Archer Capital 4A Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc
[2015] FCA 960
•28 August 2015
FEDERAL COURT OF AUSTRALIA
Archer Capital 4A Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc [2015] FCA 960
Citation: Archer Capital 4A Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc [2015] FCA 960 Parties: ARCHER CAPITAL 4A LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4A (ACN 123 463 749) AND OTHERS NAMED IN SCHEDULE 4 v THE SAGE GROUP PLC File number: NSD 1992 of 2011 Judge: FARRELL J Date of judgment: 28 August 2015 Catchwords: CONTRACTS – informal sale process for high value company involving multiple bidders – offer letters by bidders – bidder sent letter described as “Final Offer” – letter expressed to be “subject to contract” – conditions set out in “Final Offer” letter – whether email appointing bidder as “preferred bidder” constitutes acceptance of “Final Offer” – “preferred bidder” a UK listed public company – whether binding agreement formed – work undertaken to satisfy conditions set out in “Final Offer” letter – where bidder sought to reduce purchase price or subject deal to shareholder approval prior to execution of share sale agreement – whether bidder’s conduct repudiated contract – where company sold to another bidder – whether persons participating in negotiations had authority to bind parties to agreement – whether offer accepted by handshake meeting – whether offer accepted by conduct
CONSUMER LAW – where “Final Offer” letter sent by bidder – whether Final Offer letter and statements conveyed representations – whether bidder did not have reasonable grounds for representations with respect to future matters – whether representations misleading or deceptive – claimed contraventions of s 18 of sch 2 of the Competition and Consumer Act 2010 (Cth), s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and s 1041H of the Corporations Act 2001 (Cth)
ESTOPPEL – promissory estoppel – whether representations made by bidder – whether shareholders induced by representations and assumed legal relationship created if offer accepted – whether shareholders relied on the representations and acted to their detriment – whether bidder estopped from departing from effect of the representations and legal relationship
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 12DA
Competition and Consumer Act 2010 (Cth) Sch 2 s 18
Corporations Act 2001 (Cth) s 1041H
Foreign Acquisitions and Takeovers Act1975 (Cth)
Overseas Investment Act 2005 (NZ)Cases cited: Agius v Sage (2003) V ConvR 54-664; [1999] VSC 100
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622
Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Factory 5 Pty Ltd (in Liq) v State of Victoria (No 2) [2012] FCAFC 150
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551; [1995] NSWCA 166
Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235
Masters v Cameron (1954) 91 CLR 353
Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60
Permanent Trustee Co Limited v O’Donnell [2009] NSWSC 902
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603
Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248
Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106Date of hearing: 25-29 November 2013; 2-3, 19-20 December 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 202 Counsel for the Applicant: Mr SG Finch SC with Mr J Williams Solicitor for the Applicant: Allens Counsel for the Respondent: Mr NC Hutley SC with Mr G Rich SC and Mr A Shearer Solicitor for the Respondent: Allen & Overy
Table of Corrections 15 September 2015 Minor formatting amendments have been made to paragraphs 55, 102 and 256 of Schedule 2.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1992 of 2011
BETWEEN: ARCHER CAPITAL 4A LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4A (ACN 123 463 749) AND OTHERS NAMED IN SCHEDULE 4
ApplicantAND: THE SAGE GROUP PLC
Respondent
JUDGE:
FARRELL J
DATE OF ORDER:
28 AUGUST 2015
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The application be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1992 of 2011
BETWEEN: ARCHER CAPITAL 4A LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4A (ACN 123 463 749) AND OTHERS NAMED IN SCHEDULE 4
ApplicantAND: THE SAGE GROUP PLC
Respondent
JUDGE:
FARRELL J
DATE:
28 AUGUST 2015
PLACE:
SYDNEY
REASONS FOR JUDGMENT
These proceedings arise out of a process conducted in mid-2011 by Archer Capital Pty Limited (“Archer”) for the sale of all of the shares then held by the 51 applicants in MYOB Cayman Holdings Limited (“MYOB”). The applicants claim damages from The Sage Group plc (“Sage”) for breach of contract on the express terms of a “Final Offer” letter dated 15 August 2011 and implied terms as pleaded, estoppel and misleading or deceptive conduct. Those claims are summarised at [83]-[97]. The claims result from communications made by Mr Guy Berruyer (Sage’s CEO) around 8.30 pm on 18 August 2011 that Sage would not buy all of the MYOB shares unless either the effective price for them was reduced by $175 million or a transaction for $1.35 billion was put to Sage’s shareholders for their approval as a “class 1” transaction under the UK Listing Rules.
The applicants were, as original parties or by accession between 11 May 2009 and 11 April 2011, parties to a shareholders deed relating to their shares in MYOB (“Shareholders Deed”). They comprise the first to third applicants (“Archer Investors”), the fourth to sixth applicants (“HarbourVest” or the “HarbourVest applicants”), the seventh applicant (“Lentesco”), the eighth and ninth applicants (“Squadron” or the “Squadron applicants”) (together “Institutional Investors”), and the tenth to fifty-first applicants were members of MYOB’s management in 2011 or entities associated with them. I will refer to the fourth to fifty-first applicants as the “non-Archer applicants”.
Neither MYOB nor Archer is a party to these proceedings.
CONTENTS OF JUDGMENT
For reference:
·The background of the proceedings is at [7]-[82].
·A summary of the applicants’ claims is at [83]-[97].
·The discussion of the “authority” issue is at [98]-[124].
·The discussion of the “Alternative Contract” claim is at [125]-[186].
·The discussion of the representation and estoppel claims is at [187]-[201].
·The disposition is at [202].
·Schedule 1 sets out a list of the Dramatis Personae.
·Schedule 2 is a detailed chronology of events and evidence, including an assessment of the witnesses.
·Schedule 3 sets out relevant provisions of the Shareholders Deed. Schedule 3 also sets out relevant provisions of the management agreements under which the Archer Investors delegated power to Archer to manage their investments, including power to sell them.
CONCLUSION
The parties provided comprehensive and thoughtful submissions on fact and law for which I am grateful. I have also had regard to the detailed chronology including references to the transcript prepared by Sage’s legal advisers and marked up by the applicants.
For the reasons which follow, I do not accept that any of the applicants were parties to any agreement of the kind alleged by the applicants nor do I accept that any actionable representation was made to any of the applicants by or on behalf of Sage nor was any estoppel raised.
BACKGROUND
At the relevant time, MYOB was the holding company of the MYOB Group which develops and sells accounting and business management software in Australia and New Zealand.
Archer
Archer is a private equity firm that specialises in leveraged buyouts. At the relevant time, Messrs Peter Wiggs and Gregory Minton were the managing partners of Archer and they were directors of the Archer Investors. The Archer Investors together held more than 63% of the shares in MYOB. Under management agreements between Archer and the Archer Investors, Archer managed the investments of the Archer Investors and had delegated power to sell the investments: see Schedule 3.
Mr Andrew Gray was a partner of Archer who led the team which acquired MYOB in 2008/2009 for funds advised by Archer and HarbourVest entities. He was experienced in private equity transactions having been employed by a number of local and international firms. Mr Gray had portfolio responsibility for MYOB at Archer and he was a director and the Chairman of MYOB from January 2009 to September 2011. In 2011, Mr Gray led the MYOB sale transaction team.
Archer generally held businesses for a period between 3 and 7 years and for that reason Mr Gray regarded it as important that Archer be able to exit investments at its discretion and that it have the capacity to offer the entire business for sale to achieve the maximum value for the asset.
Shareholders Deed
The Shareholders Deed contained provisions which enabled the Archer Investors to sell shares comprising together more than 50% of the MYOB shares to a third party and to require the other shareholders to sell their shares as a result of the Archer Investors exercising “drag along” rights or implementing an “exit proposal”. The principal provisions for that purpose were clauses 18-23.4 (see Schedule 3). The Archer Investors had the power to appoint three directors of MYOB. They exercised that power and in addition to Mr Gray, the directors appointed by Archer Investors were Mr Wiggs and Mr Craig Wood (“Archer Nominee Directors”).
Commencement of sale process
MYOB was an attractive and high value asset. In late 2010, Mr Gray formed the view that a good return on the MYOB investment could be achieved if it was sold in late 2011, as activity by private equity firms resumed after the global financial crisis. In consultation with the Archer investment committee (comprising Messrs Minton, Wiggs and Gray and two other Archer partners), Mr Gray began to consider options for the sale of MYOB. In early 2011, Archer commenced preparation for the sale of MYOB.
·Mr Gray appointed Mr Aidan Allen of UBS AG (Australian Branch) (“UBS”) as Archer’s adviser in relation to a possible transaction involving MYOB. UBS is a global investment bank with offices in Sydney and London. UBS was engaged without a written mandate. Mr Allen said that it was customary for him to deal with Archer on the basis that UBS’ engagement would only be formalised when a transaction had been effected.
·Allens Arthur Robinson (as it then was) (“Allens”) was engaged by MYOB to provide “legal advice in connection with the potential monetisation options being explored in relation to the MYOB Group”. Allens’ engagement letter (signed by Mr Tom Story) indicates that Allens was authorised to act on the instructions of Mr Tim Reed (MYOB’s CEO), Mr Simon Martin (MYOB’s CFO) and executives of Archer including Mr Gray and Mr Frank Heckes (Archer, Investment Director). Allens is a prominent Australian commercial law firm commonly involved in large transactions including those with international aspects.
Focus on private equity bidders
In June-July 2011, Messrs Gray and Allen decided they would run an informal process for the sale of MYOB. Three private equity firms were selected as possible bidders because they had indicated their interest and Messrs Allen and Gray were satisfied that they had the financial, managerial and technical capacity to run an enterprise such as MYOB and a track record of significant mergers and acquisitions. The firms were Bain Capital Partners, LLC (“Bain”), Kohlberg Kravis Roberts & Co LP (“KKR”) and Hellman & Friedman LLC (“H&F”). Without formal documentation of the process (other than confidentiality deeds), the private equity bidders were given access to the MYOB data room on 5 July 2011, a draft sale agreement on 24 July and Mr Allen informed them that they should provide “indicative proposals” by 11 August 2011. Mr Allen envisaged that there would then be a short period of negotiation in which they could “enhance their proposals in order to secure the asset”.
Sage
Sage is a listed public company in the United Kingdom. Sage also develops and sells accounting and business management software. In 2011, members of Sage’s executive included Mr Berruyer, Mr Paul Harrison (CFO), Mr Michael Robinson (General Counsel) and Mr Ivan Epstein (CEO of Sage Africa, Australia, Middle East, Asia).
In late June 2011, Mr Epstein contacted Mr Gray to express possible interest in acquiring shares in MYOB, but said Sage was not interested in being involved in an auction and required a period of exclusivity. Sage appointed Deutsche Bank AG (“Deutsche”) as its financial adviser and Allen & Overy (“A&O”) as its legal adviser in relation to a potential purchase of MYOB. Like UBS, Deutsche is a global investment bank with offices in Sydney and London. A&O is a prominent international commercial law firm with offices in Sydney and London.
Sage signed a confidentiality deed with MYOB on 7 July 2011. Around that time, Mr Longstaff reiterated to Mr Allen that Sage was not prepared to engage in an auction and it was only willing to engage on an exclusive basis. Mr Allen told Mr Longstaff that that was not going to happen and Archer thought Sage would “find it challenging to pay the multiple we are looking for”.
In contrast to the private equity firms with which Messrs Gray and Allen were comfortable and trusted to engage in the sale process in a manner to which they were accustomed, both Mr Allen and Mr Gray had reservations about including Sage in the process arising out of Sage’s late stage withdrawal from an earlier similar process for the sale of TeamSystem (a similar business to MYOB in Italy) in which UBS had acted as adviser to the vendor, Bain. These reservations were made worse by Sage’s initial insistence on exclusivity. It was nevertheless thought useful to engage with a trade bidder as a trade bidder is typically in a position to outbid private equity firms because of the synergistic benefits that a trade bidder is able to derive from a potential acquisition that a non-industry participant cannot.
