For those of you who wonder what goes on behind the scene prior to the actual announcement of a major corporate transaction... An RTO deal in the process which I undertook in 2008.
Summarizing the pertinent deal points and presenting to my client after the meeting. I hope that these opening of confidential files will serve to help students of finance faculty better relate their text material to the real corporate world practice and their learning attune to the practical prerequisites of becoming a deal-maker.
Attn: Mr XXXX,
Strictly Confidential, and without prejudice ( for discussion only)
RE : Prelimary Discussion and documentation in relation to Proposed Acquisition of Blackstone Tenements.
Further to our meeting today, I am pleased to set out below a summary of our discussion in relation to the abovecaptioned matter for your reference being a general appreciation at this exploratory and non-binding stage.
i. Discussion and Non-binding Understandings.
• Conditional Sale and Purchase Agreement . The contemplated transaction is contingent upon the procurement of up to at least 51% of votes in favour from existing shareholders of listco, and hence, your group understands and shall irrevocably undertake to satisfy the vendors (Target ) of this requirement pursuant to the proposed acquisition through further procurement of such number of shares carrying voting rights from existing shareholder/s at such price as mutually agreed on a willing buyer willing seller basis and in good faith.
• Undertakings. In the event should and where the vendors, in their own capacity, or with those deemed acting in concert holding more than 30% or more of the voting rights as the SIC (Securities Industry Council) may rule pursuant to Rule 14 of Take Over Code, your group understands and shall irrevocably undertake not to accept the General Offers, in respect to the shares held.
• Completion of SPA. We mutually understand that the contemplated 25% share purchase by the ‘investor’ from one of the major shareholders by way of a call/put option deed to be entered into between both parties shall be conditional upon, inter alia, receiving approval and resolution on Listco.’s forthcoming EGM for the disposal of certain assets, and such option deed shall only be exercised after the said EGM as a result of certain undertaking by the said major shareholder.
• Divestment of Assets. We understand that there is expressed interest from an interested party (IPT) in certain assets of the Listco..We agree in principle on a bona fide offer but subject to the approval of shareholders and opinion of an independent financial advisor. In furtherance, proceeds arising from such divestments shall be retained in account of Listco. as working capital.
ii. Indicative Broad Terms of Proposed Acquisition.
1) Transaction. The listco (purchaser) shall acquire a substantial shareholding in the wholly owned Company (Target) of the Vendors which entitles the listco the participation interest in the said blackstone tenements in Chinese Territory.
The said transaction is stipulated to take place in 2 phases. The intial phase, upon partial ‘asset injection’, shall result in the Target not holding more than 25% of the enlarged capital of the listco. The 2nd phase, also the completion phase shall upon conversion of convertible loan stocks into ordinary shares in the listco.by the vendors render a potential RTO situation.
2) Payment. The payment scheme shall be in 3 staggered phases :
a. Earnest monies ( being 1.5% of purchase consideration)
b. 1st Tranche -Approximate of 25% of the purchase consideration to be satisfied by:
i. Issue and allotment of new shares on completion, and;
ii. Cash consideration
c. 2nd Tranche - A conditional convertible loan stock granted to purchaser ( listco) to fund the acquisition of the balance shares in Target Group conditional upon the Target achieving certain profit guarantee from the operation for FY2009 and FY 2010. ( It is in view that upon such exercise of the convertible loan is possible to tantamount to a reverse takeover)
3) Conditions Precedent. The resolution and completion of a Definitive Agreement in relation to the transaction shall be subject to, inter alia;
a. Satisfactory Due diligence ( appointed independent legal , audit, technical valuer , IFA and FA/corporate advisory professionals);
b. Consents and approval from shareholders , and all relevant authorities and jurisdiction of countries of incorporation of the Target and Purchaser;
c. The procurement of votes in favour from substantial shareholders (5% and above);
d. The reconstitution of board of directors to include representatives from Target group at the Vendor’s discretion, including independent directors.
4) Expenses. The purchaser and vendors shall separately bear respective costs and expenses incurred by each.
5) Completion. Purchaser and vendors shall in good faith and best effort complete the transaction at such date to be determined.
May I suggest that on the foundation of above itemized indicative broad terms and understandings, the listco. and the vendors shall review and negotiate at arm’s length and in good faith with view of achieving a conclusive and definitive agreements for the Proposed Acquisition Exercise.
Kind Regards,
Cheng Kuan
Cautionary Notes:
The complex nature of said contemplation has potential implications with the followings and hence, seeking professional advice is strongly recommended and urged for parties involved.
Highlights of some potential material issues, but not exhaustive, which require clearance and approval from Regulatory Authorities:
• Interested Parties Transaction
• Major transaction – exceed 20% of NAV
• Concerted Parties or ‘acting in concert’
• Whitewash Waiver
• Mandatory Offer
• Partial Offer
Disclaimer: The writer is a holder of Corporate Finance Advisory Certificate of The Institute of Banking and Finance Singapore, BUT has not applied to MAS for license to provide advisory service. It is also not his intention to render such service in capacity of an advisor in this material. Hence, the writer accepts no liability for the content or for the consequences/ damages of any actions taken on the basis of the information provided. The writer expresses his representation in this material, exclusively and solely as a deal facilitator.
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