pay its debts, stopping payment of debts  or seeking to restructure its indebtedness, and, finally one that required no liability having arisen or increased which would have a material adverse effect on the Moss Bros Group. All of these conditions required the relevant matter to have a material and adverse effect so they could all be generally characterised as MAC conditions.

The Panel’s has previously stated position is that the “normal assumption should be that shareholders and the market expect that protective provisions will not be invoked” so Brigadier was facing an uphill task from the outset.

Notwithstanding Brigadier’s request that the Panel allow it to withdraw its offer, Moss Bros announced on 23 April that there would be no change in the offer timetable and went ahead with the Court Meeting and the General Meeting of shareholders on 29 April (although, due to social distancing rules, shareholders were told to stay away and submit their votes by proxy). At the meeting, the scheme was approved and the directors were authorised to take all such action as they may consider necessary or appropriate for carrying the Scheme into effect. In the meantime, the Panel was still considering whether to allow Brigadier to lapse its offer on the basis of the MAC condition.

Conditions to an offer are governed by Rule 13 of the City Code on Takeovers & Mergers. Rule 13.5(a) of the Code states that “An offeror should not invoke any condition or pre-condition so as to cause the offer not to proceed, to lapse or to be withdrawn unless the circumstances which give rise to the right to invoke a condition or pre-condition are of material significance to the offeror in the context of the offer.”

Guidance on the scope and effect of Code Rule 13(a) has been given by the Panel in Practice Statement No. 5, issued in 2001 (and updated in 2004 and 2011) following the request by WPP Group plc to lapse its offer for Tempus Group plc as a result of the 9/11 terrorist attacks. In WPP’s view, 9/11 had resulted in a significant deterioration in Tempus’ long-term prospects and this constituted a material adverse change allowing them to use the MAC condition to withdraw their offer.

WPP were unsuccessful and, in fact, the Panel has never allowed an offer to be withdrawn or lapse based on the use of a MAC condition.  Its view is that “…meeting [the] test [of what is material significance] requires an adverse change of very considerable significance striking at the heart of the purpose of the transaction, analogous….to something that would justify frustration of a contract”.

[ymal]

The Panel has since made it clear that this test does not require the offeror to demonstrate frustration in the legal sense, which is where a contract has become impossible to perform, but the bar to reliance on a MAC Condition is nonetheless set extremely high.

In determining what is of “material significance to the offeror” a matter must be specific and the position has to be considered objectively. Nonetheless, the views of the offeror and other informed parties, such as the offeree, should be given appropriate weight. The burden of proof is on the offeror.

The adverse change must also not be short-term in its effect. The Panel has previously indicated that something that has only a temporary effect on profitability is not sufficient to satisfy the “material significance” test. In relation to an acquisition for strategic reasons, the Panel has previously expressed the view that the purchaser is “clearly investing for the long term and therefore something of material significance to such an offer ‘in the context of the offer’ had to be long term”.  A Brigadier director quoted in the original announcement of the Offer referred to being “excited to contribute our expertise and assist in delivering the current strategy. We see the Acquisition as an opportunity to contribute our expertise to improve Moss Bros’ financial performance and protect its heritage, brand and presence on the UK high street.” This suggests a long-term view of the acquisition and the development of the company in private ownership and will not have assisted Brigadier’s chances of obtaining a favourable ruling from the Panel.

Moss Bros resisted the attempt to lapse the offer and indicated that it planned to “take all necessary action” to convince the Panel that Brigadier did not have a valid reason to allow it to revoke its offer and that they believed “the requirements [to lapse an offer on the basis of a condition] have not been met and that the offer should not therefore be permitted to lapse”. This view received support from major Moss Bros shareholders and the matter was identified by some as a test of the City’s resolve and the view has been expressed that allowing the Brigadier Offer to be lapse in these circumstances could start a worrying trend for future deals.

The Panel has previously indicated that something that has only a temporary effect on profitability is not sufficient to satisfy the “material significance” test.

Given the long-term strategic reasons for the acquisition, the difficulty in assessing the likely long-term effect of the current crisis on profitability, the likelihood that lockdown restrictions on non-food retail may be lifted in some way in the relatively near future and the chance of Moss Bros recovering from the damage the lockdown has caused, coupled with the not unreasonable expectation that Brigadier had or should have priced-in the potential impact of the coronavirus pandemic, it was always likely that the Panel would deny Brigadier the ability to lapse their Offer. The history of attempts to rely on a MAC condition to withdraw or lapse an offer was not on Brigadier’s side and the criteria to allow reliance on a condition of this type is very strict and Brigadier was always likely to fall short.

