Panel prevents bidder from leaving Moss Bros at the altar

Panel prevents bidder from leaving Moss Bros at the altar

The Takeover Panel (Panel) has ruled that the bidder for Moss Bros is not entitled to invoke the conditions to its offer notwithstanding the impact that the coronavirus (COVID-19) pandemic has had on Moss Bros’s business.

Background

On 12 March 2020 the boards of Moss Bros and Brigadier Acquisition Company (Brigadier), a company majority owned by Crew Clothing owner Michael Shina, announced the terms of a recommended offer for Moss Bros for £22.6m. The scheme document was published on 8 April, but on 22 April Moss Bros announced that it had been informed by Brigadier that it was seeking a ruling from the Panel that it be allowed to invoke certain conditions to its offer in view of the impact that the coronavirus pandemic and related UK government measures were having on Moss Bros’s business.

The Panel ruling is available here.

On what grounds did Brigadier seek to lapse its offer?

The conditions that Brigadier sought to rely on were broadly:

• that no third party had taken any action that materially adversely affected the business, assets, liabilities, profits, financial or trading position or prospects of the Moss Bros group

• that no member of the Moss Bros group was unable to pay its debts and or had suffered certain insolvency-related events

• that there had been no material adverse change in the business, assets, financial or trading position or profits, operational performance or prospects of the Moss Bros group

• that no contingent or other liability had arisen or increased other than in the ordinary course of business which was reasonably likely to affect adversely the business, assets, financial or trading position or profits of the Moss Bros group

Copies of the Brigadier/Moss Bros offer documentation can be downloaded using our Market Tracker deal analysis tool.

In what circumstances can a bidder invoke a condition to its offer?

The conditions included in the scheme circular were representative of the wide-ranging conditions typically seen in offer documentation. However, in practice the ability of a bidder to invoke a condition is severely curtailed by the Takeover Code. Rule 13.5(a) provides that an offeror should not invoke any condition or pre-condition so as to cause the offer not to proceed, to lapse or to be withdrawn unless the circumstances giving rise to the right to invoke the condition or pre-condition are of material significance to the offeror in the context of the offer. The acceptance condition, scheme conditions and certain UK or EC merger control conditions or pre-conditions are not subject to this restriction.

The Panel’s 2001 statement on the WPP/Tempus Group bid and subsequent practice statement provides guidance for how the Panel applies rule 13.5(a) in practice. In that case the Panel refused to allow WPP to invoke a material adverse change condition (MAC condition) on the basis that the terrorist attacks in the US on 11 September 2001 had caused a material adverse change in Tempus’s business. Following that ruling the Panel issued a practice statement explaining the executive’s practice in applying Rule 13.5(a):

  1. as set out in Rule 13.5(a), the appropriate test for the invocation of a condition is whether the relevant circumstances upon which the offeror is seeking to rely are of material significance to it in the context of the offer—which must be judged by reference to the facts of each case at the time the relevant circumstances arise

  2. in the case of a MAC, or similar, condition, whether the above test is satisfied will depend on the offeror demonstrating that the relevant circumstances are of very considerable significance striking at the heart of the purpose of the transaction

  3. while the standard required to invoke such a condition is a high one, the test does not require the offeror to demonstrate frustration in the legal sense

For further details, see Practice Note: Conditions, pre-conditions and terms to an offer—Invoking or waiving conditions.

These are high thresholds to cross, so it is not surprising that the Panel executive did not allow Brigadier to invoke the conditions to its offer.

What next for the Moss Bros bid?

The scheme was approved and all necessary resolutions were passed at the Moss Bros court meeting and general meeting held on 29 April 2020, so the next step will be for the court to sanction the scheme at the court hearing. However, the Panel has given Brigadier a short period of time in which to decide whether to request a review of the Panel executive’s ruling by the Hearings Committee of the Takeover Panel.

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