Expressions of interest and unsolicited proposals
This month’s cover on buyouts coincided with extraordinary events in the JSE’s private education sector, where feisty PSG-controlled upstart Curro made a grab for its more erudite counterpart, AdvTech.
The subsequent events are instructive in the buyout process, where shareholders are not usually privy to what goes on behind boardroom doors.
At the time of writing it looked as if hostilities might ensue, but matters may have changed dramatically by the time this editorial is read.
Still, one of the intriguing aspects of the interaction between Curro and its somewhat reluctant quarry is the respective boards’ perceptions of what constitutes a “firm expression of interest” and what justifies tabling an offer to shareholders.
From the outset Curro and AdvTech clearly held different views on the nature of the engagement. Curro issued a cautionary notice in mid-June. AdvTech opted to warn its shareholders of an “unsolicited proposal from a third party which it is obliged to consider” only on June 25.
Last week, market watchers were faced with a curious situation. AdvTech — its board firmly rejecting Curro’s advances — withdrew its cautionary, while Curro — clearly not giving up on snatching either negative control or all of AdvTech — said its cautionary was still very much in force.
Adding to the general intrigue is that Curro seems to have the support of Coronation Fund Managers and Kagiso Asset Management, which hold around 35% of AdvTech’s issued shares. In a move not typical of an investment institution, Kagiso openly questioned the lack of transparency in the AdvTech board’s decision to withdraw its cautionary. The board’s decision cited the best interests of the company, but Kagiso argued that the decision effectively marginalised the view of AdvTech’s largest shareholders.
The most contentious issue is that Curro seems to openly contradict AdvTech’s opinion that the proposed offer was not backed by a “firm intention”.
AdvTech talks of a “conditional proposal” from Curro. AdvTech CEO Frank Thompson maintained the “draft proposal received” was not a firm offer. He added that the approach was “hedged” with a number of unacceptable preconditions like the furnishing of confidential information to a competitor.
Curro, on the other hand, disclosed that it had been in discussions with AdvTech since April, and had moved to a point where discussions led to a “firm expression of interest”. This firm expression of interest, according to Curro, was submitted to the AdvTech’s board representatives on April 29 — containing, critically, not only an offer price but also the terms contemplated.
By mid-May, it appears, representatives of the two companies had met to discuss the proposed offer and a potential increase in the offer price.
Clearly a lot of water has flowed under the bridge. AdvTech shareholders, whether they welcome Curro’s advance or not, might rightly feel miffed that their board has not tested the premium priced offer (which surprisingly contains a cash settlement portion) with them.
It’s not uncommon for the board to differ with its shareholding body on the merits of an offer. This may be the case where executives of an underperforming company want to buy time for turnaround efforts (not to mention keep their jobs and board seats), when shareholders would welcome a chance to exit.
AdvTech shareholders, whether they welcome Curro’s advance or not, might rightly feel miffed that their board has not tested the premium priced offer