Form of draft share sale agreement issued by Archer
On 3 August 2011, UBS gave Mr Tim Longstaff of Deutsche a form of the share sale agreement proposed by Archer. The draft indicated that: it was to be executed by all of the MYOB shareholders; it was to be governed by the law of Delaware; the parties acknowledged and agreed that “this Agreement was formed in the place where it was last executed by any party to it ...”; and the sentence above the space provided for execution clauses stated: “Executed in the Cayman Islands”.
The first phase: exclusivity v certainty
Until mid-August, Archer regarded Sage’s interest as a “fishing expedition”.
Sage persisted in its pursuit of exclusivity up until 6-7 August, relying on a high indicative offer price for MYOB and its “credentials” as a suitable buyer in the same industry. This is reflected in two “offer” letters which Sage submitted. They were addressed to the directors of MYOB for the attention of Mr Gray at Archer’s address and they are identified as the “Indicative Offer” letter on 27 July and the “Formal Offer” letter on 4 August 2011: Schedule 2 at [30] and [44]. Both letters indicated that Sage was prepared to pay a cash amount of $1.35 billion for 100% of the shares in MYOB, were marked “subject to contract”, indicated that they had full board endorsement, contained expiry dates, indicated that they were governed by English law, contained express words negating any intention to create a binding agreement and sought exclusivity under a separate agreement which would be binding. The “Indicative Offer” indicated that no further approvals were required to move to a firm contract but that “[p]rior to submission of a final binding offer, we will require a final approval from Sage’s Board, which can be obtained in a very short timeframe”. The “Formal Offer” did not contain that indication, but rather “very low risk to signing and closing” and it listed five “conditions” which included regulatory approvals including “no objection” by the Australian Competition and Consumer Commission (“ACCC”), satisfactory due diligence, agreement to terms with MYOB management and no material adverse change to MYOB’s business.
In response, Archer emphasised its need for “certainty” and eliminating “execution risk”. At this early stage, the suggestion was that this would be achieved by a $50 million break fee and a public announcement as the price for “exclusivity”, “insurances” which Sage was not prepared to give. Through Messrs Allen and Gray, Archer indicated that before exclusivity could be entertained, Sage would need to undertake due diligence enquiries, review a draft share sale agreement and consider reducing the conditions indicated in the “Formal Offer” letter; these were “not “games”, just a staged process”. Not surprisingly, Archer sought a level of commercial assurance that Sage was not just engaged in a fishing expedition and that the price proposed in the “offer” letters was not illusory before it would entertain exclusivity.
Sage slowly came to understand that Archer insisted on a “staged” process: Schedule 2 at [34], [35], [39], [47], [49] and [52]-[53].
The second phase: full speed to a share sale agreement, possibility of “an exclusivity”
However, on 6 August 2011, in the nature of negotiation, ground was conceded. Sage may have been unrealistic in its expectation of achieving exclusivity at this early stage on the basis it proposed, and Mr Gray might think them “flakey” but Sage had indicated a high price and it was a useful stalking horse with the private equity bidders: Schedule 2 at [58].
Mr Harrison reported a conversation he had with Mr Gray on that day: “I asked him straight whether he could envisage granting us exclusivity absent the two requirements which were off limits from our perspective. He conceded he could.” According to Mr Longstaff’s report of a conversation he had with Mr Allen on the same day, Mr Allen “[was] at pains to say that they can foresee an exclusivity at a point short of us being completely finished our work. But more certain than now”: Schedule 2 at [54]-[55].
Mr Berruyer concluded in an email to a Sage director, Mr Tony Hobson on 7 August 2011: “We don’t think we can get exclusivity under terms that we can accept. We have come to conclude internally that we will drop our requirement, and try rather to move towards SPA at a rapid pace.”
Sage was given access to the MYOB data room around midnight on 8 August 2011 as a result of giving up its pursuit of “exclusivity” and commencing to engage in the “staged” process which Archer required of them, with the intention of moving at a rapid pace to execution of a share sale agreement. There is no evidence that Sage had any insight in relation to the timetable at this time.
The private equity bidders
The private equity bidders completed their due diligence investigations (save for “black box” due diligence) around this time. On 10 August 2011 one private equity firm provided a proposal addressed to Mr Allen at UBS; the proposal was described as a “committed offer”. The other two private equity firms provided proposals on 11 August 2011 both addressed to Archer to the attention of Mr Gray and different other people at Archer. Both of the latter two offers were marked “subject to contract”, one described itself as a “final binding offer to acquire MYOB” and the other described itself as an “offer letter” but contained language which indicated that the offer was “final and binding”, and both contained governing law clauses. All required a period of exclusivity before the execution of a share sale agreement and two were expressed to be open for acceptance until 12 August 2011.
Mr Gray said he was unconcerned about the short deadlines imposed by the bidders; Mr Allen was concerned about momentum: Schedule 2 at [69].
Acceleration
On 11 August 2011, Mr Allen sent one of his “messages” emails to Messrs Gray and Heckes (among others) for their approval: Schedule 2 at [68]. He suggested that after clarifying issues around their proposals he should get back to one of the private equity bidders by the evening of Friday 12 August with the messages:
- was hoping for perfect clarity with respect to preferred bidder - do not have a clear preferred bidder
- you are highly certain but behind on price
- propose to continue until Sunday resolving outstanding issues and give you the opportunity to improve your offer
and for Sage the messages were that they “need to hurry up, i.e.”:
- things are moving more quickly than anticipated
- there is significant prospect that we will be in a position to sign a transaction by close of play Sunday that is “competitive” with revised proposal
Mr Allen discussed whether “price” should be raised with Sage at this time, but it was ultimately agreed that it was too soon to speak to Sage about price; Mr Allen was concerned that it would result in a price reduction (not without cause, given Mr Berruyer’s musings on that issue, see Schedule 2 at [30] and [63]). Mr Allen conceded that a letter from Sage would be useful in negotiations with the private equity bidders: Schedule 2 at [76]-[77].
On 12 August 2011, Mr Allen told Mr Longstaff that “things are accelerating” and that Archer may have to deal with the private equity bidders. Mr Longstaff sought a commitment that MYOB would not be “sold or promised” before Tuesday at 6 pm. The final paragraph of the email in Schedule 2 at [75] is a simple recognition that it would be inappropriate for Messrs Longstaff and Harrison to suggest to the Chief Executive Officer of a substantial UK based listed public company that he embark on a flight literally to the other side of the world if he could not be sure that the asset would still be available for sale when he arrived.
Read together, the emails in Schedule 2 at [74], [75], [78] and [79] demonstrate that Messrs Longstaff and Allen agreed an extremely ambitious work plan “targetting [sic] Monday night” for “a final offer in the form of a Sale & Purchase Agreement (“SPA”) that has been agreed between us”. This allowed time for Mr Berruyer to fly to Australia and meet Mr Reed and for a Sage board meeting scheduled for 5 pm Sydney time on 15 August 2011 to be held. Mr Longstaff indicated that “signing” would need to be co-ordinated with public communications about the transaction.
In my view, it is clear that at this stage, Sage intended to become bound only by way of executing a share sale agreement the timing of which was to be co-ordinated with public announcement. It is Mr Gray’s evidence that at this time he still saw Sage as being involved in a “fishing expedition” and there is a demonstrated willingness in Mr Allen’s commentary to trade “certainty” for “price”.
The “spanish auction”
Archer fully employed its control of the informal sale process. Although the applicants described the process as an “informal auction”, that suggests rather more structure than the process came to have by Sunday, 14 August 2011. Mr Allen described it as a “spanish auction”: Schedule 2 at [91]. It is not clear what that term means, but it appears that all of the bidders came to understand that Archer was unreliable about the meaning of deadlines and willing to alter the process to suit its own ends due to the ad hoc, opportunistic manner in which Archer acted over the period of 12-14 August 2011. It also appears that the private equity bidders were given some “visibility” of Sage’s position on price: Schedule 2 at [93].
Two teams from the private equity firms flew into Sydney on 13 August and the third was already in Sydney. They were ready to negotiate. On the morning of Saturday, 13 August, Mr Allen proposed to Mr Gray a timetable for the private equity bidders to be asked “clarification questions” on Saturday, 13 August 2011, with revised proposals to be provided by 12.30 pm Sunday and a “preferred bidder” to be selected at 3 pm on Sunday after Archer met to consider the proposals: Schedule 2 at [85]. This was not consistent with Mr Allen’s conversation with Mr Longstaff on 12 August or decisions ultimately made by Archer on 14 August 2011.
On 12-13 August, two important things happened.
“Class 1” emerges
First, on 12 August, Mr Longstaff advised Mr Allen that Sage proposed a structural change to the share sale agreement by the introduction of “Continuing Debt”. Mr Longstaff reported his conversation in these terms: “I had a chat with UBS re class 1 and our proposed structure to ameliorate. Presented our idea as a way to maximise certainty for them”: Schedule 2 at [81]. I accept that this is an accurate reflection of their conversation: see Schedule 2 at [82]-[83].
If the transaction was a “class 1” transaction the UK Listing Rules would require Sage shareholder approval of the transaction. “Class 1” requirements are summarised in Schedule 2 at [27]-[28] but in general terms, whether the “class 1” threshold is crossed depends on the “percentage ratio” of the proposed consideration for a transaction to the market capitalisation of the listed company at the time of the transaction. Mr Allen knew that but does not appear to have given the matter much attention, regarding the “Continuing Debt” as a “Sage” issue. Sage had been concerned about “class 1” issues for some time and had been reluctant to raise the issue in the context of the “Indicative Offer” and “Formal Offer” letters: Schedule 2 at [29], [31], [42] and [66].
Mr Longstaff expected Archer to raise the issue as early as 5 August 2011 in light of a fall in Sage’s share price: Schedule 2 at [46] and [49]. It is also clear that Sage considered that proposing a condition precedent to a share sale agreement would put it at a competitive disadvantage to the private equity bidders and it was “quite likely a deal breaker”. Mr Harrison was therefore relieved when he received advice from Deutsche on 12 August that “Continuing Debt” would mitigate the risk of the proposed consideration crossing the “class 1” threshold due to falls in Sage’s share price: Schedule 2 at [70]-[72] and [112].
The proposal was that Deutsche would lend MYOB $125 million of “Continuing Debt” to pay out other commitments so as to reduce the “headline” consideration for MYOB by that amount. The outcome would have the same economic result for MYOB shareholders. A revised draft of the share sale agreement containing provisions dealing with “Continuing Debt” and a paper prepared for Mr Longstaff explaining cash flows was circulated by Allens on the evening on 13 August 2011 to Messrs Gray, Allen and Heckes, among others: Schedule 2 at [91].
Sage becomes credible – ACCC condition dropped
Second, on the evening of 13 August 2011, Sage indicated that it would bear the “ACCC” risk, which was not regarded as great; “no objection” by the ACCC had been a condition of a share sale agreement proposed in the “Formal Offer” letter: Schedule 2 at [91].
As a result of Sage dropping the “ACCC condition”, Archer began to treat Sage’s interest as serious and the different paths taken by the private equity bidders and Sage collided over the weekend of 13-14 August 2011.
Mis-evaluation of risk?
Although both the “Continuing Debt” and “ACCC” issues were dealt with in the same email chain, it is fair to say that Messrs Allen and Gray paid little or no attention to the potential significance of the first of these things and great attention to the second and Mr Gray said he was unaware of the “class 1” issue until 18 August 2011. Both Ms Lee’s email set out in Schedule 2 at [91] and Mr Story in his evidence explained the “Continuing Debt” mechanism as “ensuring” that Sage shareholder approval would not be required and they addressed the issue of shareholder approval in a warranty in the draft share sale agreement (see the summary of the “prevailing draft” at [61] below). However, having regard to how the “class 1” threshold is calculated, Mr Longstaff’s explanation to Mr Allen that “Continuing Debt” “ameliorates” (not “eliminates”) the “class 1” issue was accurate and not misleading.
