For months M&A lawyers around the world asked what would have happened to Musk’s attempt to walk away his Twitter deal? We now have an answer.
without an express right to do so. Without such a right, the court could order the bidder to complete all aspects of the transaction, prevent an inconsistent transaction from occurring or even, perhaps, award compensation .
Although the question of whether a bidder can walk away is ultimately determined by the terms of the particular scheme implementation agreement, the court made clear that it will have regard to the peculiar position of merger agreements, where the target is the party but the shareholders stand to benefit, the potential harm to target shareholders and the nature of control transactions.
The net result? It will take a brave bidder to walk away from a deal in Australia without a clearly drafted provision that allows them to do so. And target companies are unlikely to accept that except in exceptional circumstances – perhaps for a bid with an unprecedented and knock-out premium, or a reverse break fee greater than the 1 per cent that is presently market practice in Australia.The Pendal case sends a clear message to bidders.
This decision will put to rest one of the key criticisms that have been made of schemes of arrangements in Australia when compared to takeovers. Before Pendal, some had argued that schemes with reverse break fees were not a certain deal structure because the bidder could always walk away for a relatively modest fee. This argument no longer holds.
Admittedly, schemes do not provide as much certainty as a takeover bid on the point – it will still be up to the discretion of the court to determine a remedy against a recalcitrant bidder in the particular circumstances of the scheme . The case also illustrates the important role courts have in determining questions of law relevant to takeover schemes.Speaking of agreed mergers, it has been a very good couple of months for schemes in Australia .
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