Jersey Unreported Judgments

Companies - Scheme of Arrangements

[2022]JRC134

Royal Court

(Samedi)

16 June 2022

IN THE MATTER OF A REPRESENTATION BY MIMECAST LIMITED

AND IN THE MATTER OF ARTICLE 125 OF THE COMPANIES (JERSEY) LAW 1991

Advocate S. J. Alexander for the Representor.

Advocate A. Kistler for the Purchaser.

judgment

the deputy bailiff:

1.        On 18^th May 2022, we sanctioned the Scheme of Arrangements in this case pursuant to Article 125 of the Companies (Jersey) Law 1991 ("the Law").

2.        We now give our reasons for so doing.

3.        Mimecast Limited ("the Company") is a public limited company incorporated in Jersey on 28^th July 2015.  It is the parent company of the Mimecast group of companies, which is a global provider of information security and risk management services for email and other information.  As such, they are specialists in cyber security and the business interests of the Company and its subsidiaries are of national and international significance.  The Company shares were listed and traded on the Nasdaq global select market. 

4.        Although there are some forty-six registered shareholders, 99% of those shares are held by Cede and Co, which holds those shares as nominee for the Depository Trust Company, a United States entity, who in turn hold those shares on behalf of their beneficial owners.  Pursuant to the order made by Commissioner Clyde-Smith on 2^nd February 2022 which, inter alia, considered the documentation to be sent to the shareholders in the Company and made orders arranging for a 'Scheme Meeting' of the Company's registered shareholders on 11^th March 2022, the Court ordered that at least twenty-one clear days before the day appointed for the said Scheme Meeting, a notice convening the same and a copy of the explanatory statement required to be furnished to the shareholders pursuant to Article 126 of the Law and a form of proxy substantially in the form provided to the Court, should be served on the Company shareholders.

5.        As to service on the beneficial owners of the shares in the Company, we were provided with an affidavit sworn on 11^th February 2022 by a Michelle Danzuso of Innisfree M&A Incorporated ("Innisfree"), a Delaware corporation, specialising in communicating with underlying 'beneficial holders' of shares - in this case, as defined in the Scheme Document, the shareholders in the Company at the relevant date.  She states on 9^th February the Depository Trust Company provided to Innisfree a list of the names and addresses of each nominee which holds Company shares - usually a broker, bank, trust or other nominee on behalf of the beneficial owner.  Innisfree contacted each nominee to enquire how many copies of the materials were required to be provided to the beneficial owners, i,e, the Scheme Document, form of proxy for the use of the Scheme Meeting and form of proxy for use at the Extraordinary General Meeting.  These were then posted.  Though the advocate for the Company was unable to tell us how many beneficial owners of shares there were, we were satisfied that the way those persons were served with documentation was sufficient to enable them to participate, if they wished, in the Scheme Meeting. 

6.        The purpose of the Scheme is that the shares are to be purchased for $80 per share by Magnesium Bidco Limited ("the Purchaser") which is a UK company incorporated for the purpose of the Scheme which is in turn indirectly owned by Magnesium Topco Limited, a Jersey company also incorporated for the purpose of this transaction, which is in turn indirectly owned by a number of investors particularly the US entity Permira Advisers LLC and its affiliates.  The total value of the transaction is approximately $5.8 billion. The purchase price of $80 per share is greater than the price at which the shares were trading when the proposed takeover was announced.  Pursuant to the provisions of the Law, implementation of the Scheme was conditional on the Scheme being approved by a majority in number, representing three-quarters in voting rights of Company Shareholders, present and voting at the Scheme Meeting and the passage of various Special Resolutions referred to in the Scheme Document to approve certain matters in connection with the Scheme, the Scheme having been sanctioned by the Court, the Act of Court sanctioning the Scheme having been submitted to the Registrar of the Companies and various conditions in the Scheme Document being satisfied or waived as the case may be.

7.        As to the Scheme Meeting, 50,491,133 Company Shares were voted representing 75.47% of the total issued share capital.  Of those, 99.8% voted in favour and of the registered shareholders who voted, namely 14 of the 46 (30.43% of the registered shareholders), 13 voted in favour and 2 voted against (Cede and Co voted some Company Shares held in favour of the Scheme and some Company Shares against).  Accordingly, the statutory requirements under the Law were met. 