This mis-evaluation of risk persisted: mid-morning of 15 August 2011, Mr Longstaff circulated to Messrs Allen and Story a copy of an advice from Norton Rose (Deutsche’s lawyers) in relation to the “Continuing Debt”, a proposed three day loan to MYOB. Mr Allen forwarded it to Mr Heckes without much attention; he regarded “class 1” compliance as a “Sage” issue: Schedule 2 at [116].
The “stretch target” given to private equity bidders
Archer received revised proposals from two of the private equity bidders on Sunday, 14 August (with one expressed to be open until 5 pm on 15 August 2011). Messrs Gray, Minton, Wiggs, Allen and Story met in the afternoon of 14 August 2011 to consider the private equity offer letters.
The consensus view was that the offers from the three private equity bidders that had been received were of a sufficient magnitude that Archer should proceed with one of the offers rather than commencing a full formal auction process. It was decided that as the Sage offer was considerably higher than the offers from the private equity bidders, Archer should try to hold back the private equity bidders and Sage should be given a limited timeframe to complete its work and finalise its position. However, it was essential that Sage move as quickly as possible as there was concern that the private equity firms would lose interest or walk away. There was some nervousness about whether Sage would really come through, based on its behaviour in the TeamSystem process.
The solution was the creation of a “stretch target” for the private equity bidders (which Mr Allen doubted they would meet) and ad hoc deadlines which did not meet the expectations of either the private equity bidders or Sage. Mr Gray decided to give the private equity bidders access to “black box” due diligence; that was not seen as risky because they were not trade buyers. Mr Allen obtained instructions on “messages” for the private equity bidders in the email stream set out in Schedule 2 at [102].
Messrs Gray, Minton and Heckes decided to tell the private equity bidders that Archer had not been able to identify a “preferred bidder” and they would be given an opportunity to enhance their bids by way of a “stretch target” which was set at a discount to the existing postion of the “strategic”. They were told that if they met the “stretch” target, “this is the price that we will deal for certainty right now and through to tomorrow morning”. This was clearly inconsistent with Archer’s undertaking to Sage given on 12 August 2011; the reconciliation proposed by Messrs Gray and Allen was not convincing: Schedule 2 at [105]-[106]. The upside for Archer was that a further proposal from Sage might not only enhance Sage’s credibility as a bidder; it might also promote better bids from the other bidders. The downside risk was that the private equity bidders would not react well to the introduction of the trade bidder and slowing of the process which was well recognised by Mr Allen and the principals at Archer: Schedule 2 at [93] and [102].
How Mr Longstaff sees things “playing out”
At 8.45 pm on Sunday 14 August, Mr Longstaff responded to Mr Allen’s “messages” and their conversations in an email to Mr Allen setting out how he saw the next few days panning out in a shorthand fashion: Schedule 2 at [107]. Notable features of that communication are: (1) it encompasses the time from when Mr Berruyer will meet with Mr Reed to signing and announcement; (2) it expresses a hope that an advanced draft of the share sale agreement being available by 5 pm on Monday, 15 August but other processes being less advanced; (3) the Sage Board meeting being held and depending on how that went, the provision of “a letter” with a mark-up of the share sale agreement; (4) time for some discussion; (5) it then employs the expression “[a]ssuming we reach agreement” as being a predicate to black box due diligence being given; (6) “calling” of the MYOB shares by exit notices being issued; (7) settling a communications plan; and (8) “[s]igning will be a function of the completion of the foregoing and sequencing the last signature in Cayman and London Stock Exchange opening hours. Ideally Sage would announce in the morning London time.”
Mr Allen reports responses from bidders
In his email of 9.24 pm Mr Allen reported to Messrs Gray and Minton about the responses from the private equity bidders: one was stony, another was probably gone and the last did not think it would “hit the ask”: see Schedule 2 at [108]. Mr Allen later told Mr Longstaff that he did not expect the private equity bidders to meet the “stretch target”; in effect he told Mr Longstaff it was simply a device to buy time although the promise to sell if anyone met the target would be honoured: Schedule 2 at [118].
Mr Allen translated Mr Longstaff’s 8.45 pm email as: Sage “expect[s] to be in a position to commit post Board meeting but want to sign on Thursday (said we could discuss)”: Schedule 2 at [109].
In my view, Mr Longstaff’s 8.45 pm email does not reveal an intention by Sage to be bound before execution of the share sale agreement.
At 2.05 am on 15 August Mr Gray wrote to Mr Allen: “The Thursday thing is an issue. Tim L needs the heads up before the board meeting that they have to sign tonight.” This concern is not consistent with Mr Gray’s evidence that he regarded the “Final Offer” letter as a binding commitment once “accepted”. Mr Minton’s evidence was that he was conscious that markets were skittish and one of the bidders was unhappy; Archer was keen to appoint a “preferred bidder” which would be the highest bidder, subject to the conditions of the offer. At 5.30 am, he said to Messrs Allen, Heckes, Wiggs and Gray (among others) that “I also think we need to push them all on the basis that we want to close this out now, we just need the offer that is capable of acceptance, which we don’t have yet”: see Schedule 2 at [111] and [113].
The “spanish auction” causes friction
Mr Gray confirmed another one of Mr Allen’s “messages” emails at 7.24 am on Monday, 15 August 2011 in preparation for a meeting between Messrs Allen and Longstaff. The force of the “message”, as delivered by Mr Allen at a meeting with Mr Longstaff around 11 am, was that Archer would sign an agreement with a private equity bidder that night unless Sage indicated a higher price and a commitment “to sign” a share sale agreement first thing on Tuesday with conditions precedent dealing with black box due diligence and obtaining warranty insurance. Mr Allen proposed that a “[s]ensible announcement strategy would be facilitated but discussion was around 8.00am London (5.00pm Sydney) on Thursday”: Schedule 2 at [114] and [118].
Mr Reizes did not take well the conversation with Mr Allen in the evening of 14 August. During the morning of 15 August 2011 it became apparent that KKR had run dead and was not answering calls; it was a cause of some friction between Messrs Allen and Gray.
Mr Longstaff took badly what Mr Allen told him when they met around 11 am and he threatened to sue Archer and Mr Allen if MYOB was sold before the Sage board met at 5 pm and Sage had had an opportunity to put forward a proposal, Mr Berruyer having only landed that morning and not yet having met with Mr Reed. This threat was not well received by Mr Gray who threatened not to meet with Mr Berruyer that afternoon. Mr Gray was mollified by Mr Longstaff’s assurance that the threat had been his, not Sage’s: Schedule 2 at [120]. Although Mr Longstaff’s threat featured in some submissions, I do not accept that it had any legal significance.
Messrs Berruyer and Harrison meet
Messrs Berruyer and Harrison met with Mr Gray mid-afternoon on 15 August 2011. Mr Berruyer discussed the circumstances of Sage’s withdrawal from the TeamSystem process. Messrs Berruyer and Harrison convinced Mr Gray of both their sincerity and ability to complete a transaction. For reasons explained in Schedule 2 in relation to my assessment of Mr Gray as a witness, I do not accept that Mr Berruyer used the language of a “final binding proposal”. I do accept that Mr Berruyer spoke in similar terms to Mr Gray as he spoke to Mr Minton the next day: see Schedule 2 at [122]-[123] and [151].
“Final Offer” letter
At 5 pm on 15 August 2011, the Sage board met. At 7.25 pm on 15 August 2011, Mr Longstaff sent an email to Messrs Gray and Allen attaching a letter from Sage headed “Sage Final Offer to acquire MYOB”. The email said: “Following the Board meeting, attached is Sage’s final offer letter. We remain available tonight as needed to close out such of the small number of remaining points as are needed.”
The “Final Offer” letter was on Sage letterhead and provided as follows:
STRICTLY PRIVATE AND CONFIDENTIAL
SUBJECT TO CONTRACT
15 August 2011
The Directors
MYOB Cayman Holdings Limited
c/o Mr. Andrew Gray
Archer Capital
[address]Dear Andrew
Sage Final Offer to acquire MYOB
Further to our letters dated 27 July 2011 and 4 August 2011 (together, the “Previous Offers”) and our subsequent meetings with representatives of MYOB Cayman Holdings Limited (“MYOB” or the “Business”), The Sage Group plc (“Sage”) are pleased to submit to you a final offer (“Final Offer”) for the acquisition of 100% of the fully diluted share capital of MYOB.
Valuation
Sage is pleased to reconfirm its Previous Offers and present a Final Offer of A$1.35 billion cash consideration for 100% of the fully diluted share capital of MYOB on the pricing basis laid out in the prevailing draft of the Share Sale Agreement (“SSA”).
Sage has received full board approval for this Final Offer.
Whilst apparently unchanged, the Final Offer does represent an increase in economic cost to Sage as we have assumed significant additional risks, such as ACCC approval, and absorbed several items found in due diligence that may normally be considered for adjustment.
Conditions
Sage has made this Final Offer as certain as possible within the limitations of data made available to us and the ability of your advisors to respond to us. Sage has met or exceeded every timetable set for it.
Sage’s Final Offer presents a high degree of certainty for MYOB’s shareholders, only being conditional upon matters that you knew we would be conditional upon including:
Ÿthe matters set out in the SSA, such as the requisite foreign investment approvals in Australia and New Zealand where applications have been submitted and we fully expect approvals in the ordinary course;
Ÿreview of the black box due diligence (“BBDD”) material, which has been withheld from us to date. Our review of material provided is complete;
Ÿas they are dependent on the BBDD material, finalisation of our due diligence reports so that these may be provided to the warranty insurers and enable finalisation of this policy for both of our benefit; and
Ÿagreement on the SSA where great progress has been made. Our legal advisors plan to meet Allens tonight to close out the small number of technical points, subject to your advice.
Timetable
We understand your desire to remove any market risk and have no desire to defer signing unnecessarily. Our way forward has been discussed extensively with UBS and Sage will make available substantial resources to proceed expeditiously to signing. Michael Robinson, Sage General Counsel, will remain in Australia with delegated authority to settle all matters. This includes finalising the BBDD, progressing our understanding with management and the structuring of their arrangement (although our offer is not conditional upon this), confirming warranty insurance and settling the SSA.
We also want to ensure that adequate time is spent preparing communication for the UK market, together with Sage and MYOB customers and staff which we would do in conjunction with MYOB management.
Conclusion
This Final Offer represents an attractive and de-risked transaction for MYOB’s shareholders. We believe it represents a sufficient basis to be appointed as preferred bidder and we wish to discuss the basis upon which this can occur as it will achieve a faster final agreement.
This offer expires 5.00 pm Thursday 18 August 2011.
Yours sincerely
The Sage Group plcGuy Berruyer Paul Harrison
Chief Executive Officer Group Finance Director
Although the “Final Offer” letter indicated that it would not be a condition that Sage had agreed terms with MYOB’s management, Mr Gray told Mr Longstaff late that evening that he was concerned about it since Archer had no “visibility” of the terms on which Sage proposed to deal with management. Mr Longstaff speculated to Mr Berruyer that Mr Gray’s interest was both personal on behalf of Mr Reed and “genuinely about risk reduction … he thinks that unless we have management comfort we are a risk”: Schedule 2 at [137].
The “prevailing draft” referred to in the “Final Offer” letter is a draft of the share sale agreement which Ms Kristy Lee of Allens circulated at about 3.31 pm on 15 August 2011 to Mr Reede, Story, Allen and Longstaff (among others): Schedule 2 at [125].
Outstanding issues in negotiation of share sale agreement
At 1.17 am on 16 August 2011, Mr Story sent an update to Messrs Gray, Heckes and Allen (among others) concerning the status of the draft share sale agreement in relation to Sage and Bain. In relation to Sage, Mr Story said (as written):
...
