Stada investor Elliott's support for DPLTA does not preclude later litigation - lawyers
(ME-rgerMarket)- Scope for higher compensation to become clearer at EGM
- Independent valuation in 12-18 months expected at EUR 73-76 - source
- Shareholders voting in favour of DPLTA can still appeal compensation
Stada Arzneimittel [ETR:SAZ] investor Elliott's support for a domination and profit and loss transfer agreement (DPLTA) at the price proposed by bidders Cinven and Bain does not preclude litigation at a later stage, lawyers following the situation said.
After the success of the private equity groups' bid for Stada, Elliott, which controls 15% of Stada shares, said it would only support a DPLTA if the compensation offered to minority shareholders is at least EUR 74.40 per share.
Nidda Healthcare, the bid vehicle for Stada, controlled by Bain and Cinven, announced last week that it would meet Elliott's demands and proposed a price of EUR 74.40 to Stada's board in its negotiations to implement a DPLTA.
Given that the bidders had met Elliott's price demands, two Germany-based lawyers believed litigation to secure higher compensation was now off the table.
But, a third lawyer said litigation after the DPLTA’s registration was still likely. Some other minority investors in Stada have already contacted him, speculating that a higher price can be achieved, he said. The scope for further appraisal and a higher value compensation will only become clear once the valuation method used for the domination agreement is revealed at the EGM, he said.
A DPLTA would give Bain and Cinven operational control over Stada without owning the company’s entire share capital. In return, the buyers must offer minority shareholders a fair value price to tender their shares and guarantee a regular dividend to any remaining shareholders who do not want to sell out.
Nidda, which has secured 63.87% of Stada through its offer, would require 75% approval from shareholders present at the EGM to implement the domination agreement. This would be guaranteed with Elliott’s support. The EGM is expected to take place within two months, a source close to the situation said.
Elliott's statement that it would support a DPLTA at that minimum compensation level only means that the activist shareholder will not look to block the domination agreement, the third lawyer pointed out. There was no commitment from Elliott to tender its shares at this level or not to launch a later appraisal proceeding, this lawyer said.
The domination agreement would be voted through to secure minorities a put option over their Stada shares, this lawyer thought. But, Elliott's support of the agreement does not necessarily mean that the investor will not look to benefit from a higher price at a later stage, he added.
If Elliott opts for the guaranteed dividend, it can remain a shareholder and possibly challenge the compensation amount later, agreed the first lawyer. This lawyer and the second lawyer, however, speculated that Elliott would likely cash out. Elliott is looking for a return relative to the time period, the lawyer said, who believed the investor would be more likely to take a good profit in a very short time rather than stretch it out over litigation.
This view was shared by two sources close to the deal, who predicted Elliott would tender its shares. At EUR 74.40, Elliott is getting a 40% annualised return based on its first entry at EUR 62-63, pointed out the first source. Even if it comes to litigation and an independent valuation is carried out, the valuation in a 12-18-month time frame would likely come at between EUR 73-76, this source estimated, adding that Elliott had clearly done its calculations before setting its minimum price requirements.
Cinven and Bain (Nidda) are expected to seek some kind of agreement with Elliott not to pursue litigation, the two sources close to the situation and the first two lawyers said.
After the success of the private equity groups' bid for Stada, Elliott, which controls 15% of Stada shares, said it would only support a DPLTA if the compensation offered to minority shareholders is at least EUR 74.40 per share.
Nidda Healthcare, the bid vehicle for Stada, controlled by Bain and Cinven, announced last week that it would meet Elliott's demands and proposed a price of EUR 74.40 to Stada's board in its negotiations to implement a DPLTA.
Given that the bidders had met Elliott's price demands, two Germany-based lawyers believed litigation to secure higher compensation was now off the table.
But, a third lawyer said litigation after the DPLTA’s registration was still likely. Some other minority investors in Stada have already contacted him, speculating that a higher price can be achieved, he said. The scope for further appraisal and a higher value compensation will only become clear once the valuation method used for the domination agreement is revealed at the EGM, he said.
A DPLTA would give Bain and Cinven operational control over Stada without owning the company’s entire share capital. In return, the buyers must offer minority shareholders a fair value price to tender their shares and guarantee a regular dividend to any remaining shareholders who do not want to sell out.
Nidda, which has secured 63.87% of Stada through its offer, would require 75% approval from shareholders present at the EGM to implement the domination agreement. This would be guaranteed with Elliott’s support. The EGM is expected to take place within two months, a source close to the situation said.
Elliott's statement that it would support a DPLTA at that minimum compensation level only means that the activist shareholder will not look to block the domination agreement, the third lawyer pointed out. There was no commitment from Elliott to tender its shares at this level or not to launch a later appraisal proceeding, this lawyer said.
The domination agreement would be voted through to secure minorities a put option over their Stada shares, this lawyer thought. But, Elliott's support of the agreement does not necessarily mean that the investor will not look to benefit from a higher price at a later stage, he added.
If Elliott opts for the guaranteed dividend, it can remain a shareholder and possibly challenge the compensation amount later, agreed the first lawyer. This lawyer and the second lawyer, however, speculated that Elliott would likely cash out. Elliott is looking for a return relative to the time period, the lawyer said, who believed the investor would be more likely to take a good profit in a very short time rather than stretch it out over litigation.
This view was shared by two sources close to the deal, who predicted Elliott would tender its shares. At EUR 74.40, Elliott is getting a 40% annualised return based on its first entry at EUR 62-63, pointed out the first source. Even if it comes to litigation and an independent valuation is carried out, the valuation in a 12-18-month time frame would likely come at between EUR 73-76, this source estimated, adding that Elliott had clearly done its calculations before setting its minimum price requirements.
Cinven and Bain (Nidda) are expected to seek some kind of agreement with Elliott not to pursue litigation, the two sources close to the situation and the first two lawyers said.
A person close to Nidda, however, indicated that the proposal offered by the bidders was in direct response to Elliott's statement over its minimum requirement to support a domination agreement. The person would not confirm whether any agreement between the parties has been reached that would guarantee Elliott tendering its shares in a domination agreement or not to pursue a litigation process. The concession to Elliott's price demands were made simply to facilitate and remove uncertainty over the proceedings, this person said.
The third lawyer also questioned why Elliott would limit its options in this case, given that it has leverage over the situation. Elliott has a tendency to go down the litigation route, he pointed out.
Even if Elliott votes in favour of the domination agreement, it does not stop them filing an appraisal proceeding, this lawyer said. “You can vote for the DPLTA, but not be satisfied with the price.” Appraisal is not an aggressive procedure as you are contesting only the price and not the basis of the DPLTA or its registration, this lawyer added.
An appeal for an appraisal can be filed within three months of registration of the DPLTA, the third lawyer added.
Spokespeople for Elliott and Nidda declined to comment.
The third lawyer also questioned why Elliott would limit its options in this case, given that it has leverage over the situation. Elliott has a tendency to go down the litigation route, he pointed out.
Even if Elliott votes in favour of the domination agreement, it does not stop them filing an appraisal proceeding, this lawyer said. “You can vote for the DPLTA, but not be satisfied with the price.” Appraisal is not an aggressive procedure as you are contesting only the price and not the basis of the DPLTA or its registration, this lawyer added.
An appeal for an appraisal can be filed within three months of registration of the DPLTA, the third lawyer added.
Spokespeople for Elliott and Nidda declined to comment.