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Going private Back  
The dot.com goldrush to IPO has created unprecedented fund raising activity in the last number of years in the Irish market.
by Valerie Lawlor

The dot.com goldrush to IPO has created unprecedented fund raising activity in the last number of years in the Irish market. The sentiment of attributing extraordinarily high values to companies or sectors with few underlying assets and in many cases no profits is a sharp contrast to the undervaluing of many of the Irish Stock Exchange's so called “secondline” or “old economy” stocks. Many such businesses would have difficulty in raising new capital now.

Going private is already a much discussed, and probably underutilised, method of returning value to shareholders in these companies and in putting management and private or institutional funds in control of what they will consider to be fundamentally good businesses, free of the constraints of a listing.

Regulatory framework
The basic rules and procedures by which a company is taken private are the same as in any takeover. The Irish Takeover Panel Act, 1997 (‘the Act’) and the Irish Takeover Rules (‘the Rules’) apply to takeovers of Irish incorporated companies whose securities are authorised by the Irish Stock Exchange to be traded on any of its markets, or were so authorised within the five years prior to the proposed takeover.

A fundamental difference however where the company is being taken private pursuant to an MBO is that there will be an inherent conflict of interest where some or all of the directors of the offeror are also directors of the target. One of the first steps therefore is for the target's board to constitute an independent committee to consider the proposals of the MBO team and to advise the target's shareholders on whether or not to accept the offer.

The Rules regulate pre-bid planning, making the offer, the conduct of any defence, the content of the offer and defence documentation and the timetable for the offer. A typical timetable involve the offeror waiting until it has received 80 p.c. acceptances in respect of the shares affected before declaring the offer unconditional as to acceptances, then operating the compulsory acquisition procedure, and lastly seeking shareholder approval for the re-registration.

A further option only available after re-registration has occurred, but frequently availed of in the context of going private, is the “whitewash” procedure whereby a private company can enter into a transaction which would otherwise contravene Section 60(1), namely provide financial assistance for the purchase of its own shares.

When going private the use of the whitewash procedure might be critical in order to enable the target (after its shares have been acquired and it has been re-registered as a private company) to give a charge over its assets to secure the acquisition facilities made available to finance the bid. In order for the finance providers to have security for the acquisition facilities at all stages of the transaction therefore, the “three debenture approach” is frequently adopted. This involves the lender taking debentures first over the assets and undertaking of the offeror, secondly over the target company and its subsidiaries (in respect of working capital advances only) and thirdly over the acquisition facilities.

Compulsory acquisition
After most public takeovers it is common for there to remain a group of shareholders who have not accepted the bid. Section 204 of the Companies Act, 1963 sets out a procedure enabling a bidder to acquire compulsorily the shares of shareholders who have not accepted a general offer, in other words, to “squeeze out” these shareholders.

The basic condition is that the offeror must receive at least 80 p.c. acceptances (UK: 90 p.c.) in respect of the shares affected. Secondly, the offer must become unconditional in all respects within 4 months of the date of publication of the offer document. Thirdly, if the offeror and its subsidiaries already own more than 20 p.c. of the shares at the date of the offer, acceptances must be received from shareholders holding not less than 80 p.c. in value of the shares affected and constituting not less than 75 p.c. in number of the holders of those shares.

If these conditions are met, the offeror can issue a notice to non-accepting shareholders enabling the compulsory acquisition of their shares. The shares must be acquired on the same terms and conditions as the final offer.

A dissenting shareholder has one month from the date on which notice is given to apply to the High Court for relief. Accordingly, ownership of the shares in question will not transfer to the offeror until this time has elapsed. The consideration for these shares is paid to the target to be held on trust for the former shareholders.

Re-registration of a plc as a private company
Once completion of the Section 204 procedure has taken place, the company may be re-registered as a private company, under a procedure set out in section 14 of the Companies (Amendment) Act 1983, as follows:

a) A special resolution must be passed authorising the re-registration and altering its memorandum and articles of association so that
• it no longer states that it is a plc;
• transfer restrictions on the shares are introduced;
• the number of shareholders is limited to 50; and (iv) invitations to the public to subscribe for shares or debentures in the company are prohibited;

b) a re-registration application (form 76) signed by a director or the secretary, together with a form G1 in respect of the special resolution and the amended memorandum and articles of association and the appropriate fee, must be submitted to the Companies Registration Office; and

c) the 28 day period from the passing of the resolution during which application may be made under section 15(2) of the 1983 Act must have expired without any such application being made or, if such application is made, it having been withdrawn, or notwithstanding the application, the High Court having confirmed the resolution.

Once the papers have been lodged in the Companies Registration Office, re-registration normally takes 3 to 4 weeks on average.

The company may remove itself from the Official List by applying, pursuant to Listing Rule 126 of the London Stock Exchange Listing Rules as adopted by the Irish Stock Exchange, for de-listing. It may make such application at any time after the compulsory acquisition procedure has begun provided that notice of its intention to do so was contained in the offer document.

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