Some material issues remain, although we should be able to resolve in due course. Those issues are:
· Sage SSA requires certain members of management (not specified yet exactly who) to rollover a portion (not specified yet) into Sage consideration rights (terms not specified yet). So effectively the Sage SSA is conditional on management.
· Sage has agreed to reconsider its position on tax on proceeds indemnity, which we indicated remains a significant commercial issue. We have indicated that at this stage, it is too late to work through drafting on this concept with E&Y - the indemnity just needs to go.
· Although the gap has been closed on the tax withholding/dedication issue, we expect that E&Y will still have issues with Sage’s approach, so further tax discussions required tomorrow.
· Sage rejected requested indemnity for MYOB Cayman directors that are being asked to approve DB $125 million loan structure to avoid requirement for Sage shareholder approval. We have indicated that this position needs to be reconsidered.
· We required deletion of Sage’s request for MYOB Cayman directors to certify all warranties. Sage has agreed to reconsider.
· Significant additional warranties requested by Sage need to be worked through with E&Y and MYOB management (regardless of W&I [warranty & indemnity] insurance protection, we still need management and advisers to be comfortable with warranty package).
· Sage needs to be review black box before it can sign an SSA.
At 3.45 am on 16 August, Mr Berruyer reported to Messrs Robinson, Harrison and Longstaff that the conversations between the bankers had been preoccupied “with two key topics: management incentive and timing (sign asap). But we suspect price could be on the table tomorrow morning … so nothing is sure.” Mr Gray told Mr Allen that management was the “key outstanding issue”. Mr Longstaff acknowledged to Messrs Gray and Allen that in this regard Sage accepted Mr Gray’s “desire to increase certainty” and proposed a meeting with Messrs Berruyer, Reed and Gray which was held later that morning.
Messrs Gray and Minton held meetings with Messrs Berruyer, Robinson and Harrison and with representatives of Bain in the morning of 16 August 2011. At the Sage meeting Mr Berruyer told Mr Minton that the “Final Offer” letter represented “certainty for us”: Schedule 2 at [151]. Mr Gray accepts that timing for signing and announcement was discussed. I accept that Mr Berruyer did not explain Sage’s focus on the timing of signing and announcement in terms of the obligation to comply with UK Listing Rules for disclosure or shareholder approval: Schedule 2 at [150]. Mr Berruyer’s contemporaneous correspondence indicates that the focus was “on management incentive which they saw as a central problem. ... this might still change after negotiation”: Schedule 2 at [153].
Following the meeting Mr Berruyer left for the airport and Mr Harrison remained; powers of attorney authorising Mr Robinson to act for Sage and its subsidiary which would act as purchaser were executed.
Consideration of proposals
Although Bain submitted a revised proposal at its meeting with Messrs Gray and Minton on 16 August 2011, Mr Minton considered that there was a $140 million gap between its offer and Sage’s and he saw no utility in trying to “walk up” the Bain offer; the Bain representatives were told that their offer was materially below the best offer.
Messrs Gray, Wiggs, Minton, Allen and Story met at UBS’ offices to consider the offer letters. The meeting discussed the risks around the transaction and in particular the “Final Offer” letter received from Sage. Mr Gray noted that Sage was a public company, the offer had Board approval, Sage had gone through an extensive period of due diligence and the only substantial issues remaining were finalising the share sale agreement and the review of the black box due diligence material. Mr Allen said: “There was obviously some other issues that were mentioned in the … offer letter, but Andrew [Gray] went through and said that he felt, on the face of it, that they were risks that we could take a view on, and in the context of a final offer from a reputable company such as Sage, that … those risks were clearly manageable in the context of the increased purchase price”. The consensus was that the Sage offer was superior. Mr Minton said that “... we formed the view that the gap was sufficiently large between Sage and … the private equity bids. … I didn’t think that they were going to either bridge that gap or get higher, in the timeframe we were talking.”
Mr Allen was asked “to engage with Allens, and reach out to Mr Longstaff again, and to talk to him about managing the conditions and the achievement of those conditions through the course of as tight a timetable as possible … We were told to accept the offer. ... Nothing more broadly than that.” Mr Gray said that he thought Sage’s “final binding proposal” was “capable of acceptance”.
Messrs Minton and Gray then went into the room where the Bain representatives were waiting and told them that Bain had not been successful and that Archer had elected to go with the trade buyer.
Mr Gray then held the view that a deal would be done. He and Mr Minton repaired to the Rockpool Bar and Grill near UBS’ offices to celebrate.
Email headed “Sage proposal to preferred bidder status and completion”
Messrs Allen and Story went to another room at UBS and called Mr Longstaff. Mr Allen told Mr Longstaff that Archer was close to making a final determination, that “the major sticking point that we had with respect to their proposal was the execution or the meeting of the conditions referenced in their offer”, and that he needed “to help [him] find a way to actually give Archer some real confidence in relation to how quickly we could move through and knock out those conditions”.
In the presence of Mr Story and in telephone contact with Mr Gray, Mr Allen had the email exchange with Mr Longstaff on 16 August 2011 at 5.28 pm (sent Longstaff), 5.32 pm (sent Allen), 6.05 pm (sent Longstaff) and 6.14 pm (sent Allen). The course of the exchanges is set out below (email addresses have been deleted, italics are insertions effected in Mr Allen’s emails, underlined words are insertions made in Mr Longstaff’s emails, strike through indicates removal, bold is editorial comment indicating the email in which the change occurred) (errors in original):
From: [Mr Allen]
Sent: Tuesday, 16 August 2011 6:14 PM
To: [Mr Longstaff]
CC: [Mr Harrison]; [Mr Robinson]; [Mr Minton]; [Mr Gray]; [Mr Story]
Subject: RE: Sage proposal to preferred bidder status and completion [I]
Attachment: Legal Disclaimer.txtThanks Tim,
I have spoken with Andrew Gray and Greg Minton from Archer, and we are prepared to proceed on the basis of what is detailed below. On that basis I can also confirm that Archer has decided to appoint Sage as sole preferred bidder, and confirm that conversations with alternative bidders will cease.
___________________________________________________________________From: [Mr Longstaff]
Sent: Tuesday, 16 August 2011 6:05 PM
To: [Mr Allen]
CC: [Mr Harrison]; [Mr Robinson]
Subject: Sage proposal to preferred bidder status and completion [I]Classification: For internal use only
Aidan
There are two elements to moving forward:
ŸHow much time does Sage need to finish it’s work … we can be quick
ŸWhen can Sage sign and announce
Sage requires time to do its work properly. Steps and (latest) times are:
ŸImmediate preferred bidder status[Allen 5.32 pm]ŸImmediate access to black box due diligence
ŸImmediate start on W&I policies (not yet provided)
ŸBy 9.00am Wednesday
-Management Compensation/Equity Terms (we can send over shortly and will resolve at best speed subject to Paul Harrison’s availability for any changes) [Longstaff 6.05 pm]
-agreed form SSA between A&O and Allens including a CP on warranty and indemnity insurance [Allen 5.32 pm] at Sage’s absolute discretion [Longstaff 6.05 pm]
Ÿ2.00pm Wednesday – completion of black box due diligence
Ÿ3.00pm Wednesday – finalisation of legal and accounting due diligence reports
Ÿ3.00pm Wednesday final due diligence reports sent to W&I arrangers for distribution and finalisation of policy
ŸFinalisation of W&I thereafter the only outstanding item. We envisage that this will be completed by the latest 9.00am Thursday, but we will work in good faith to having this completion ASAP (or Sage convinced that the risk is manageable), potentially Wednesday evening. We are mindful that RCA need to go offshore Wednesday night to finalise underwritings in London and NY[Allen 5.32 pm]Once the above steps are complete, Sage has no further steps to perform. However, we need further time to prepare appropriately for an announcement that is the company’s largest ever acquisition. I am told this point was explicitly discussed between principals this morning. Friday morning (London) is the earliest possible announcement acceptable to Sage.
We agree that a mechanism needs to be found for Archer to be wholly off risk/Sage wholly on-risk from finalisation of work (3:00pm Wednesday) [Original “Thursday 9.00am latest” amended to “2:00pm Wednesday” by Allen 5.32 pm and “2:00pm” changed to “say 3:00pm” by Longstaff 6.05 pm] to Sage announcement (Friday afternoon Australia). Some sort of signing and escrow, contracts signed and held at A&O or even a reasonable (~$10m) break fee are open for discussion. Allens and A&O to discuss ASAP but Sage (NOT Archer) signing and depositing at A&O strongly preferred. [Longstaff 6.05 pm] Any mechanism agreed between parties would be subject to finalisation of warranty and indemnity insurance [Allen 5.32 pm] with parties working in good faith to remove this ASAP. Sage can never be in a place where alleged satisfaction of W&I insurance triggers announcement. [Longstaff 6.05 pm]
The above timetable is aggressive but we are prepared to work towards it, dedicating all resources, on the basis that if you agree to the above Sage is immediately appointed sole preferred bidder and all other conversations with alternative bidders ceases.
We look forward to hearing from you ASAP, and no later than 6.30 pm when Paul Harrison is leaving for the airport.
Tim
Handshakes
Soon after Mr Allen sent the 6.14 pm email, Mr Longstaff called Mr Allen and said that he felt that “it would be a good thing for all parties to meet and shake hands before Paul jumped on a plane”.
Messrs Gray, Minton and Allen went to the foyer of the Deutsche Bank building where they met with Messrs Longstaff, Harrison and Robinson. It was a happy meeting, with hand shaking and smiles. Mr Gray said “[w]e’re obviously very excited about the deal” and Mr Minton said that Sage would be “perfect stewards of the business”. Mr Harrison said “we think that you guys have managed a great business here and done very well with it, and let’s move quickly to wrap this up”.
In his email that night to Messrs Berruyer and Epstein, Mr Harrison reported that “Greg and Andrew made a point of coming over to shake hands on it just as I was leaving”.
Reactions on 16 August 2011
Mr Harrison left in a taxi for the airport. Messrs Gray, Wiggs and Minton returned to the restaurant and were subsequently joined by Messrs Allen and Reed. Mr Gray said that “we were reasonably excited because it was the largest transaction that Archer … had completed – and the largest exit. It was a situation of strong value creation for the Archer shareholders, which are superannuation funds and the like.” Mr Gray was very excited: see Schedule 2 at [175].
Sage was given access to “black box” due diligence at 7 pm on 16 August 2011.
The Sage “camp” was notably more measured: Mr Longstaff’s comment at 6.35 pm was “[p]ositive step”; Mr Harrison’s comments were “[p]ositive development”, and “[w]e’re not legally quite there so let’s chase everything down”: Schedule 2 at [174].
Mr Reede circulated a revised draft of the share sale agreement incorporating a $50 million increase in the amount of “Continuing Debt” and deleting Schedule 11 (dealing with management retention terms) and replacing it with a schedule titled “Worked Example”: Schedule 2 at [181].
At 9.21 pm, in an email response to Mr Healy and others of H&F (and Mr Gray), Mr Allen wrote:
Thanks guys, preferred with the strategic in the vicinity of what was discussed. More water to flow and will keep you updated...
Following a Reuters article which appeared that evening concerning the possibility of Sage acquiring MYOB, at 11.51 pm, Sage made an announcement on the Regulatory News Service in which it noted press speculation of a potential acquisition of MYOB, going on to say:
Sage can confirm that it is currently considering a potential acquisition of MYOB. However there is no certainty that it will proceed. The company will provide further information, if and when appropriate.
Mr Price (of Deutsche) told Mr Story of the imminent release of the announcement and Mr Story advised Messrs Allen, Gray, Minton and Heckes: Schedule 2 at [182]-[188].
APPLICANTS’ CLAIMS
Contract and Alternative Contract claims
The applicants claim the “Final Offer” (see [58]-[59] above) was “certain, capable of acceptance and intended to create legal relations upon acceptance” and that as a result of their acceptance of the “Final Offer”, there was a “Share Sale Agreement” between Sage and the applicants for the acquisition by Sage of the applicants’ MYOB shares on the terms of the “Final Offer”.
