1. When can a break fee be treated as a class 1 transaction?
    If the total aggregate fee or fees exceeds 1% of the value of the company (by reference to offer price) LR 10.2.7R
  2. What is the rule in Fulham v Cabra
    • An exception to the rule against fettering discretion was where the
    • directors decided that it was in the best interests of the company to
    • enter into an agreement on behalf of the company under which they bound
    • themselves to exercise their powers in such a way as to ensure that the company performed its obligations under that agreement
  3. What was the decision in The Matter of Expro International Group plc
    • it does not appear that there is any current likelihood of the Courts
    • playing a more active role in determining the outcome of offers".

    Courts will not usually substitute their own opinions for those of the board.
  4. Can a mandatory offer be satisfied by a scheme of arrangement?
    Not without the panel's consent
  5. Can you switch from a scheme of arrangement to a contractual offer?
    Yes. With the consent of the panel
  6. Does a general offeror have to offer cash consideration?
    Usually - see Rule 9 and Rule 11 of the takeover code
  7. Is a general offer suitable for a recommended offer, a hostile offer, neither or both? What about a scheme of arrangement?

    Scheme of arrangement is only suitable for a recommended offer
  8. What are the two types of scheme of arrangement? How do they work?
    A reduction scheme: cancellation of existing offeree shares and the issue of new offeree shares in excahnge for the payment of consideration by the offeror to the offeree shareholders

    A transfer scheme: the transfer of existing offeree shares to the offeror in exchange for payment of consideration.
  9. Are schemes of arrangement usually paid for in cash?
    No. Underwriting this can prove too expensive due to the length of time involved.
  10. How many shareholders have to approve a scheme of arrangment?
    A majority in numbers and 75% in value.

    The resolution must be taken by poll. The offeror and connected shareholders cannot vote.
  11. In addition to the shareholders, who else must approve a scheme of arrangement?
    The court.

    A copy of the court order must be filed at companies house before the scheme can take effect.
  12. What must be sent to shareholders together with notice of the members meeting to approve a scheme of arrangement?
    An explanatory statement
  13. Does the city code apply to schemes of arrangement?
    Yes (also known as the takeover code). See the differences to the normal takeover code which are listed in Appendix 7
  14. Name 5 advantages of a scheme of arrangement
    • 1. Smaller % of offeree shareholder support to obtain 100% control
    • 2. Once the requisite majority approve, all shareholders are bound by it
    • 3. Generally quicker to reach the stage where all offeree shareholders are bound
    • 4. Not deemed to be an offer to the public for s85(1) FSMA
    • 5. Reduction scheme can offer stamp duty savings
  15. Name 7 disadvantages of a scheme of arrangement
    • 1. Cannot be used with a hostile offer
    • 2. More difficult to revise a scheme than a general offer
    • 3. Can take longer due to effect due to need to file court approval
    • 4. More time for competing bidder to intervene
    • 5. Stakebuilding and irrevocable undertakings will not increase the offeror's chance of success
    • 6. Offeree company controls timing and implementation
    • 7. More expensive.
  16. What is a break fee?
    A sum paid by one party to another on the occurrence of a specified event leading to a deal falling through
  17. What must a lawyer drafting a break fee consider?
    • 1. Director's duties
    • 2. Financial assistance
    • 3. r21.2 city code - inducement fees
    • 4. LR 10.2.7 - may be a class 1 transaction
    • 5. That details must be provided in a rule 2.5 announcement
  18. Every copy of the company's articles issued by the company after the
    court order sanctioning the scheme of arrangement has been made must be
    accompanied by a copy of the order, unless the effect of the order has
    been incorporated into the articles by amendment. True or False?
    True. s901(3) CA 2006
  19. Once the scheme of arrangement is sanctioned by the court, the bidder has to make an announcement in accordance with paragraph 5 of Appendix 7 to the Takeover Code. True or false?
    False. It is the target which must make this announcement
  20. What must the board consider when deciding whether to recommend a takeover offer?
    Their directors' duties and financial assistance provisions
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