DealLawyers.com Blog

October 5, 2009

Hostile Deals: The Mighty Click-Through Disclaimer

Deal junkies have been actively following Kraft’s journey in its hostile bid for Cadbury. One of the unique aspects of this deal is that Kraft – a US company – has made an unsolicited bid for a United Kingdom company (last week, the British Panel on Takeovers and Mergers gave Kraft until November 9th to make a bid or sit out for six months). Hostile deals are relatively rare in the UK, particularly when a US bidder is involved.

This is probably why Kraft’s web page that provides information about its proposed offer is replete with a record-number of click-through disclaimers. As the proposed offer is unsolicited, Kraft would not have access to Cadbury’s shareholder lists and thus would not necessarily know which country’s laws it has to comply with – and given that unsolicited bids are relatively rare in the UK, there might be some uncertainty as to what exactly is needed. Hence, there might be some overkill.

Interestingly, even Cadbury’s web page even has a click-through disclaimer for its information. Its lawyers have the advantage of knowing where its shareholders reside.

Note that “agreed-upon” deals in the United Kingdom are often structured as a “scheme of arrangement.” Such deals are typically exempt from registration in the US under Section 3(a)(10) of the ’33 Act. The 3(a)(10) exemption requires that the terms and conditions of the issuance and exchange of securities are approved (after a hearing upon the fairness of such terms and conditions at which all persons to whom the exchange is proposed have the right to appear) by a court or by any official or agency of the US or any state or territorial banking or insurance commission or other governmental authority authorized by law to grant such approval.

In the US, the most common examples are California fairness hearings. While 3(a)(10) does not appear on its face to apply to non US governmental approvals – i.e., UK schemes of arrangement or Canadian plans of arrangement – in practice, the SEC permits them to qualify for the exemption. Note, in addition to judicial approval, UK schemes of arrangement and Canadian plans of arrangement typically require supermajority shareholder approval – a higher percentage than would effect a change in control, but lower than would typically be required to effect a backend squeezeout under UK or Canadian law.