The applicants rely on the following modes of acceptance:
·Mr Allen’s email sent at 6.14 pm on 16 August 2011 (see [72] above); and/or
·The “handshake” meeting in the foyer of the Deutsche Bank building shortly after the 6.14 pm email during which the applicants plead that the attendees said words to the effect of “[t]hat’s great, it’s a done deal” and Mr Harrison said “[w]e’re very happy, we think this is a great business and we look forward to moving on with it”; and/or
·Conduct between 16 and 18 August 2011 being: allowing Sage access to “black box” due diligence following the 6.14 pm email; the conversations between Messrs Gray and Minton with Bain at UBS’ office, between Mr Reizes of KKR and Mr Gray and between Messrs Allen and Healy (of H&F) (the applicants say that in the conversations Archer “informed the other bidders ... that their offers had been rejected and that Archer would cease negotiations with them”); issuing “exit notices” to MYOB shareholders and facilitation agreements to HarbourVest investors, Squadron investors and Lentesco on 17 August 2011 and the return of powers of attorney and facilitation agreements; and agreeing the written form of a share sale agreement: Amended Statement of Claim dated 10 April 2012 at [53]-[62(vii)].
The applicants say that by reason of these things, Sage was appointed “preferred bidder” and conversations were terminated with the competing private equity bidders and the applicants informed the private equity bidders that their offers were rejected.
The applicants plead that the express terms of the Share Sale Agreement were:
(1)subject to satisfaction of the specified conditions, Sage would pay to the applicants $1.35 billion on return for 100% of the fully diluted share capital of MYOB on the pricing basis set out in the prevailing draft of the share sale agreement; and
(2)Sage’s obligation to pay $1.35 billion to the applicants was subject only to:
(a)approval of the sale under the Foreign Acquisitions and Takeovers Act1975 (Cth) and Overseas Investment Act 2005 (NZ);
(b)a review of the black box due diligence material;
(c)finalisation of Sage’s due diligence reports; and
(d)agreement being reached between Sage and the applicants on a share sale agreement.
The applicants say that the “Share Sale Agreement” contained implied terms that upon satisfaction of the conditions, Sage and the applicants would execute an agreement in the form of the agreed share sale agreement and Sage would cause its nominee to execute the agreement; the parties would allow a reasonable period of time for the fulfilment of the conditions; and each party would do whatever was reasonably necessary on its part to allow the other parties to take the benefit of the contract. Alternatively, if there was no such agreement (which the applicants deny), the applicants claim an implied term to the same effect save that Sage and the Archer Investors would execute such an agreement and Archer would procure the other MYOB shareholders to do so.
The applicants say that they do not contend that upon acceptance of the “Final Offer” a contract arose that was intended to the final and complete statement of their agreement. Rather they say they contend for an interim agreement of a similar nature to the contract found in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 (and, on appeal, G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 (“G R Securities”)) and therefore falling within the so-called “fourth category” of Masters v Cameron (1954) 91 CLR 353 cases recognised in G R Securities.
They say that during the pendency of the interim agreement, Sage was afforded the status of “preferred bidder” while the parties worked to satisfy the conditions of the “Final Offer”. The applicants acknowledge that if one or more of the conditions could not be satisfied despite the parties’ good faith efforts, then no obligation to sell or acquire MYOB shares would arise. They say that no party was free to withdraw for any other reason, but a mutual promise may readily be implied that they would sign a contract once it was agreed and if one party refused to co-operate, the innocent party may be entitled to treat that lack of co-operation as a repudiation of the contract, relying on Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60 (“Moffatt”) per Keane JA (as he then was) at [34].
Alternatively, if there was no legally binding agreement between Sage and the applicants (which they deny), the applicants say that the “Final Offer” was accepted by Archer “in its own capacity and on behalf of the other Archer Investors” by Mr Allen’s 6.14 pm email, and/or the handshake meeting and/or the conduct.
Sage says (among other things) that the “Final Offer” letter was not capable of giving rise to a binding agreement between Sage and some or all of the applicants, that Mr Allen’s 6.14 pm email was not an “acceptance” of a “final binding offer”, that the “handshake” meeting did not give rise to any contractual relationship between Sage and the applicants and there were no such implied terms as those claimed.
Repudiation
The applicants claim that all of the conditions set out in the “Final Offer” letter had been satisfied when Sage repudiated the contract by providing an unequivocal indication that it no longer intended to adhere to the terms of the contract; they rely on a telephone call between Messrs Berruyer and Minton at about 8.30 pm on 18 August in which Mr Berruyer indicated that Sage wanted to pay $175 million less. They say that in a telephone call shortly afterwards, Mr Longstaff told Mr Minton that Sage was not willing to pay $1.35 billion for MYOB and there was no justification for that: see Schedule 2 at [270]. That was followed by the correspondence from Mr Story referred to in Schedule 2 at [276] by which they say that Sage’s repudiation was accepted.
Damages claim
The applicants seek damages from Sage for breach of a contract between the applicants and Sage pleaded at [50]-[52] of the ASOC or an “Alternative Contract” between the Archer Investors and Sage pleaded at [69A]-[69P] of the ASOC. Alternatively, they claim the same damages by reason of estoppel pleaded at [70]-[74] of the ASOC (see [97] below).
Based on an offer valuation report prepared by Mr Michael Potter of Axiom Forensics (“Potter Report”), the applicants submit that the measure of their loss is $186,589,263 together with interest and costs under each of these claims. The applicants say that if, contrary to their submissions, there is any limit on the amount that the Archer Investors may recover under the Alternative Contract, then their damages should be $111,618,057: see the applicants’ submissions at [187]. For the sake of the record, I note that only section 10 of the Potter Reply Report was read into evidence.
Misleading or deceptive conduct
The applicants claim that by reason of statements made by Sage in the “Final Offer” letter, through emails from Mr Longstaff referred to in Schedule 2 at [74]-[75] and [107] and by Mr Longstaff in conversations with Mr Allen pleaded at [29] of the ASOC, Sage represented to the applicants that if the “Final Offer” were accepted by Archer:
a.it would pay the applicants $1.35 billion for 100% of the fully diluted share capital of MYOB on the pricing basis set out in the “prevailing draft” of the share sale agreement (“Representation A”);
b.it would pay that amount subject only to the fulfilment of the conditions identified in the “Final Offer” (“Representation B”);
c.it would allow a reasonable period for the conditions referred to in the “Final Offer” to be fulfilled (“Representation C”);
d.the offer was final, certain and capable of acceptance and Sage required no other approvals to complete the purchase (“Representation D”); and
e.Sage had determined that it would not seek shareholder approval as a condition precedent to it completing the purchase referred to in the “Final Offer” (“Representation E”);
and:
f.Representations A-D are with respect to future matters and Sage did not have reasonable grounds for making those representations, relying on the statement in A&O’s 19 August 2011 letter that it became clear before Sage’s “Final Offer” on 15 August 2011 that “there were potential Class 1 concerns”; and
g.contrary to Representation E, at the time Sage made the Representations, Sage had not determined that it would not seek shareholder approval as a condition precedent to completing the purchase of the MYOB shares.
The applicants claim that the Representations were misleading or deceptive and Archer relied on them in accepting the “Final Offer” and rejecting the competing bids. They say that as a result, they lost the ability to continue the sale process with the private equity bidders in an orderly manner and thereby suffered loss. The applicants claim that, based on the Potter Report, the measure of damage is $34,776,986, being the difference between the value of the consideration offered by KKR at around 4.03 pm on 19 August 2011 and the value of the consideration which Bain agreed to pay in the “handshake” deal at around 3.50 am on that day. They claim contraventions of s 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth), s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and/or s 1041H of the Corporations Act 2001 (Cth).
Estoppel
The applicants claim that, induced by the Representations, they assumed that if Archer accepted the “Final Offer”, they would have a legal relationship with Sage of a kind referred to in Representations A-E (the “Assumed Legal Relationship”). They plead that in reliance on the Representations and the Assumed Legal Relationship Archer acted to its detriment by permitting Sage to have access to the black box due diligence materials and by discontinuing its negotiations with other prospective purchasers and thereby (1) losing the opportunity to continue to negotiate with each of KKR, H&F and Bain and thereby to elicit improved consideration, and (2) as a result also of telling bidders their offers had been unsuccessful, being unable to re-establish meaningful negotiations. They say that Sage knew that it acted this way in reliance on the Representations and Assumed Legal Relationship, but Sage failed to avoid the detriment by fulfilling the Assumed Legal Relationship, and is estopped “from departing from the effect of the Representations and Assumed Legal Relationship and should pay equitable damages” calculated in the same way as the breach of contract claim.
AUTHORITY
The parties to these proceedings have provided detailed written submissions and argument about a range of issues which only have relevance to the extent that the applicants are parties to the alleged contracts or received the alleged representations.
The applicants claim that Archer and the Archer Nominee Directors were authorised to and did act at all times on behalf of all the applicants in relation to the sale or potential sale of MYOB shares: ASOC at [9].
The applicants rely on:
(1)the fact that the applicants were original parties to or have become bound by accession to the Shareholders Deed, the Archer Investors held 63% of the MYOB shares, Archer had power to sell the Archer Investors’ shares under the management agreements between Archer and the Archer Investors, and the fact that Messrs Wiggs and Minton were directors of the Archer Investors and thereby had authority to act on their behalf, that Messrs Wiggs and Minton were also “managing partners” of Archer, and that Messrs Gray, Wiggs and Wood were Archer Nominee Directors, all of which Sage accepts;
(2)the express terms of clauses 18.1, 22 and 23.4 of the Shareholders Deed (which are set out in full in Schedule 3); and
(3)terms which they say should be implied into the Shareholders Deed empowering a shareholder with 50% or more of the Common Shares who wishes to transfer all of its shares to a third party to accept, and thereby bind, all shareholders of MYOB to an arm’s length bona fide offer from a Third Party (as defined in the Shareholders Deed) to purchase all of the Common Shares in the capital of MYOB. The applicants plead that such implied terms are necessary to give business efficacy to the Shareholders Deed, are so obvious as to go without saying, are capable of clear expression and do not contradict express terms of the Shareholders Deed: ASOC at [8A].
At [179] of their closing submissions, the applicants say that this authority is implied by the provisions of the Shareholders Deed. They put it this way:
(1)clause 18.1 provided that members of MYOB holding 50% or more of the ordinary shares and Management A shares (ie the Archer Investors) who wished to transfer all of their shares to a third party have an option to require all other members of MYOB to transfer their shares to that third party (a “drag along” right);
(2)clauses 22.1(a) provided that the Archer Investors could at any time give an “exit notice” to the other shareholders indicating their intention to sell at least 50% of the shares in MYOB to a third party;
(3)clause 22.1(b) provided that, upon the giving of an exit notice, the other shareholders must work together in good faith and use their best endeavours to ensure that the proposed sale is effected;
(4)clause 22.2 provided that, upon receipt of an exit notice, each of the other shareholders would provide a power of attorney enabling the directors of Archer to do all things to give effect to the transactions in that shareholder’s name; and
(5)clause 23.4 provided that each of the other shareholders irrevocably appointed MYOB and its directors (including the Archer Nominee Directors) as its attorney to complete and execute such instruments as its attorney thought necessary or desirable to give effect to any of the transactions contemplated by clauses 17 to 22 of the Shareholders Deed.
They say that because it was wholly within Archer’s power to require each of the non-Archer applicants to transfer their shares on terms agreed by Archer for a sale to a third party, Archer had both in terms and effect an option to require the non-Archer applicants to sell their MYOB shares to a third party nominated by Archer. By entering into the Shareholders Deed, all shareholders in effect armed Archer with the capacity and authority to conduct negotiations for a sale and to agree terms with a prospective purchaser, to which those shareholders would be bound if Archer exercised its rights under the Deed. The ability to accept an offer from a third party to acquire 100% of the shares in MYOB must be necessary for and incidental to the express rights granted to Archer under the Shareholders Deed to compel the sale of all of the shares in MYOB and therefore forms part of Archer’s implied actual authority as an agent, relying on Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150 per Jordan CJ. Actual authority to contract for another as agent may be inferred or implied from the relationship of the parties: Permanent Trustee Co Limited v O’Donnell [2009] NSWSC 902 at [337]-[338].
