On 2 November 2017, Snowden J sanctioned a Part 26 CA 2006 scheme of arrangement pursuant to which CBFI Investment Limited (an acquisition vehicle formed at the direction of funds advised by Canyon Bridge Capital Partners LLC (Canyon Bridge)) acquired the entire issued and to be issued share capital of Imagination Technologies Group plc (Imagination). The consideration payable under the scheme was 182p in cash for each Imagination share and valued the entire issued and to be issued share capital of the Company at approximately £550 million (a premium to the pre-announcement market price at which the scheme shares were trading on the Main Market).
The scheme was unanimously recommended by the directors of Imagination (who were advised by N M Rothschild & Sons Ltd). Irrevocable undertakings were obtained over only 0.2% of the Imagination shares.
The majority obtained at the court meeting was 90.84% in number representing 99.62% in value. The turnout at the meeting was 13.34% in number and 52.05% in value.
Apple Inc (Apple) owned or controlled 8.11% of the issued share capital of Imagination. The context for the scheme was that, on 3 April 2017, Apple informed Imagination that the chips in Apple products launched from late 2018 or early 2019 would not require Apple to pay royalties to Imagination. As a result, Imagination had invoked a contractual dispute resolution procedure under its licence agreement with Apple.
The potential impact of Apple not paying royalties on new products led Imagination’s board to consider its options regarding the long-term financial future of Imagination and, following a formal sale process, Canyon Bridge (whose anchor investor was Yatai, a Chinese state-owned entity) emerged as the preferred bidder.
There were two interesting issues that arose as a result of the dispute with Apple.
First, in the event that Imagination and Apple had been able to settle their dispute prior to the scheme taking effect, Imagination would have been entitled to declare an interim dividend in relation to a proportion (up to 50%) of the net proceeds of the settlement without the scheme consideration being reduced. Thus, had a settlement been reached, there may have been a (potentially) significant increase in the overall consideration receivable by the Imagination shareholders. In fact, no such settlement was reached. Accordingly, only the default consideration of 182p per share was payable under the scheme. Of course, had any interim dividend been payable, Apple would have been entitled to receive its proportionate share of that distribution.
Second, Apple, in addition to being an Imagination shareholder participating in the scheme, had a significant second relationship with Imagination – that of a former customer subject to the contractual dispute resolution process initiated by Imagination.
It was unclear whether Apple had voted its shares (as they were held through nominees) – it was thought unlikely that Apple had voted its shares but, if it had done so, it had voted in favour.
At the permission to convene stage, the Companies Court Registrar had directed the convening of a single class meeting of Imagination shareholders. At the sanction stage, Snowden J upheld that approach, holding that neither the existence of the dispute between Apple and Imagination nor the impact of a settlement of that dispute on the scheme consideration created a class issue. The judge emphasised that it was difficult to identify any obvious correlation between the dispute and Apple voting in favour of, or indeed against, the scheme. Therefore, there was nothing that could force Apple into a separate class. The judge also noted the undesirability of carving classes from those who might have an incentive to vote against the scheme (as to do so would confer a power of veto on them). Instead, the court was much more concerned to identify factors which might cause someone to vote in favour who might, but for that additional factor, not do so.
All relevant transaction documents are available from www.fromcounsel.com