Answer To: Instructions to students • This assignment covers Topics 1 to 10 and accounts for 60% of your final...
David answered on Dec 27 2021
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Assignment Title
Student Name
Course Name
Instructor Name
Date
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Section A
a)
The two suitable legal forms of the sale of Schott’s business will be off-market takeover
options using bidding and Schemes of arrangement options. Both these forms will provide an
advantage to Declan as they will be in a position to have a negotiation with the prospective
buyers of the shares. Making use of off-market tactics will result in bidding, and the best bidder
will be awarded given the shares of the Declan on Schott. The second option is Scheme of
arrangement options Declan and Declan will initiate it will have a higher level of control over the
entire transaction, and there will be involved in court approval for the transaction performed.
The suitable option, in this case, will be off-market takeover using bidding in which
Declan will be in a position to select the best suitable bid for the company and can proceed with
the transaction. It will not create more trouble to either of the parties because it will be highly
governed. Bidding process takes place considering all the legal requirements, and it will not
create any issue in the future as all the process and procedure, and closing of the deal will be
documented and registered. The legal structure of the entire process is strong.
Similarly, Declan will have an opportunity to select the bidder besides the consideration
factor such that the change in control of the organization will not create any negative impact on
the business operations of Schott. It is essential for Declan to pay attention to the structural
issues like change in control, change management, etc. impact over Schott post-merger.
Therefore, off-market takeover option will be suitable for the company.
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b)
In case of Declan, the suitable option will be one-on-one negotiations process. Declan
should select the suitable bidders and must involve in one-on-one negotiation with the
prospective buyers. It will result in understanding the requirement of both the parties. As Declan
is having 50% of stake in Schott, they will be in a position to make an efficient and suitable
decision in selecting the appropriate buyer who can satisfy the financial requirement of Declan
and can coordinate well with the existing majority shareholder in successfully managing the
business.
Similarly, using one-on-one negotiation, Declan will be in a position to understand when
they will receive the consideration and which mode of consideration will be acceptable by both
the parties. It will provide better opportunity to negotiate the price competitively. Using closed
tender Declan will not be in a position to evaluate the bidder's management quality and issues
Schott might face post-transacting with the new bidder. Thus, one-on-one negotiation is suitable
for a large shareholder of the company.
c)
Eastside can use the following three strategies for bidding they are minimizing the
transaction costs involved in the transactions, immediate cash consideration towards the stake
purchased from Declan and post-acquisition integration. Highlighting these three points will
result in increasing the chances of winning the bid. Eastside has surplus cash of $400 million
using which they will be in a position to acquire the stake of Schott from Declan as per the
market valuation for $290 million. Declan is in need of cash as they have to reduce their level of
debt as per the demands of the bank.
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Eastside has more surplus cash that they can utilize to make payment to the Declan
immediately without any delay once the transaction is approved. Declan is familiar with Eastside
as they both are the shareholders of Schott and this relationship will give confidence to the
Declan management that Eastside will make the payment immediately without any delay.
Similarly, Eastside is already controlling 50% of the interest in the company, and they are
familiar with the business, post-acquisition Schott business will not face any trouble due to
change in the management of the company. It will not create any structural issue or legal issue to
both the parties.
Section B
Question 1:
a)
Scheme of Arrangement makes the target companies power in making the decision when
compared to the off-market offer. In case of iiNet, the first scheme of arrangement was proposed
by TPG, then M2 group provided the scheme of arrangement, and finally, TPG made more
amendments to the scheme of arrangements. It indicates about the healthy competition that is
present in the process of bidding. In this case, iiNet had good opportunity to select the suitable
bidder and was not forced by any means by the other public company that created threat which is
present in case of an off-market offer.
Scheme of arrangement can be used only for friendly takeover and not for any unfriendly
takeover like the off-market offer. Off market offer is not required to be a friendly takeover, it
can add more pressure to the target company, and there are fewer chances for the target company
to place their concerns and terms and conditions which is fair in any merger and acquisition
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transaction. A fair opportunity is given to the target in case of scheme of arrangement and
shareholders should be convinced with the scheme of arrangement before they are approved.
There is a higher level of transparency in making use of a scheme of arrangement when
compared to the off-market arrangement that makes a scheme of arrangement to have an upper
hand over the other. The company has to obtain about 75% of the consent from the shareholders
to obtain control over the enterprise. It makes the process of winning the bid easier for the
bidder. The main aspect of the scheme of arrangement is that it will provide a win-win situation
to both the companies.
The main reason for takeover is for the growth and development of the business.
