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Private from a Jersey company: is there a new kid in the neighborhood? – Corporate/commercial law


Jersey: Private from a Jersey company: is there a new kid in the neighborhood?

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2021 has been a record year for global M&A activity, with Reuters reporting that global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record high of $4.55 trillion. established in 2007. In this wave of deals, there has been a remarkable increase in the number of “public to private” or “privatization” deals driven by a combination of highly capitalized private equity funds and a slow recovery in some actions at pre-pandemic levels. It is therefore not surprising that Jersey, as a leading international financial centre, has had a record year for business activity, including a number of private transactions. Private transactions in Jersey have often been implemented by member arrangements under Part 18A of the Companies (Jersey) Act 1991 (CJL). This article focuses on the emergence of a statutory merger under Part 18B of the CJL as an alternative method of implementing a privatization of a Jersey company following the recent privatization of Atrium European Real Estate (AERE) by Gazit-Globe Limited (on which Appleby advised AERE (see Appleby advising Atrium European Real Estate Limited on its groundbreaking €1.45 billion merger with Gazit Globe Limited)

JERSEY MARKET OVERVIEW

The public M&A market remained very hot in 2021 and shows no signs of slowing down during the first part of 2022 with recommended offers announced during this period for companies like ADVAZ PHARMA, Sanne Group, Mimecast and AERE. All of the above offerings, except for the AERE, have been implemented or are proposed to be implemented by a members’ plan of arrangement under Part 18A of the CJL. The privatization of AERE which was completed on February 18, 2022 was implemented through a statutory merger under Part 18B of the CJL which marks an interesting departure from the traditional route of a plan of arrangement of members. Formal takeover bids using the squeeze-out provisions under Part 18 of the CJL remain almost unheard of in the Jersey market and are only likely to be considered in a hostile takeover scenario and , therefore, this article explores the possibility of statutory amalgamation as an alternative method to a member. ‘ Layout drawing only.

STATUTORY MERGER FOR A PRIVATE TAKE: HOW DOES IT WORK?

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There are a number of alternative permutations to the structure described above, for example the surviving entity could be Bidco or a new third party entity or the merger could be implemented by the bidding entity listed being the surviving entity . The legislation is quite flexible in this regard.

The main high-level steps for the implementation of a privatization by statutory merger are as follows:

  • Approval of the target board and the bidding board of the merger agreement.

  • Extraordinary general meeting of the target and the offeror convened to review and approve the merger agreement. For the merger to proceed, the merger agreement requires the approval by special resolution of each class of members of the target and the offeror (if the offeror is a Jersey entity). As part of the convening of the extraordinary general meeting, a shareholders’ circular is sent to the target shareholders (and, where applicable, offeror shareholders) specifying the essential terms of the merger.

  • Assuming shareholder approval is received, there is then a 21-day objection period for dissenting shareholders and creditors to file an objection with the Royal Court of Jersey on the grounds that the proposed merger unfairly prejudices to their interests. The law and case law on unjust hardship in Jersey is very closely aligned with the position of English law.

  • On the basis that no shareholder or creditor objections are received or such objections are cleared, the target and the bidder apply to the Registrar of Companies in Jersey to register the merger, at which point the merger is finished.

From a practical point of view, the following points should be noted:

  • It would be open to a bidder who owns shares in the target to vote on the special resolution to approve the merger, potentially significantly lowering the threshold required to approve the transaction.

  • The directors of the target and the bidder are required to provide certain certifications as part of the process, for example certifications as to the solvency based on the cash flows of the target/bidder (if applicable) for the period beginning on the date of the official board meeting. approval of the merger until completion of the merger.

The merger cannot be registered (and therefore the transaction cannot be completed) if there are persistent objections from shareholders or creditors.

TIMETABLE: STATUTORY MERGER V MEMBER ARRANGEMENT PLAN

In our experience, each transaction will have its own unique timing considerations that will need to be taken into account before deciding on a path to implement the transaction. The high-level timelines for a private Jersey company takeover for a statutory merger and members’ plan of arrangement are set out below.

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STATUTORY MERGER V MEMBER ARRANGEMENT REGIME: MAIN ADVANTAGES AND DISADVANTAGES

In addition to timing considerations, there will be a number of other business factors at play that advisors will need to consider. The main advantages and disadvantages of each way of implementing the transaction are presented below.








STATUTORY MERGER ARRANGEMENT DIAGRAM
BENEFITS
  • Potentially lower threshold for approval by 66⅔% of voting members. It is possible that this threshold is even more accessible if the bidder is a shareholder of the target.

  • Unless the process is challenged, no time frame for court approval, reducing costs, scheduling restrictions, therefore potentially a significantly faster process.

  • Proven and market accepted procedure for the privatization of a Jersey company. Relevant stock exchanges and takeover committees are familiar with the process.

  • A court-sanctioned process – provides finality and minimizes the risk of later challenge.

THE INCONVENIENTS
  • Objections raised by members or creditors can delay completion and create uncertain outcomes although the unfair hardship threshold is a relatively high bar to meet.

  • Risk of litigation because the law requires that partners and creditors be expressly informed of their right to oppose the merger for unfair prejudice.

  • The directors of the target and the offeror are required to provide forward-looking statements of creditworthiness for the merged entity.

  • No court-sanctioned process (i.e. offering finality).

  • Requires the approval of a majority in number of voting members as well as 75% of the shares voted at the general meeting, therefore a higher threshold than a merger. The shares of the target held by the bidder do not count towards the statutory threshold.

  • Difficulty caused by an outdated majority threshold in numbers (often referred to as a count test).

  • Difficulty caused by the constant evolution of case law on the composition of classes.

  • A lower threshold for opponents than the unfair hardship threshold in a merger.

STATUTORY MERGERS AS A MEANS OF IMPLEMENTING A PRIVATE TAKEOVER OF A JERSEY COMPANY: A FLASH IN THE PAN OR HERE TO STAY?

A key factor in whether a statutory merger will evolve as a common method of privatizing Jersey companies will be how takeover regulators in the relevant jurisdictions on which the Jersey company is listed respond to the proposal to implement the privatization through a statutory merger. As the London Stock Exchange is by far the most popular destination for Jersey-listed companies, the opinion of the UK Takeover Panel will therefore be essential in this regard. Our polls on this point have been encouraging, as we understand that the UK Takeover Panel would not stand in the way of a process clearly contemplated by Jersey law. There may be small tweaks around the edges to the UK Takeover Panel processes, but nothing that can’t be handled as part of a trade.

In other jurisdictions such as the Cayman Islands, statutory amalgamation has already become the most commonly used method of implementing a private transaction. It should be noted that the diets of Jersey and the Cayman Islands are similar but not entirely comparable. Additionally, Cayman Islands companies are not subject to the UK Takeover Code, which is undoubtedly relevant to the significance of the statutory merger as a method of implementing a private transaction.

We anticipate that once clients become aware of the merger alternative (in the context of a private transaction), momentum will begin to grow for this method, especially given the lower approval thresholds required. . However, the appeal of the proven method of a limb arrangement plan should not be underestimated. In practice, we expect that business factors unique to each proposed privatization (such as Jersey target shareholding, jurisdiction of registration and post-closing structuring requirements) will mean that a method will be more desirable than the other. Watch this place.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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