Tuesday, 13 January 2015

Catlin snippet

Here is an interesting snippet on XL Group's £2.7 billion takeover of Lloyd's of London insurer Catlin.

Catlin is registered in Bermuda - which means it doesn't have to adhere to the Takeover Panel's "Code" - but if you look at the "implementation agreement" section of last week's deal announcement you will that the Lloyd's of London insurer and XL Group have agreed to "observe and comply" with the provisions of the Panel's rules.

In case you missed it, I have pasted the key paragraphs below:

15. Implementation Agreement
XL, XL Sub and Catlin have entered into an Implementation Agreement in relation to the Acquisition and other related matters. The Implementation Agreement contains certain undertakings, assurances and confirmations among the parties, including with respect to the implementation of the Acquisition.
As Catlin is incorporated and has its registered office in Bermuda, the Code does not apply to XL, XL Sub or Catlin, or in relation to the Acquisition. However, in accordance with the requirements of the Bye-Laws and pursuant to the terms of the Implementation Agreement, XL, XL Sub and Catlin have agreed to implement the Acquisition, and to observe and comply with the provisions of the Code, as if Catlin were subject to the Code. In particular, XL has specifically undertaken that Rule 13 of the Code will govern the circumstances in which it can invoke any Condition so as to cause the Acquisition to lapse and Catlin has specifically undertaken that Rule 21 of the Code will apply to it in the period pending the Effective Date. XL has also agreed to certain restrictions pending the Effective Date, including as to its ability to pay dividends, alter its capital structure or amend its constitutional documents, subject to various exceptions.
Pursuant to the Implementation Agreement, XL and Catlin have agreed to appoint a committee comprised of three representatives appointed by each of them (the “Code Committee”), which will be responsible for determining how the Code would be interpreted and applied in relation to the Acquisition had Catlin been subject to the Code. The Implementation Agreement also provides for referral of any matter relating to the interpretation and application of the Code to an independent expert (the “Code Expert”), whose rulings will (absent fraud or manifest error) be final and binding on the parties.
Pursuant to the Implementation Agreement, XL and Catlin agree to co-operate and assist each other in obtaining the Clearances required to satisfy the Conditions.
The Implementation Agreement sets out the parties’ agreement as to the treatment, in relation to the Acquisition, of participants in the Catlin Share Schemes.
The Implementation Agreement also sets out the circumstances in which XL may elect to implement the Acquisition by way of a Takeover Offer or Bermuda Merger. XL may elect, with the prior written consent of either (i) Catlin, or (ii) the Code Committee or the Code Expert, to implement the Acquisition by way of a Takeover Offer. XL may also elect, with the agreement of Catlin, to implement the Acquisition by way of a Bermuda Merger. In such circumstances, the Code Committee or the Code Expert shall determine the timetable for the Takeover Offer or Bermuda Merger.
The Implementation Agreement is terminable:
  • upon agreement in writing between XL and Catlin at any time prior to the Effective Date;
  • by Catlin, by written notice to XL, at any time prior to the Effective Date;
  • by XL, by written notice to Catlin, stating that (i) any Condition which has not been waived (or is incapable of waiver) is (or has become) incapable of satisfaction by the Long Stop Date, and (ii) notwithstanding that it may have the right to waive such Condition, it will not do so; provided that XL would, in accordance with the Implementation Agreement, be entitled to invoke (and not obliged to waive) such Condition;
  • by XL, by written notice to Catlin, if: (i) the Catlin Board notifies XL or publicly states that it no longer recommends (or intends to recommend) that Catlin Shareholders vote in favour of, the Acquisition; (ii) the Catlin Board fails to provide, adversely modifies or qualifies the Catlin Board recommendation in favour of the Acquisition or withdraws (or publicly states that it intends to withdraw) such recommendation (provided that, in the case of (i) and (ii), but without prejudice to (vi) or (vii) below, the circumstances in (i) and (ii) above shall be deemed not to have arisen by reason only of any adjournment of either or both of the Court Meeting and the General Meeting for a specified period of time or any delay of the Court Hearing; (iii) following the Court Meeting or the General Meeting, the Catlin Board notifies XL in writing or publicly states that Catlin will not seek the sanctioning of the Scheme by the Court; (iv) the Catlin Board recommends a competing offer with a third party; (v) the Scheme does not become effective by the Long Stop Date in accordance with its terms; (vi) either the Court Meeting or the General Meeting has not been held by the date which is 22 days after the expected date for such meeting as set out in the Circular (unless extended with the written agreement of XL and Catlin); or (vii) the Court Hearing has not been held by the date which is 22 days after the expected date for such hearing as set out in the Circular (unless extended with the written agreement of XL and Catlin) (each of (i), (ii), (iii), (iv), (v), (vi) and (vii) being a “Relevant Withdrawal Event”); provided that for the purposes hereof, none of the following shall itself constitute a Relevant Withdrawal Event: (a) any Catlin Director(s) not joining (or not continuing to participate) in any recommendation or intended recommendation so long as such recommendation or intended recommendation is concurrently maintained and reconfirmed by at least a majority of the entire Catlin Board; and (b) any holding statement(s) issued by the Catlin Board to Catlin Shareholders following a change of circumstances so long as (x) any such holding statement contains an express statement that such recommendation is not withdrawn and does not contain a statement that the Catlin Board intends to withdraw such recommendation and (y) if and only if the Code Expert imposes a deadline for the clarification of such holding statement, at least a majority of the Catlin Board maintains and reconfirms its recommendation to Catlin Shareholders to vote in favour of the resolutions at the Court Meeting and the General Meeting by such deadline;
  • by either XL or Catlin, by written notice to the other, if the Acquisition would be regarded as having lapsed or been withdrawn for the purposes of the Code; and
  • by either XL or Catlin, by written notice to the other, if the Effective Date has not occurred by the Long Stop Date.
Merger Agreement
The Merger Agreement provides that immediately following, and conditional only upon, the Scheme becoming effective, Catlin will merge with and into XL Sub pursuant to Section 104H of the Bermuda Companies Act, with XL Sub continuing as the surviving company. If the Implementation Agreement is terminated, or if XL publicly announces a Takeover Offer or Bermuda Merger (subject to and in accordance with the Implementation Agreement, the Merger Agreement will terminate.
The Catlin Board and the board of directors of XL have approved the Merger and the Merger Agreement. XL, as sole shareholder of XL Sub, has approved the Merger and the Merger Agreement, and immediately following effectiveness of the Scheme, XL, as sole shareholder of Catlin, will approve the Merger and the Merger Agreement.
Code Application Letter
XL and Catlin have entered into a letter agreement dated 9 January 2015, pursuant to which they have agreed, among other things, that, for the purpose of Rule 13.5(a) of the Code, it would be of material significance to XL in the context of the Acquisition, if any of Condition C (PRA approval), Condition D (relating to Lloyd’s approval), Condition E (Bermuda Monetary Authority approval), Condition F (FINMA approval), Condition G (Delaware Department of Insurance approval), Condition H (Texas Department of Insurance approval), Condition I (New York Department of Financial Services approval) (if applicable) or Condition M (United States Hart-Scott-Rodino clearance) is not satisfied.

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