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Claire
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When can a break fee be treated as a class 1 transaction?
If the total aggregate fee or fees exceeds 1% of the value of the company (by reference to offer price) LR 10.2.7R
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What is the rule in Fulham v Cabra
- An exception to the rule against fettering discretion was where the
- directors decided that it was in the best interests of the company to
- enter into an agreement on behalf of the company under which they bound
- themselves to exercise their powers in such a way as to ensure that the company performed its obligations under that agreement
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What was the decision in The Matter of Expro International Group plc
- it does not appear that there is any current likelihood of the Courts
- playing a more active role in determining the outcome of offers".
Courts will not usually substitute their own opinions for those of the board.
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Can a mandatory offer be satisfied by a scheme of arrangement?
Not without the panel's consent
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Can you switch from a scheme of arrangement to a contractual offer?
Yes. With the consent of the panel
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Does a general offeror have to offer cash consideration?
Usually - see Rule 9 and Rule 11 of the takeover code
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Is a general offer suitable for a recommended offer, a hostile offer, neither or both? What about a scheme of arrangement?
Both.
Scheme of arrangement is only suitable for a recommended offer
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What are the two types of scheme of arrangement? How do they work?
A reduction scheme: cancellation of existing offeree shares and the issue of new offeree shares in excahnge for the payment of consideration by the offeror to the offeree shareholders
A transfer scheme: the transfer of existing offeree shares to the offeror in exchange for payment of consideration.
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Are schemes of arrangement usually paid for in cash?
No. Underwriting this can prove too expensive due to the length of time involved.
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How many shareholders have to approve a scheme of arrangment?
A majority in numbers and 75% in value.
The resolution must be taken by poll. The offeror and connected shareholders cannot vote.
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In addition to the shareholders, who else must approve a scheme of arrangement?
The court.
A copy of the court order must be filed at companies house before the scheme can take effect.
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What must be sent to shareholders together with notice of the members meeting to approve a scheme of arrangement?
An explanatory statement
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Does the city code apply to schemes of arrangement?
Yes (also known as the takeover code). See the differences to the normal takeover code which are listed in Appendix 7
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Name 5 advantages of a scheme of arrangement
- 1. Smaller % of offeree shareholder support to obtain 100% control
- 2. Once the requisite majority approve, all shareholders are bound by it
- 3. Generally quicker to reach the stage where all offeree shareholders are bound
- 4. Not deemed to be an offer to the public for s85(1) FSMA
- 5. Reduction scheme can offer stamp duty savings
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Name 7 disadvantages of a scheme of arrangement
- 1. Cannot be used with a hostile offer
- 2. More difficult to revise a scheme than a general offer
- 3. Can take longer due to effect due to need to file court approval
- 4. More time for competing bidder to intervene
- 5. Stakebuilding and irrevocable undertakings will not increase the offeror's chance of success
- 6. Offeree company controls timing and implementation
- 7. More expensive.
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What is a break fee?
A sum paid by one party to another on the occurrence of a specified event leading to a deal falling through
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What must a lawyer drafting a break fee consider?
- 1. Director's duties
- 2. Financial assistance
- 3. r21.2 city code - inducement fees
- 4. LR 10.2.7 - may be a class 1 transaction
- 5. That details must be provided in a rule 2.5 announcement
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Every copy of the company's articles issued by the company after the
court order sanctioning the scheme of arrangement has been made must be
accompanied by a copy of the order, unless the effect of the order has
been incorporated into the articles by amendment. True or False?
True. s901(3) CA 2006
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Once the scheme of arrangement is sanctioned by the court, the bidder has to make an announcement in accordance with paragraph 5 of Appendix 7 to the Takeover Code. True or false?
False. It is the target which must make this announcement
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What must the board consider when deciding whether to recommend a takeover offer?
Their directors' duties and financial assistance provisions
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