It came as no surprise to many when The Panel announced on 19 May that, having considered Brigadier’s submissions as to why it should be permitted to lapse its bid and Moss Bros’ submissions as to why it believed there were no grounds for allowing it, Brigadier had not established “that the circumstances which give rise to its right to invoke the relevant conditions are of material significance to it in the context of its offer” and that Brigadier should not, therefore, be permitted to invoke any of the conditions or withdraw its offer.

This serves to re-enforce the requirements for bidders to recognise that once a Rule 2.7 announcement of a firm intention to make an offer is made, reliance on a condition, other than the acceptance condition and regulatory approvals, is extremely unlikely to enable the offer to be withdrawn unless the impact is considerable and ,it seems, even the impact and consequences of something as momentous as the coronavirus pandemic may not be sufficient.  The Panel Statement noted, however, that Brigadier had been given a short period of time in which to decide whether to request a review of the Panel’s ruling by the Panel’s Hearings Committee and indicated that a further announcement would be made in due course.  Brigadier initially requested a review of the Panel Executive’s ruling but then withdrew its request and the Hearings Committee issued a statement on 26 May 2020 that, accordingly, the Panel Executive’s ruling stands.  It always seemed unlikely that Brigadier would obtain a more favourable result from such a review should their request not have been withdrawn and that no doubt figured in their decision to withdraw it.

 

CNN's Jon Sarlin explains how Uber moved into the biggest market in the country and defeated the formidable yellow cab industry.

Disney’s acquisition of 21st Century Fox means that the House of Mouse now controls a huge amount of our most beloved films and television series.

Announced in December 2017 and expected to take until at least 2021 to complete, this $66.1bn deal (that included taking on a sizeable debt portfolio from Fox) ranks amongst the largest mergers of its kind in history.

We’ve compared these media giants, looked at the potential impact of the deal on both their own employees and the end user and demonstrated how Disney is looking to leverage this deal to break into new markets.

Read on to see how the merger will affect everything from television and the cinema box office to streaming platforms and sports broadcasting with our comprehensive infographic:

 

Disney Fox Merger Infographic
(Source: ABC FINANCE LTD)

Global brand consultancy The Partners recently launched a comprehensive study entitled ‘To Be Or Not To Be’, which reveals what Britishness means for brands post-Brexit.

The Partners surveyed 1,000 consumers across the UK to garner the general public’s perception of British brands, and combined this insight with in-depth interviews with leading marketers to establish the value of British provenance for brands today.

The study found that many brands experience an identity crisis when trying to leverage a modern sense of Britishness. From a lack of clarity about who the target consumer is and their preferences, to a difficulty in identifying a defined set of British attributes, Britishness is becoming an increasingly complex aspect to employ, particularly for British brands positioning themselves as global entities.

Surprisingly, for a country known for its patriotism, the survey showed that just 25% of people consider a brand’s British heritage to be the most important factor in their purchase decision. This compares with 54% of participants rating the quality of product highest, 36% valuing customer service above all else and 29% placing emphasis on the brand’s individual culture and values.

But the survey also revealed a paradox: despite the majority of respondents believing that Britishness is not important when making a purchase, a significant 42% believe that brands should emphasise their Britishness more post-Brexit in order to appeal to a wider range of global consumers.

The Partners encourages brands to take advantage of these contradictions. This apparent ambivalence about the value of Britishness can be seen as an opportunity to redefine the roles that brands play in a world where being ‘British’ is no longer enough to compete in an already saturated market.

The report argues that by balancing the tension between the traditional notion of heritage and the ‘fresh themes’ and modern ingenuity at the heart of Britishness, brands will succeed with new and existing audiences, both in Britain and on a global stage.

This ability to balance the dualism inherent in Britishness is supported by the opinions of the marketers that The Partners surveyed, and is an attributing factor to the success of some of our most-loved British brands. This includes the BBC, which was voted the most admired British brand by 46% of participants in the survey.

The survey revealed that the top five most-admired British brands are:

  1. BBC
  2. M&S
  3. Cadbury
  4. Boots
  5. The Post Office

Sam Evans, strategist at The Partners, said: “Brexit has provided a moment for reflection on what Britishness represents. It also provides a choice, a fork in the road where brands can continue to assimilate in a global order of homogeneity or can choose to re-familiarise themselves with the ingredients that make Britishness a potent force. We believe that now, more than ever, it’s time for British brands to reclaim their Britishness. It’s in the interests of brands to build on and develop the positive associations for a new era.”

