what's your take on the general claims escrow account? It...

what's your take on the general claims escrow account?
It expires end of this year. What happens to that $100m when it expires? Does it return to Strides?

GC, I've had quite a few thoughts.

Firstly, with respect to the timing of release of funds from escrow, I think it’s reasonable to assume that the original Agila SPA agreement would have included an Escrow Agreement with terms and conditions dictating what happens.

The following from the Agila SPA does suggest this is the case

The Seller hereby irrevocably and unconditionally authorizes and instructs the Purchaser, at Completion, to deduct the Senior Manager Transaction Proceeds from the Purchase Price and to deliver such funds to the Senior Manager Escrow Agent to be held in an escrow account in accordance with the terms and conditions set out in the Senior Manager Escrow Agreement. The Senior Manager Transaction Proceeds shall be held and released in accordance with the terms of the Senior Manager Escrow Agreement.

While I don’t know what the terms are for this particular Escrow Agreement, I’d expect they would address what happens if there is an ongoing/unresolved claim. Probably the terms are similar to the ones described below (this is from a US court order in relation to a dispute over release of escrow funds)

Contemporaneous with the SPA, the parties also entered into an Escrow Agreement to hold money for making certain potential payments, including payments of indemnification claims. Section 3(a)(iv) of the Escrow Agreement requires the release of all funds in escrow to IMX on the Survival Expiration Date, except “if any claim pursuant to Section 8.2 of the [SPA] shall have been properly asserted by the [Defendants] on or prior to the Survival Expiration Date and shall remain pending on the Survival Expiration Date.” In that case, “the portion of the Escrow Funds to be released to [IMX] as contemplated by this sentence shall be the amount of the Escrow Funds, minus the Disputed Amount . . . as of the Survival Expiration Date.” Thus, a claim for indemnification based on a breach of the representations and warranties in the SPA is valid and may serve as a basis for withholding escrow amounts only if it is asserted on or before July 29, 2012, the Survival Expiration Date.

In this US case, funds held in escrow hadn’t been released on the Survival Expiration Date. The crucial issue to be determined was “Was the claim related to the SPA properly asserted on or prior to that date?” In this case it wasn’t, so it was ordered that the funds in escrow be released.

In the case of Strides and Mylan, I think it’s safe to say that Mylan has already asserted its claims related to the SPA.

So my opinion, based on the assumption that there would have been a similar “exception” clause written into the Agila SPA Escrow Agreement, is that the amount of any disputed claim would have to remain in the $100 million General Claims escrow account past 31 December 2017 if there was a legal/arbitration decision pending. So in this case, as the disputed amount happens to exceed $100 million, the whole amount would remain.

But perhaps this is actually irrelevant, given the settlement of claims related to the Agila transaction which Mylan and Strides agreed upon in early November 2016.

Strides’ announcement to the market at the time stated that the two companies had agreed to full and final settlement of both Regulatory and General Claims on the Agila transaction. Following this settlement agreement, Strides was to receive $30 million and Mylan $70 million from the $100 million Regulatory Claims Escrow. As to the $100 million General Claims Escrow, it was simply noted that it would remain valid until December 31, 2017.

If there has already been “full and final settlement” of the General Claims Escrow, does this mean that the expiry date won’t be extended as there is no longer a claim/disputed amount?

Does it mean that Strides already agreed in November 2016 to waive its right to any of the $100 million General Claims Escrow, irrespective of the outcome of the Mylan v. POH arbitration?

If Strides has agreed to release the $100 million to Mylan while saying that “any further outflow of resources is not probable”, are they acknowledging that “full and final settlement” isn’t necessarily the end of the matter (as already demonstrated by legal precedent)?

If POH has a snowball’s chance in hell of a significant payout, as some have suggested, why would Strides have made such a decision almost a year ago?

Would Mylan have been aware of POH’s quantum of claims by October/November 2016?

If Mylan is entitled to receipt of all the funds in the General Claims Escrow account after 31 December 2017, does this mean it’s in their interest to settle with POH for some and pocket some?

If POH wasn’t willing to settle for much less than, say, $80- 90 million, would Mylan risk the chance of an arbitration decision going against them for >$100 million, the attendant negative publicity and the prospect of fresh arbitration in London to battle it out for access to Strides” $200 million ongoing corporate guarantee?