The applicants say that provisions of the Shareholders Deed for the service of exit notices and powers of attorney are directed to the process of giving effect to a transaction entered into by Archer but are not a necessary precondition to the primary right of Archer to bind all shareholders to sell their shares to a third party nominated by Archer. They say it is the existence of the contractual power to compel the result that confers the authority; the need for the powers of attorney from each shareholder is only to effect valid transfers of those shareholders’ shares upon completion of a share sale agreement.
In effect, the applicants ask the Court to accept that Archer had the power (and agency) to cause the applicants and a purchaser to be in a direct contractual arrangement before the machinery under clauses 22 and 23.4 of the Shareholders Deed had been put in operation. They say the propounded interpretation of the Shareholders Deed is necessary to give it business efficacy.
Sage does not contest that Archer was authorised to sell the Archer Investors’ MYOB shares but that is all it does not contest.
Non-Archer applicants
I reject the applicants’ claim that before the machinery provisions of the Shareholders Deed had been engaged Archer or the Archer Nominee Directors had the power or authority to bind the non-Archer applicants to an agreement to sell or transfer their shares to Sage (or any other purchaser). I do not accept that the Archer Investors ever had the power to bind a non-Archer shareholder to an agreement with a third party to sell or transfer its MYOB shares to that third party, even though the Archer Investors did have a power under the Shareholders Deed to initiate a process which would have that result. As the Archer Investors did not have that power, Archer could not have it. I do not regard Sage’s objections to the applicants’ claim as merely technical.
The applicants’ submissions are attractively benign: they say that Archer acted for the benefit of all MYOB shareholders in its conduct of the sale process. Mr Gray said that that is what he thought he was doing when he considered the “Final Offer” letter.
However, Mr Gray also gave evidence that the sale process was conducted on the basis that Archer thought it was timely having regard to the interests of the private equity funds it managed; the greatest benefit would be achieved by a sale of 100% of the MYOB shares and the Shareholders Deed was designed to give Archer Investors flexibility to decide when and how to “exit” the investment. The fact that if Archer did conclude a contract with Sage it might deliver a benefit to the non-Archer applicants does not mean that it is accurate to say that Mr Gray or Archer acted on their behalf or in their interest. There is no evidence (and the applicants do not claim) that the non-Archer applicants were asked for any authority to engage in the sale process on their behalf before 17 August 2011 or that Archer consulted with them about the timing or nature of the sale process or about any interest any of the non-Archer applicants might have had in retaining their shares. There is no evidence that a significant number of shareholders even knew of the Sage proposal until 17 August 2011: see Mr Martin’s email to management shareholders in Schedule 2 at [214].
The applicants’ claims relate wholly to the express terms of the Shareholders Deed and terms which they say should be implied. The Shareholders Deed conferred the right on the Archer Investors to act in a self-interested way in deciding the timing and nature of any proposal by which the existing ownership structure of MYOB would be unwound. The right to sell at least 50% of the MYOB shares was conferred under clause 18 of the Shareholders Deed and the Archer Investors had wider “exit” rights conferred exclusively on Archer Investors under clause 22. Clause 22 gave Archer Investors the power to initiate an “Exit Proposal” relating to a “Share Sale”, that is, the sale by Archer Investors of at least 50% of the MYOB Common Shares. There were limitations on Archer Investors’ rights where a purchaser wanted to acquire less than 100% of the shares: see clause 19.2(e) in relation to “tag along rights”.
Clauses 18.1 conferred an option on Archer Investors to require other shareholders to transfer their MYOB shares to a third party. The option was exercisable by serving a “Drag Along Notice” under clause 18.2 and the shareholder could be required to provide to a third party purchaser “reasonable warranties” specified in the “Drag Along Notice”.
Clause 22 was different. Clause 22.1(b)(vii) indicates that part of the co-operation which might be required of a shareholder to give “effect” to an “Exit Proposal” set out in an “Exit Notice” is the transfer of shares and surrender of share certificates. “For the purpose of giving effect” to clause 22, clause 22.2(a) provides that following receipt of an “Exit Notice” the shareholder must “deliver to the Board on request powers of attorney, in a form required by the Archer Directors”. There are a number of features of clause 22.2(a) which lack clarity, including by whom the “request” must be made and how extensive the powers conferred by the power of attorney may be; for instance, whether it can only authorise execution of share transfers and the surrender of certificates as expressly referred to in clause 22.1(b)(vii), or whether it can go further to empower the giving of warranties or undertaking of other obligations to “effect” the “Exit Proposal”. It is unnecessary for me to decide these issues, but given that the power to determine the form of the power of attorney resides not in Archer Investors but in MYOB directors (albeit that they are directors nominated by Archer) it might tend towards a more narrow reading of the form the power of attorney should take.
Clause 22.2(b) deals expressly with default by a shareholder in its obligation to “Transfer” shares, and applies clause 20.3 (which applies to Institutional Shareholders) and clause 21.5 (which applies to management). Those clauses ultimately apply clause 23.4 “with appropriate modifications”. Clause 23.4 is a power of attorney given by “non-Original Investors” (therefore not including the HarbourVest applicants or Archer Investors) to MYOB and its directors to “complete and execute such instruments … as the attorney thinks necessary or desirable to give effect to any of the transactions contemplated by” clauses 17-22. Clause 18.3(d) is to similar effect as clause 22.2(b) if a shareholder defaults in selling shares pursuant to a “Drag Along Notice”.
Mr Finch SC pointed out that share transfers “don’t just happen out of the blue”. Something has to precede it. He said that “something” is one or more agreements under which the transfer would be required to happen. He submitted that what happens to effect the transfer – the minutiae of the procedural mechanisms in clauses 18 and 22 – is not to be confused with whether or not the Archer Investors had power to deal with the non-Archer applicants’ shares. He submitted that Sage’s submissions were in error insofar as they suggested that sale of the non-Archer applicants’ shares could not be effected under the Shareholders Deed before that machinery had been set in motion.
There is force to much of what Mr Finch submitted. I agree that the proper characterisation of the expropriation mechanisms in clauses 18 and 22 is that they are designed as “completion” mechanisms following an agreement between the Archer Investors and a proposed purchaser of the Archer Investors’ shares who wants to secure more MYOB shares than the Archer Investors. I also accept that Archer and its advisers acted on the reasonable assumption that the Shareholders Deed put the Archer Investors in a position to ensure delivery of 100% of the shares in MYOB to a proposed purchaser. The evidence demonstrates that carrying out the “formalities” identified by Mr Finch was considered by Archer and its advisers to be a stage in the sale process and while they had a view that they would use clause 22 rather than clause 18, they retained the flexibility to use both: see Schedule 2 at [90] and [107]. They were entitled to think that.
However, they were not entitled to think that as a result Archer (either in its own right or as delegate of the Archer Investors) had the power or authority to enter into a contract with a third party imposing direct contractual relations on the non-Archer applicants with the third party. Mr Finch’s submissions proceeded from the assumption that that was the only way that Archer Investors could secure an “Exit Proposal”. That assumption and the submissions based on it are necessitated only by the fact that the form of share sale agreement proposed to bidders by Archer was one which would be executed by or on behalf of all Archer shareholders.
I do not accept the applicants’ submissions because that is not the only way Archer Investors could secure an “Exit Proposal”. It was open to the Archer Investors as holders of more than 50% of the Common Shares to agree to sell their shares under an “Exit Proposal” and commit to cause non-Archer applicants to transfer their MYOB shares to the purchaser pursuant to a “Drag Along Notice” or an “Exit Notice” for consideration which the purchaser agreed to pay. The Archer Investors could undertake to the purchaser to exercise their powers under the Shareholders Deed for that purpose and completion of the sale of Archer Investors’ shares might be conditional on delivery of the non-Archer applicants’ shares in accordance with the expropriation provisions of the Shareholders Deed. I accept that such an agreement would not have been prohibited by clause 17 so long as the Archer Investors complied with clause 18 and 22 (as appropriate) because it would be a “Transfer ... expressly permitted or provided for in clauses ... 18 ... or 22 of this Deed” within clause 17.1(b).
There was significant argument about whether or not clause 17 prohibited Archer from entering into an agreement with a purchaser which was binding on the non-Archer applicants before the expropriation mechanisms of clauses 18 and 22 were engaged. Since I do not accept that Archer (or the Archer Investors) had power to enter into such a contract binding on non-Archer applicants, there is no scope for clause 17 to have relevance.
Clauses 18 and 22 do not constitute options under which Archer Investors may acquire the shares (nor have the applicants suggested that they are). The mechanisms of the Shareholders Deed confer the right on the Archer Investors as proposing vendors of at least 50% of the MYOB shares to sell their shares and to initiate the expropriation processes of clause 18 and/or be subject to the “Tag Along” process of clause 19, depending on the nature of the proposal. I do not accept that there is any express or implied agency conferred on the Archer Investors as a result of clauses 18 and 22 of the Shareholders Deed.
After a short extension of the exclusivity period, a contract for sale was executed on 20 August 2011 by Bain Capital Abacus Acquisition Pty Ltd.
SCHEDULE 3: EXTRACTS OF THE SHAREHOLDERS DEED AND MANAGEMENT AGREEMENTS
Shareholders Deed
Relevant provisions of the Shareholders Deed are as follows:
1.1Definitions
The following definitions apply unless the context requires otherwise:
...
Common Shares means the Ordinary Shares and the Management A Shares, as applicable, but excludes, for the avoidance of doubt, the RPS.
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Defaulting Transferor means a Transferor who is bound to transfer Shares under this Deed and defaults in transferring them.
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Non-Original Investor means any Shareholder that is not an Original Investor.
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Original Investor means each of:
(a) the Archer Investors;
(b) HIPEP V Direct; and
(c) 2007 Direct.
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Share Sale means a sale of at least 50% [of] all of the Common Shares on issue.
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Trade Sale means the sale of the whole or substantially all of the Business or the sale of all or substantially all of the assets of the Group, whether by way of a sale of the assets of the Company or by a sale of assets or shares of any Subsidiary of the Company.Transfer in relation to any property means to sell, transfer, assign, create a Security Interest over, declare oneself a trustee of or part with the benefit of or otherwise transfer or dispose of that property (or any interest in it or any part of it) including, without limitation, in relation to a Share, to enter into a transaction in relation to the Share (or any interest in the Share) (other than a transaction permitted by this Deed and the Memorandum and Articles of Association or conditional on each other Shareholder consenting to it or waiving certain of its rights under this Deed or the Memorandum and Articles of Association or as otherwise agreed by each party) which results in a person other than the registered holder of the Share:
(a)acquiring any equitable interest in the Share, including, without limitation, an equitable interest arising under a declaration of trust, an agreement for sale and purchase or an option agreement or an agreement creating a charge or other Security Interest over the Share; or
(b)acquiring any right to receive directly or indirectly any Dividends payable in respect of the Share or any other economic interest in respect of the Share; or
(c)acquiring any rights of pre-emption, first refusal or other control over the disposal of the Share; or
(d)acquiring any rights of control over the exercise of any voting rights or rights to appoint Directors attaching to the Share; or
(e)otherwise acquiring legal or equitable rights against the registered holder of the Share which have the effect of placing the person in the same position as if the person had acquired a legal or equitable interest in the Share itself.
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17.1 General Share Transfer Restriction
A shareholder may not (nor may it attempt to) Transfer all or any of its Shares unless:
(a) the provisions of clause 23 are complied with; and
(b) either:
(i)the Shareholder has received the prior written consent of each of the Investor Shareholders (Remaining Shareholders); or
(ii)the Transfer is expressly permitted or provided for in clauses 17, 18, 19, 20, 21 or 22 of this Deed.
