Backdoor Break FeeI suspect McRae will issue 25 million shares at a 25% discount to yesterday's market price (pre-halt) and the prospective purchaser of Animal Health will buy them all. That would give the proposed purchaser some comfort the vote in November would succeed in approving the sale of Animal Health. The discount to market would also serve as a break fee to the proposed purchaser if for some reason the vote at the AGM defeated to sale. The discount to market on the 25 million shares represents $2m. This is in the range of the typical 1-3% break fee written into deals. 3% of a $60m deal price would be $1.8m.
It is my recollection that a company must get shareholder approval in a special meeting if the discount to market on a share issue is greater than 25%.
If I were Wells, I would be asking the Courts this morning for an injunction to prevent this share issue on the grounds that it is a backdoor break fee. Mr. Rae testified that a break fee was not contemplated, hence no need for a meeting prior to the AGM.
It feels like Mr. McRae is out-lawyering Mr. Wells.