Extract from Freehills Lawyers note on the Flinders Mines takeover collapse. As you can see dodgey Russians and Chinese play very dirty in these situations, they try and negotiate a lower bid price or walk away without even paying the break fee.
http://www.freehills.com.au/8235.aspx
Two foreign bidders have previously tried to walk away from schemes. In 2011 Regent Pacific Group, a Hong Kong Stock Exchange listed company, terminated the implementation agreement with BC Iron after a report that a 21 per cent shareholder in BC Iron opposed the scheme. In another instance in 2011, ARMZ, a Russian uranium company, informed its target, Mantra Resources, that in ARMZ’s opinion the material adverse condition in the implementation agreement had been triggered, leading to price renegotiation with Mantra Resources from $8 per share to $7 (including a special dividend).
Besides the risk of a foreign bidder abandoning a scheme, there are greater difficulties and potentially higher costs for a target to pursue remedies against a foreign bidder in default. Although implementation agreements are usually drafted with broad conditions precedent, including approvals or absence of impediments in foreign jurisdictions, no remedies at all might be available to a target or its shareholders if such a condition is not satisfied on time.
A target company’s right to recover a reverse break fee will often not be an adequate remedy as, even if it is paid (and, unless there is security for payment, there will always be some risk that the bidder will object to paying), it will not compensate shareholders for their losses.
Jurisdictional issues and sensitivities may overshadow disputes arising from schemes with foreign bidders, making it difficult for target companies to seek and obtain any remedies.
For example, if the Panel were to rule that the injunction in Russia gave rise to unacceptable circumstances and compel MMK to complete the scheme, would it not put MMK in a position where it would be in contempt of court in one jurisdiction or the other no matter what it does? As, however, the Panel appears to have accepted that the injunction has legally led to the termination of the scheme, does it not mean that the Court in Chelyabinsk has, in effect, disapproved of the scheme taking place in Australia?
While the increased risk associated with foreign bidders abandoning schemes would always remain a risk for target shareholders, the Flinders Mines scheme shows that negotiating narrower conditions precedent and/or broadening target’s entitlement to reverse break fees to include legal proceedings instituted by bidders’ shareholders in foreign jurisdictions may reduce at least in part the negative financial impact of abandoned schemes on targets. However, ultimately, target boards and shareholders need to be confident that the bidder will act in accordance with its obligations.
SDL Price at posting:
28.5¢ Sentiment: None Disclosure: Not Held