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18. Drag Along Rights
18.1 Drag Along Option
Where one or more Transferors (in the balance of this clause 18 collectively referred to as the Permitted Sellers) wishes to Transfer all or a part of their Shares (Drag Transfer Shares) to a Third Party under an arm’s-length bona fide offer, including pursuant to an Exit Proposal, and the Drag Transfer Shares being offered comprise 50% or more of the aggregate number of Common Shares (being, for the avoidance of doubt, 50% or more of the aggregate number of Ordinary Shares and Management A Shares on issue at that time), then:
(a)the Permitted Sellers are entitled to Transfer their Drag Transfer Shares to the Third Party;
(b)the Permitted Sellers will have the option to require all other Shareholders to transfer to the Third Party:
(i) all of the Shares held by each Shareholder; or
(ii)if less than all of the Permitted Sellers’ Shares are being Transferred to the Third Party, only the Relevant Proportion of the other Shareholder’s Shares,
in accordance with the provisions of this clause 18 (Drag Along Option); and
(c)if the Permitted Sellers do not exercise their Drag Along Option, then they must serve on each Shareholder and the Company, in accordance with clause 19.1(a), a Permitted Seller Notice to the effect that each Shareholder has the right to exercise its Tag Along Option.\
18.2 Drag Along Notice
(a)The Permitted Sellers may exercise their Drag Along Option by serving a notice in writing (Drag Along Notice) signed by each of the Permitted Sellers on the Company and each other Shareholder specifying (to the extent known by the Permitted Sellers at the date of the Drag Along Notice):
(i)that the Permitted Sellers are exercising their Drag Along Option;
(ii)the sale price per Drag Transfer Share at which the Third Party Purchaser has offered to purchase the Drag Transfer Shares, provided that if the sale price is not fixed, then it will be sufficient for the Drag Along Notice to describe the sale price in a way that makes it capable of calculation or determination;
(iii)the identity of the Third Party proposing to purchase the Drag Transfer Shares;
(iv)any material terms and conditions attached to the offer from the Third Party purchaser; and
(v)the date on which the sale of the Drag Transfer Shares to the Third Party is to be completed, which date must be at least ten Business Days after the date of the Drag Along Notice.
(b) To the extent that:
(i)the sale price per Drag Transfer Share involves the issue and/or transfer of illiquid securities as part of the consideration payable; and
(ii)any of the Management Shareholders are not able to achieve tax rollover relief in respect of such illiquid securities issued and/or transferred as part of the consideration,
the Permitted Sellers must do all things reasonably necessary to procure that such Management Shareholders receive a sufficient cash component in consideration for their relevant Shares that are Transferred to the Third Party purchaser so as to enable such Management Shareholders to discharge any tax liability arising from receipt by them of the illiquid securities issued and/or transferred in consideration for the Transfer of their Shares.
18.3 Exercise of the Drag Along Option
(a)A Drag Along Notice and all obligations under the Notice will lapse if, for any reason, the Third Party notifies the Permitted Sellers or any other Shareholder (who must in turn immediately notify the Company and the other Shareholders) that the Third Party does not wish to purchase all of the Shares specified in the Drag Along Notice.
(b)Subject to clause 18.3(a), each Shareholder must sell the Relevant Proportion of its Shares to the Third Party at the price per Share set out in the Drag Along Notice and, if specified in the Notice, the holders of Shares must provide reasonable warranties to the Third Party.
(c)Completion of the sale of each Shareholder’s Shares under clause 18.3(b) must take place on the dates specified in the Drag Along Notice or, in the case of any particular Shareholder, such other date as is agreed to by the Shareholder, the Permitted Sellers and the Third Party.
(d)If a Shareholder defaults in its obligation to sell any of its Shares under this clause 18.3, the provision of:
(i)clause 20.3 apply if such defaulting Shareholder is an Institutional Investor; and
(ii)clause 21.5 apply if such defaulting Shareholder is a Management Shareholder,
with appropriate modifications.
19. Tag Along Rights
19.1 Tag Along Option
(a)Except in the event of an Excluded Item or a Permitted Transfer under clause 17 of this Deed), where one or more Transferors (in the balance of this clause 19 collectively referred to as the Permitted Sellers) wishes to Transfer all or a part of their Shares (Tag Transfer Shares) to one or more Third Parties under an arms-length bona fide offer, including pursuant to an Exit Proposal, and the Tag Transfer Shares being offered, together with all previous Transfers effected by such Permitted Sellers, in aggregate comprise 15% or more of the aggregate number of Common Shares (being, for the avoidance of doubt, 15% or more of the aggregate number of Ordinary Shares and Management A Shares on issue at that time) (the Tag Threshold), then:
(i)the Permitted Shareholders must notify each of the Shareholders other than the Permitted Sellers (Tag Along Shareholders) in writing (the Permitted Seller Notice); and
(ii)each of the Tag Along Shareholders will have the option to require the Permitted Sellers to use their reasonable endeavours to cause the Third Party to purchase the Relevant Proportion of the Tag Along Shareholder’s Shares in accordance with this clause 19 (Tag Along Option),
it being acknowledged and agreed that any and all Transfers to which any Tag Along Option previously applied shall not be taken into account for purposes of calculating whether the Tag Threshold has been triggered,
(b) The Permitted Seller Notice must specify:
(i) the identity of the Third Party;
(ii)the sale price per Tag Transfer Share at which the Third Party purchaser has offered to purchase the Tag Transfer Shares, provided that if the sale price is not fixed, then it will be sufficient for the Permitted Seller Notice to describe the sale price in a way that makes it capable of calculation or determination (the Tag Price);
(iii)the number of Tag Transfer Shares which the Third Party has offered to purchase; and
(iv)the terms and conditions attached to the offer from the Third Party.
19.2 Exercise of Tag Along Option
(a)A Shareholder may exercise its Tag Along Option by serving a notice in writing (Tag Along Notice) on the Company and the Permitted Sellers.
(b)A Tag Along Notice may only be given within ten Business Days of receipt of a Permitted Seller Notice.
(c)A Tag Along Notice is irrevocable once given.
(d)If any Shareholder has given a Tag Along Notice, then the Permitted Sellers must not transfer any Shares to the Third Party unless the Third Party also offers to acquire, and acquires, the Relevant Proportion of each Tag Along Shareholder’s Shares in respect of which a Tag Along Notice has been given:
(i)for the same consideration per Share as that to be paid by the Third Party to the Permitted Sellers; and
(ii)on the terms and conditions set out in the Permitted Seller Notice.
(e)If, despite the Permitted Sellers’ reasonable endeavours, the Third Party will only purchase less than the aggregate number of Shares specified in the Permitted Seller Notice and each Tag Along Notice, then each party seeking to Transfer its Shares to the Third Party (including the Permitted Sellers) may Transfer the total number of Shares the Third Party is willing to purchase multiplied by a fraction, the numerator of which is the total number of Shares that the Shareholder wishes to sell and the denominator of which is the aggregate number of Shares specified in the Permitted Seller Notice and the Tag Along Notices.
(f)If the Third Party fails for any reason to buy the Shares referred to in clause 19.2(e) at the Tag Price (or at a greater price) and otherwise in accordance with this clause 19, and to complete the purchase on the same date as the date for completion of the sale of the Tag Transfer Shares (which must not be outside a period of thirty days after the procedures in this clause 19 have been completed), then the Permitted Sellers must not Transfer any of their Shares to the Third Party without again making an offer to the other Shareholders in accordance with this clause 19.
19.3 Completion of Sale of Shares
(a)The Permitted Sellers must give each Tag Along Shareholder who has accepted a Third Party’s offer at least five Business Days’ notice before they intend to complete the sale of the Shares to the Third Party.
(b)Completion of the sale of the Relevant Proportion of each Tag Along Shareholder’s Shares to the Third Party must take place on the date on which the Permitted Sellers complete the sale of their Shares to the Third Party as notified under clause 19.3(a) or, in relation to a particular Tag Along Shareholder, such other date as may be agreed between the Tag Along Shareholder, the Permitted Sellers and the Third Party.
20. Compulsory Transfers (Investor Shareholders)
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20.3 Default
If any Institutional Investor defaults in transferring its Trigger Shares, the Company may rely on the power of attorney granted by each of the Investor Shareholders under clause 23.4.
21. Compulsory Transfers (Management Shareholders)
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21.5 Default
If the Defaulting Management Shareholder defaults in transferring its Shares (including after an offer from the Company to buy-back the Shares) then:
(a)the Company and the Directors may rely on the power of attorney granted by the Defaulting Management Shareholder under clause 23.4;
(b)the Company will hold the relevant purchase moneys on trust for the Defaulting Management Shareholder;
(c)if applicable, receipt by the Company of the purchase monies will be good discharge of the purchaser’s obligation to the Defaulting Management Shareholder and the purchaser will not be bound to see to the application for such monies;
(d)if applicable, subject to the transfer being duly stamped (if required), the Board must cause the name of the purchaser(s) to be entered into the share register of the Company in respect of the transfer Shares; and
(e)the Company must pay the purchase moneys to the Defaulting Management Shareholder on surrender of the relevant Share certificates.
22. Exit Arrangements
22.1 Exit Proposal
(a)At any time the Archer Investors may give written notice (an Exit Notice) to the Company, the other Investor Shareholders and the Management Shareholders of their intention to:
(i) seek an IPO;
(ii)effect a Trade Sale or a Share Sale to a party other than an Investor Shareholder; or
(iii)amalgamate or reconstruct all or any of the Group Entities (including an amalgamation or reconstruction involving the liquidation of any of the Group Entities),
(each such arrangement being an Exit Proposal).
(b)If the Archer Investors give an Exit Notice containing an Exit Proposal under clause 22.1(a), the Company and each Shareholder must work together in good faith and use their best endeavours to ensure that the Exit Proposal is effected, including (without limitation) by:
(i)providing all necessary co-operation, assistance and consents;
(ii)in relation to the Management Shareholders, each of them exchanging or disposing of (including, without limitation, by way of Company buy-back) some or all of their Shares;
(iii)in relation to the Managers, making themselves available and answering all questions and completing all documents as may be reasonably required in order to give effect to an IPO;
(iv)procuring the unanimous passing of such resolutions of any Group Entity in general meeting or the Board as are reasonably required to effect the Exit Proposal;
(v)complying with the reasonable directions of any financial advisor(s) appointed by the Archer Investors or the Company;
(vi)agreeing to such amendments of this Deed, the Memorandum and Articles of Association or any constitution of any other Group Entities;
(vii)transferring some or all of their Shares and surrendering their share certificates (if any) for such Shares;
(viii)if the Exit Proposal is to involve an IPO and, to the extent required, signing any disclosure document(s) prepared in connection with any offering of Shares;
(ix)subjecting their Shares to an escrow arrangement in accordance with prevailing market practice at the time of the Exit Proposal;
(x)appointing financial and legal advisers; and
(xi)completing any specific steps set out in the Exit Notice or any other steps notified by the Board in writing from time to time,
as the Archer Directors determine to be necessary or desirable for the purposes of effecting the Exit Proposal.
22.2 Power of Attorney
(a)For the purposes of giving effect to their agreement in this clause 22, but without limiting the operation of clause 23.4 or this clause 22, each of the Shareholders will, following receipt of an Exit Notice, deliver to the Board on request powers of attorney, in the form required by the Archer Directors and in respect of which clause 23.4 will apply, subject to the necessary changes including, without limitation, that the powers of attorney set out in clause 23.4(a) will:
(i)be exercisable even though the appointer may not necessarily be a Defaulting Transferor; and
(ii)enable any of the Archer Directors to vote for and on behalf of the other Shareholders, and in the other Shareholders’ names, in favour of the resolutions and amendments referred to in clause 23.4 and to do all things necessary to give effect to the transactions contemplated by those resolutions, including the execution of documents.
