Partner John Gosling discusses the different options open to investors structuring the takeover (take private) of a BVI incorporated listed company...
Investors considering the takeover (take private) of a BVI incorporated listed company enjoy the benefit of different potential structuring options under BVI law. These may include a merger, tender offer (takeover bid), a scheme of arrangement and a plan of arrangement. Under each structure, the terms of the transaction may be that target shareholders receive cash, shares in the offeror or a combination of cash and shares in exchange for their BVI target company shares. The different structures can be briefly summarised in outline as follows.
A merger involves the offeror incorporating a new wholly owned subsidiary, itself often a BVI company although another merger friendly jurisdiction can be used. A shareholders meeting of the target is then convened to approve a merger of the target with the new subsidiary with the resulting merged company thereby becoming a subsidiary of the offeror. Unless the target's constitutional documents provide for a higher threshold, the merger may only require approval of a simple majority vote of the target's shareholders who attend the meeting, although in the case of an offeror which is already a substantial shareholder in the target it may be decided also to seek approval from independent shareholders holding a majority of the other shares. No BVI court approval is required for a merger.
A tender offer (or takeover bid) is a contractual offer made by an offeror to shareholders in the target BVI company to acquire their shares. Shareholders who accept the offer transfer their shares to the offeror in return for the relevant consideration. BVI law provides a "squeeze out" mechanism allowing an offeror achieving 90% acceptances of its offer to compel the remaining shareholders to have their shares repurchased by the BVI target company. The offeror may make the completion of the takeover conditional on this 90% acceptance level being achieved so that it can be sure it will become owner of 100% of the target's shares through the squeeze out. Again, no court approval is required.
A scheme of arrangement is an English law based court sanctioned process whereby a restructuring of the target which results in a takeover by the offeror can be implemented. A scheme of arrangement requires the approval of a majority in number of target shareholders holding 75% by value of the target's shares, together with the approval of the BVI court. There is in addition an alternative court sanctioned process known as a plan of arrangement based on the Canadian law model where the BVI court sets the approval threshold required. Once approved by the requisite majority and the BVI court, the scheme of arrangement or plan of arrangement is binding on all shareholders.
Minority shareholders dissenting from one of the above transactions which has been approved by the requisite majority will have certain rights under BVI law. In the case of a merger, squeeze out and, if the BVI court so orders, a plan of arrangement there will be appraisal rights allowing shareholders to have their shares independently valued. In the case of a scheme of arrangement dissenting shareholders may at least in theory seek relief from the court, although they will have to justify the court interfering with a transaction approved by the requisite statutory majority, which is likely to be difficult in most circumstances.
The choice between the above structures may depend on a number of onshore law and commercial factors including timing and certainty requirements, the rules of the relevant stock exchange, market expectations and tax issues. However, the alternative structures available under BVI law provide great flexibility for an offeror in addressing those issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.