Following Brigadier’s attempt last month, in effect, to pull out from its bid for Moss Bros PLC by invoking a material adverse change clause in its offer (citing the impact of the COVID-19 pandemic), the Takeover Panel has announced that Brigadier has not demonstrated that circumstances of a material significance exist that would permit them to do so under Rule 13.5(a) of the Takeover Code. As part of its analysis, the Panel will have considered whether the situation that has impacted the business and financial position of Moss Bros was reasonably foreseeable when Brigadier launched its bid on 12 March. This outcome re-establishes the Panel’s deep reluctance to permit bidders to invoke such conditions in offers for public companies, underlined in its historic WPP/Tempus ruling. For this reason, the Panel’s response to Brigadier’s submission in this case was perhaps to be expected.
In the meantime, Moss Bros has taken forward the legal process with its shareholders that will implement the takeover, a scheme of arrangement overseen by the Court. The decision to do so is likely to have created significant costs while Moss Bros waited for the Panel’s ruling. From this, one might infer that Moss Bros was confident of the outcome of the Panel’s ruling and/or that, when they chose to press ahead, time was not on their side. In practical terms, the responsibility for executing a scheme ultimately rests with the target. For this reason, bidders are always advised that the scheme bid structure is only feasible where the target board supports the offer. Consequently, schemes also generally proceed with – and, to some extent, rely upon – a high degree of cooperation between the parties. Conversely, in the case of Brigadier / Moss Bros, we now have a highly unusual scenario of a scheme where the bidder is reluctant to proceed, though Brigadier is of course committed to doing so under the Takeover Code. This will create new challenges for Moss Bros’ legal advisers in particular.
One interesting detail that will need be addressed shortly before completion of the scheme will be the bidder’s undertaking to the Court to be bound by it and to do everything needed to effect it. At its core, a scheme is a contract between the target and its shareholders to which the bidder is not a party and, therefore, to whose terms it cannot be held directly. The undertaking partly serves to address this gap, though a separate agreement can be put in place between the parties to govern how the offer is implemented, while the Takeover Code also helps to ensure the bidder’s cooperation. Ordinarily, this undertaking often only amounts to an uncontroversial verbal confirmation from the barrister at the Court hearing to sanction the scheme. However, the bidder, barrister or Court might consider that something more robust is appropriate on this occasion.
We will know soon whether Brigadier will attempt to appeal the Panel’s ruling and if, as with the WPP / Tempus offer, the Panel would dismiss this.
Written by Guy Francis