Welcome to this season’s third episode of the Offshore Litigation Take 10 podcast.
In this episode, Paula Kay joins Ian Mann to discuss privatisation, the process by which a company transfers from public to private ownership and control.
Given the current economic and geopolitical climate, publicly listed companies are facing great pressure and are looking for ways to either exit from their current stock exchange and relist elsewhere, or to exit the stock exchanges completely.
Increased reporting requirements as a result of the US-China trade war has also played a role in many organisations’ desire to privatise.
Options for privatisation for a Cayman Islands company
Standard merger process in which a public company merges with a private company in order to come off the stock exchange.
Privatisation via a scheme of arrangement has a similar time frame to a standard merger, but does not require a fair value pay-out to dissenting shareholders. However, a majority in number and 75 per cent present and voting is needed, which may be challenging to obtain.
Mergers in accordance with Part XVI s233 only require a special resolution (usually 66 per cent), which may be easier to obtain. However, dissenting shareholders have the right under s288 to seek the Courts assistance to determine a fair value. Should the Court decide that the value of the shares at the time of the merger was not fair, the dissenters are entitled to an uplift.
Part XVI s233(7) is an exception to the standard merger process, referred to as a Short Form Merger, which is a combination of a Squeeze Out (where 90 per cent of the shares are acquired) and a merger to follow. As 90 per cent of the shares are owned, there is no requirement for a meeting of the members as there is no need for a special resolution to be passed, resulting in a compulsory buyout of the remaining shares. In this event, dissenting shareholders do not have the opportunity to provide notice or to seek the Courts assistance to determine fair value.
Regardless of the way in which a company privatises, financial advice from an independent third party and an independent special committee to assess the merits of the merger are essential to ensure that the deal is the correct price for the shareholders.