(b)In the event Shareholders are required to Transfer their Shares under this clause 22 but default in any aspect of that obligation, the provisions of:
(i)clause 20.3 apply if such defaulting Shareholder is an Institutional Investor; and
(ii)clause 21.5 apply if such defaulting Shareholder is a Management Shareholder,
with appropriate modifications.
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23. Other Restrictions Relating to Transfer of Shares
23.1 Deed of Accession
Unless the Shareholders otherwise agree in writing, a Shareholder may not (nor may it attempt to) Transfer all of any of its Shares except on the condition that prior to the registration of the Transfer:
(a)the transferee (unless it is already a party to this Deed) enters into a Deed of Accession with the parties ...
(b)the transferee pays to each other Shareholder and the Company all amounts which the Transferor is obliged to pay to each other Shareholder or the Company ...
(c)the transferee obtains all necessary Authorisations (including any required under the Foreign Acquisitions and Takeovers Act 1975, having jurisdiction in Australia) either unconditionally or subject only to conditions which do not adversely affect:
(i) the Company or its activities; or
(ii)the shareholding in the Company of any other Shareholder (and in particular, but without limitation, which do not require any other Shareholder to divest the whole or any part of its shareholding in the Company or to restructure its own shareholding in the Company).
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23.4 Attorney
(a)By signing this Deed, each of the Non-Original Investors irrevocably and for valuable consideration with the intention to secure an interest in property appoints the Company and the Directors severally as its attorney to:
(i)complete and execute such instruments for and on its behalf as the attorney thinks necessary or desirable to give effect to any of the transaction contemplated by clauses 17, 18, 19, 20, 21 or 22;
(ii)exercise all powers and rights that the Non-Original Investor has as the registered holder of its respective Shares, including, without limitation:
(A)attending any meeting of the Company, and voting in respect of its Shares, proposing or seconding any motion, and demanding a poll for any vote at, such meeting;
(B)requisitioning the convening of any general meeting of the Company and convening a general meeting pursuant to such requisition; and
(C)signing any form, notice, instrument or other document (including any proxy appointment) relating to such Non-Original Investor’s Shares;
(iii)complete and execute on its behalf the Deeds of Accession that are required to be completed and executed in order for Shares to be Transferred to the Institutional Investors; and
(iv)complete and execute on its behalf any Deed of Accession that is required to be completed and executed in order for:
(A)any Management A Shares to be transferred to any managers of the Company or Group Entity (as the case may be) (or any such manager’s nominated entities or persons); and/or
(B)any such managers of the Company or Group Entity (as the case may be) (or any such manager’s nominated entities or persons) to accede to this Deed.
(b)The appointment of attorney in clause 23.4(a) take effect from the date of this Deed, provided that the attorney can only exercise its powers under clause 23.4(a) if:
(i) the appointer is a Defaulting Transferor; and
(ii)the attorney has notified the Defaulting Transferor that it intends to exercise its powers and authorities under the appointment noted in this clause 23.4.
(c)The Directors may receive the purchase money in trust for the Defaulting Transferor and must (subject to that instrument being duly stamped) cause the transferee to be registered as the holder of the relevant Shares and pay the purchase money to the Defaulting Transferee.
(d)The Directors are not bound to earn or pay interest on any money held by the Company.
(e)The receipt of the Directors for the purchase money is a good discharge to the transferee who is not bound to see to the application of it, and after the name of the transferee has been entered in the register of shareholders of the Company in purported exercise of the power of attorney the validity of the proceedings may not be questioned by any person.
(f)Each Defaulting Transferor agrees to ratify and confirm whatever the attorney lawfully does, or causes to be done, under the appointment noted in clause 23.4(a).
(g)Each Defaulting Transferor agrees to indemnify the attorney against all claims, demands, costs, expenses, charges, damages, losses and liabilities arising in any way in connection with the lawful exercise of all or any of the attorney’s powers and authorities under the appointment noted in clause 23.4(a).
Each Defaulting Transferor agrees to deliver to the Directors upon demand such other powers of attorney, instruments of transfer and other instruments as the Directors may require from time to time.
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32. Relationship of the Shareholders
Neither this Deed nor the Memorandum and Articles of Association is to be interpreted as constituting:
(a)the relationship of the Shareholders as a partnership, quasi-partnership, fiduciary, association or any other relationship in which one or more of the Shareholders may (except as specifically provided for in this Deed) be liable generally for the acts or omissions of any other Shareholder; or
(b)any Shareholder as the general agent or representative of any other Shareholder or of the Company with the exception of any powers of attorney specifically granted or contemplated by this Deed.
In particular, but without limitation, no Shareholder has the authority to pledge or purport to pledge the credit of any other Shareholder or the company or to make or give (or purport to make or give) any representations, warranties or undertakings for or on behalf of any other Shareholder or the Company.
Management Agreement
The Management Agreements relevantly provided:
2.1 Appointment
(a)The Trustee appoints the Manager as manager of the relevant Trust, and the Manager accepts that appointment, on the terms and conditions set out in this deed.
(b)The appointment made under clause 2.1(a) includes, to the greatest extent permitted by law, a delegation to the Manager of each power, authority, discretion or remedy of the Trustee in respect of the relevant Trust.
2.2 Manager acting as principal
The parties acknowledge and agree that the Manager, as principal, will carry out the following activities:
(a)issuing any information memoranda or other documents, making any presentations and carrying out any other marketing activities in respect of any offer of interests in the Trust to prospective, current or former beneficiaries of the Trust, or otherwise;
(b)making any presentations, recommendations, statements or reports about the Trust, or interest in the Trust, and carrying out any other investor relations activities in relation to prospective, current or former beneficiaries of the Trust, or otherwise;
(c)carrying out negotiations and discussions in relation to any investments which may be acquired, varied or disposed of by the Trustee (in its capacity as trustee of the Trust) and to arrange for the Trustee to acquire, vary and dispose any such investments; and
(d)to the extent not otherwise expressly dealt with in this clause 2, carrying out any other activities in relation to management, operation and administration of the business and affairs of the Trustee or the Trust that require the holding of an Australian Financial Services Licence,
and that the Manager is not authorised to, and must use its reasonable endeavours to ensure that it does not, carry out any of these activities as agent for the Trustee.
...
3. Delegation by the manager
Subject to the Trust Deed, the Manager may appoint a person as a subdelegate, subagent or subattorney or otherwise to act as representative of the Manager to exercise all or any of the rights and powers, and to perform any or all of the obligations, in respect of which the Manager has been appointed under this deed.
SCHEDULE 4: PARTIES
Second Applicant: ARCHER CAPITAL 4B PTY LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4B
Third Applicant: ARCHER CAPITAL 4C PTY LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4C
Fourth Applicant: HARBOURVEST PARTNERS 2007 V-DIRECT B.V.
Fifth Applicant: HARBOURVEST INTERNATIONAL PRIVATE EQUITY PARTNERS V-DIRECT FUND L.P.
Sixth Applicant: HARBOURVEST PARTNERS 2007 DIRECT FUND L.P.
Seventh Applicant: LENTESCO PACKAGING PTY LIMITED IN ITS CAPACITY AS TRUSTEE OF THE MYOB UNIT TRUST
Eighth Applicant: SQUADRON ASIA PACIFIC II NV
Ninth Applicant: SQUADRON NE ASIA HOLDINGS II LIMITED
Tenth Applicant: ADAM FERGUSON
Eleventh Applicant: ALEXANDER BRUCE CAMERON IN HIS CAPACITY AS TRUSTEE OF THE HIGHLAND INVESTMENT TRUST
Twelfth Applicant: ALLISON WATTS
Thirteenth Applicant: AMBA DARLA HOLDINGS PTY LIMITED ACN 136 023 517 IN ITS CAPACITY AS TRUSTEE OF THE LA FAMILIA MUNOZ TRUST
Fourteenth Applicant: ANDREW BIRCH
Fifteenth Applicant: ANDREW BIRCH AND CHERYL SING IN THEIR CAPACITY AS TRUSTEES OF THE BIRCH SING SUPERANNUATION FUND ABN 85 093 663 531
Sixteenth Applicant: BIGGLES ENTERPRISES PTY LTD AS TRUSTEE FOR THE KATZEFF FAMILY TRUST ABN 64 417 131 510
Seventeenth Applicant: BIRCHSING PTY LTD ACN 075 688 934 IN ITS CAPACITY AS TRUSTEE OF THE BS3 TRUST
Eighteenth Applicant: CHRISTOPHER TRACEY
Nineteenth Applicant: DOMINIC O'HANLON
Twentieth Applicant: DOMINIC O'HANLON IN HIS CAPACITY AS TRUSTEE OF THE O'HANLON SUPERANNUATION FUND
Twenty First Applicant: ELENA GREENWELL
Twenty Second Applicant: ESTELA RODRIGUEZ
Twenty Third Applicant: FERGATRON CONSULTING PTY LIMITED ACN 128 273 389 IN ITS CAPACITY AS TRUSTEE OF THE FERGUSON CONSULTING FAMILY TRUST
Twenty Fourth Applicant: GARRY JOHN DOWD & JULIE ANNE DOWD IN THEIR CAPACITY AS TRUSTEES OF THE GAJU SUPERANNUATION FUND
Twenty Fifth Applicant: GIOVANNA MARIA OSTACCHINI
Twenty Sixth Applicant: GJED PTY LTD ACN 125 789 111 IN ITS CAPACITY AS TRUSTEE OF THE DENT & EDMEADS SUPERANNUATION FUND
Twenty Seventh Applicant: GRANT LINGWOOD-SMITH
Twenty Eighth Applicant: IAN BOYLAN
Twenty Ninth Applicant: INFOTREK INVESTMENTS PTY LIMITED ACN 136 379 336 IN ITS CAPACITY AS TRUSTEE OF THE AD STEVENSON FAMILY SUPER FUND
Thirtieth Applicant: JEAN MULLIGAN
Thirty First Applicant: JEMATE PTY LIMITED ACN 114 290 845 IN ITS CAPACITY AS TRUSTEE OF THE JST SUPERANNUATION FUND
Thirty Second Applicant: JGDE PTY LIMITED ACN 136 366 393 IN ITS CAPACITY AS TRUSTEE OF THE DENT & EDMEADS FAMILY TRUST
Thirty Third Applicant: JOHN MOSS
Thirty Fourth Applicant: JOHN RICHARD MOSS AND ELAINE JANE MOSS AS TRUSTEES OF THE MOSS FAMILY TRUST
Thirty Fifth Applicant: JULIE STELLA TASSONE
Thirty Sixth Applicant: KAREN O'HANLON
Thirty Seventh Applicant: KEVIN RAWLINGS
Thirty Eighth Applicant: LISA BELL
Thirty Ninth Applicant: MATTHEW MULLIGAN
Fortieth Applicant: MATTHEW JAMES TOMLINSON
Forty First Applicant: MYOB FINANCE 2 PTY LTD (NOW KNOWN AS ACN 136 926 960 PTY LTD)
Forty Second Applicant: PAUL GREENWELL
Forty Third Applicant: SCOTT GARDINER
Forty Fourth Applicant: SHOWER INNOVATIONS PTY LIMITED ACN 093 605 228 IN ITS CAPACITY AS TRUSTEE OF THE FINNIN SUPERANNUATION FUND
Forty Fifth Applicant: SIMON MARTIN
Forty Sixth Applicant: SIMON RAIK-ALLEN
Forty Seventh Applicant: SUZANNE DAMMS
Forty Eighth Applicant: TIMOTHY MOLLOY
Forty Ninth Applicant: TIMOTHY REED
Fiftieth Applicant: TREVOR FAIRWEATHER AND NICOLE FAIRWEATHER IN THEIR CAPACITY AS TRUSTEES OF THE FAIRWEATHER FAMILY TRUST
Fifty First Applicant: TREVOR FAIRWEATHER IN HIS CAPACITY AS TRUSTEE OF THE FAIRWEATHER SUPERANNUATION FUND
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