(Source: The Partners)

Reynolds American Inc. has reached an agreement with British American Tobacco p.l.c. for a $49 billion takeover that would create the world’s largest publicly traded tobacco business. The takeover agreement is currently subject to a $1 billion breakup fee. This merger brings together some of the world’s best-known tobacco brands, from Lucky Strike and Rothmans, to Dunhill and Camel cigarettes.

As of this week, it was agreed that BAT will acquire the 57.8% of RAI common stock that BAT does not currently own for $29.44 per share in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share, currently worth $30.20 per share based on the BAT closing share price as of January 16th 2017, and the corresponding Dollar-Sterling exchange rate.

The per-share price represents a 26.4% premium to RAI's closing price as of October 20, 2016, the day prior to BAT's public proposal to acquire the outstanding shares that BAT does not currently own. Under the terms of the agreement, RAI shareholders will receive for each share of RAI common stock they own, $29.44 in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share. The BAT American Depositary Shares will be listed on the New York Stock Exchange. RAI shareholders will own approximately 19% of the combined company.

The transaction was approved by the independent directors of RAI who formed a transaction committee to negotiate with BAT, given BAT's existing ownership stake and representation on RAI's board of directors, and by the boards of directors of both companies.

Following the transaction, the combined companies become a stronger, truly global tobacco and Next Generation Products company, delivering sustained long-term profit growth and returns. It will maintain a presence in both profitable developed and high-growth developing markets while bringing together a compelling and complementary global portfolio of strong brands including Newport, Kent and Pall Mall. The companies' combined next-generation product development and R&D capabilities will create an innovative pipeline of vapor and tobacco-heating products, delivering both an array of new product options for adult tobacco consumers, as well as diversified sources of profit growth opportunities for investors.

"Through this transaction, we form an industry leader that will focus on innovation and brand building," said Susan M. Cameron, executive chairman of Reynolds American's board of directors. "This combination will create a truly global tobacco company with multiple iconic tobacco brands, and a world-class pipeline of next-generation vapor and tobacco-heating products."

"The transaction delivers significant value to RAI shareholders, and the independent directors on the transaction committee have unanimously voted in favour of the transaction," said Lionel L. Nowell, III, lead independent director of Reynolds American's board of directors. "This is an agreement that offers a compelling premium to shareholders, as well as continued ownership in a company that is well-positioned for long-term success."

"We look forward to bringing together the two companies' highly complementary cultures and shared commitment to innovation and transformation in our industry," said Debra A. Crew, Reynolds American's president and chief executive officer. "British American Tobacco is the best partner for Reynolds American's next phase of growth, and together the two companies will create the leading portfolio of tobacco and next-generation products for adult tobacco consumers."

"We are very pleased to have reached agreement with the board of Reynolds American as we believe that the combination of our two great companies has a very compelling strategic and financial logic that will provide a lasting benefit to shareholders, employees and all other stakeholders," said Nicandro Durante, British American Tobacco's chief executive officer. "This transaction will not only create a truly global business with a world-class portfolio of tobacco and next-generation products, but will also benefit from the highly talented and experienced employees in both organizations. We believe that this will drive long-term sustainable profit growth for the benefit of all shareholders."

British American Tobacco has a strong track record of successfully integrating acquisitions and remains committed to Reynolds American's US workforce and manufacturing facilities.

The cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds. A $25bn acquisition facility has been entered into with a syndicate of banks to provide financing certainty. The acquisition facility comprises $15bn and $5bn bridge loans with 1- and 2-year maturities respectively, each with two six-month extensions available at BAT's option. In addition, the facility includes two $2.5bn term loans with maturities of 3 and 5 years. BAT intends to refinance the bridge loans through capital market debt issuances in due course.

The transaction is subject to shareholder approval from both Reynolds American and BAT shareholders, as well as regulatory approvals and other customary closing conditions. The transaction is expected to close in the third quarter of 2017.

Weil, Gotshal & Manges LLP and Moore & Van Allen PLLC acted as legal counsel, and Goldman, Sachs & Co. acted as financial advisor to the Reynolds American transaction committee.

Jones Day acted as legal counsel and J.P. Morgan Securities LLC and Lazard acted as financial advisors to Reynolds American Inc.

(Source: Reynolds American)

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