Acquiring a business in a friendly manner will add value to the acquirer and such decision will
not create any negative impact on the stock value of the acquiring company. Acquisition using
the process of the scheme of arrangement is comparatively shorter than the off-market offer.
When the duration of the transaction is lesser, it results in quicker post-merger integration
process, and the companies can implement best effective strategies early without any delay. The
scheme of arrangement is cost-effective for the shareholders of the company when compared to
the off-market offer that is making them more advantageous over the other.
Scheme of arrangements provides greater opportunity for the negotiation when compared
to the off-market offer. If the target is not accepting the scheme of arrangement, then the bidder
will present a new scheme of arrangement as per the demands of target and feasibility of bidder.
It will result in better management of the process. Similarly, the change of control using scheme
of arrangement takes place as per the contract, and it will not create more trouble for the
companies after merger and acquisition as all conditions are discussed in the arrangement which
is absent in off-market offer.
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b)
TPG and iiNet are in the same line of business, the main aim of acquisition of iiNet by
TPG was to increase their customer base (IINET, 2015). iiNet is serving more premium customer
segment and has the best range of products and services. iiNet business is a complementing
business for TPG and TPG focuses on retaining the entire management of iiNet who are
rendering best service in their market segment to add value to the companies’ post-acquisition.
The industry is highly competitive and hostile takeover will create a negative impact, and the
existing customers of iiNet might not continue their service post-acquisition due to the negative
impression TPG would have created by using other means of acquisition.
TPG used scheme of arrangement so that TPG will be in a position to uphold their brand
value and can gain confidence from all the stakeholders of the company and the process of
acquisition can take place with less resistance. Making use of a scheme of arrangement will
provide a guideline to all the employees about the changes in management and they can be a
negotiation in favor of both the companies so that post-acquisition there will be less to no
internal conflict present in the organization. Using this method, TPG will gain brand value, and
iiNet customers will continue to prefer the merged company’s service as they will have
confidence about the TPG management style and shareholders of the company will be happy.
TPG focused on boosting their brand value and business segment without any trouble both from
internal and external environment. Thus, TPG used this to materialize the synergy effect.
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Question 2:
a)
Scheme implementation agreement contains various provisions that add more value to the
entire process. Defined terms and interpretation is the first provision that provides a brief
description of all the terms, interpretation and introduction to various headings (IINET, 2015).
The next provision details about the agreement to propose for the scheme which indicates in
detail about the agreement of the proposal. Next provision is related to the conditions precedent
and other steps that are essential to implement before the implementation of all the steps. It will
provide in detail information including various benefits, waivers, conditions that are not
satisfied, notifications, certification, etc.
Next provision is the structure of a scheme that describes the consideration associated
with the schemes and how they will be paid, performance rights, deed poll, etc. Next provision
explains both the parties’ obligations related to the implementation that will provide details about
all the obligations, disagreement to the consent, cooperation, payment and funding details. Next
provision provides details about the recommendation to the board that includes description about
the board members and the changes made to them (IINET, 2015).
Next provision indicates about the conduct of the business before the date of
implementation and reconstitution of the board members of the target company. Next provision
explains about the representations and warranties that indicates about the indemnity associated
with both the parties and various limitations associated with them. It contains provisions that
describe the exclusivity like no current discussion, no shop, no talk, no due diligence, etc. The
provision discusses the break fee, modification to the break fee and the provisions associated
with the standstill criteria.
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Break fees provide more detailed information about the declaration made by the bidder,
acknowledgments, costs related to the agreement and the reimbursement costs. The provision
provides insight about the confidentiality and information about public announcement dates,
information related to termination, and the release of indemnified parties report. The provision
details about the various notices and all other general information like a timetable, GST impact,
waivers, no merger, governing law, counterparts and entire agreement details. The provisions of
scheme implementation agreement enable the readers to understand the entire process of scheme
implementation process from the beginning to end in detail.
b)
The performance of the market declines is an indication about the uncertainties associated
with the merger and acquisition from the investor's point of view. During the relevant period, the
movement of the market price index will be steeper if the investor perceives that the synergy
from the transaction will be poorer. Market index performance is the reflection of the attitude
and perception of investors about the decision of the company. The stock market performance of
M2 began to fall after the proposal sent by the company to iiNet indicating that provision of
market decline is true in this case. The stock price of IiNet company during the relevant period
that is during the sale by the nominee of sales will determine the transaction amount involved in
the process.
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c)
M2 group and the iiNet has made some Exclusivity arrangement that provides various
restrictions that are entered at the time of Scheme arrangement. The exclusivity arrangement
between M2 group and IiNet are as follows:
No-shop – According to this M2 will not make use of any other third party to create any
influence over the iiNet that will create pressure to accept the proposal.
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