8.        It is right to observe that nine of the shareholders voting in favour were current or former directors or employees of the Company who were present (in person or by proxy) at the meeting.  We are satisfied that the Scheme provided for equal treatment of all Company Shareholders.  We were notified that it has been agreed between four persons (who were members of the Mimecast management team or directors) and Magnesium Topco Limited that as to a proportion of the Company Shares held by those persons, they will not receive $80 per share, but shares in Magnesium Topco Limited.  We were told that it was common in private equity purchases for officers in the target company to invest some or all of their consideration in the purchasing vehicle.  Although this was not disclosed to the Company Shareholders in the Scheme Document as it had not been agreed at that time, there was a signalling of the possibility of such an outcome in the Scheme Document at page 75 where it was provided:

"As of the date of this proxy statement, none of the Mimecast executive officers has discussed or entered into any agreement with the Buyer or any of its affiliates regarding employment with, or the right to purchase or participate in the equity of, buyer or one or more of its affiliates.  Prior to or following the closing of the Transaction, however, some or all of the Mimecast executive officers may discuss or enter into arrangements with Buyer or any of its affiliates regarding employment with, or the right to purchase or participate in the equity of, Buyer or one or more of its affiliates."

9.        In the affidavit sworn by Mr Robert Nault, general counsel of the Company, for the purpose of this application, he says that it is common for this sort of transaction to occur and that the purchaser intended to enable certain of the Company's management team to acquire shares in Magnesium Topco Limited ("Topco") and at the date of the Court hearing the Company would enter into a 'contribution and exchange agreement' with those persons, whereby Magnesium Topco Limited would agree to acquire certain of the Company Shares.  He goes on to say that the 'Share Rollover' is a tax efficient alternative to the 'Rollover Managers' receiving $80 cash per scheme share and using that $80 to subscribe for shares in Topco.  The Share Rollover therefore does not result in the Rollover Managers receiving value in excess than that received by the Scheme Shareholders.  We queried this as Topco is not listed and we wanted to understand in those circumstances how it could be said that the four managers in question were not receiving a greater return than the Scheme Shareholders.  It was explained to us that there had been a valuation attributed to Topco which was not a difficult exercise as Topco owned the Purchaser and its assets and liabilities were known. 

10.      Accordingly, we were satisfied that the shareholders (who voted as a single class) all constituted one class and had sufficiently allied interests for them to be treated as such.

11.      We were also told about certain litigation brought by a small group of shareholders in the United States challenging the transaction.  We were told and accept that it is a common feature for such litigation to be initiated in the United States and that such claims, which were described as 'routine', were subsequently voluntarily dismissed by each of the shareholders / alleged shareholders. 

12.      We were also keen to understand that the relevant regulatory authorities, particularly those in the United States and the United Kingdom, had properly vetted the proposed transaction in view of the cyber security and other aspects of the Company's business.  We noted from the documentation provided to us that on 14^th April 2022 the Company received notice that no action was to be taken under the United Kingdom National Security and Investment Act 2021 with respect to the transaction, and the Company received written notice from the Committee on Foreign Investment in the United States on 1^st April 2022 that there were no unresolved national security concerns with respect to the transaction so far as the government of the United States were concerned.  In any event, these were conditions which were required to be satisfied prior to the closing of the transaction. 

13.      Notwithstanding the fact that all shareholders were notified of their right to attend and be heard at the Court hearing to sanction the Scheme either in person or through a Jersey advocate, no shareholders availed themselves of this right. 

14.      Having regard to the circumstances set out above, we now consider the three issues identified in various cases, including In the Representation of Cazenove Capital Holdings Limited [2013] JRC 168 at paragraph 8 where the Court said:

"The approach which the Court adopts on such applications is well established.  The Court must consider three issues:-

(i)        whether the provisions of the Law have been complied with;

(ii)       whether the class of shareholders to be affected by the proposed scheme was fairly represented by those who attended the meeting; and whether the statutory majority are acting bona fide and not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and

(iii)      whether the arrangement is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve."

15.      Considering these matters in turn:

(i)        First, the provisions of the Law have been complied with.  The relevant documentation was properly served in accordance with Article 126 of the Law, the Scheme Meeting was duly convened and held and the resolution to pass the Scheme was passed by the statutory majority.

(ii)       As to the second requirement, this too is satisfied.  There is no suggestion of coercion of the minority who voted against the Scheme or evidence that the interests of the Scheme Shareholders were so dissimilar in any material respect that they could not consult together in their common interest, notwithstanding the 'Rollover' arrangements to which we have referred to above which, although not disclosed in particularity in the Scheme Document, did not result in the shareholders in question receiving different consideration. 

(iii)      As to the third requirement, we hold that this too is satisfied, in that an intelligent and honest man and a member of the class concerned and acting in his own interest might reasonably approve the same.  The Board of the Company unanimously recommended that the Company Shareholders vote in favour of the Scheme (with the exception of one director who recused herself from board meetings).  There is no technical flaw or 'blot' on the Scheme.  Further, the Scheme Document explained in detail the reasons why the board of the Company recommended the transaction to shareholders, including the fact that the $80 per share was a premium to the $68.94 closing price of the shares immediately prior to publication of the information that the Company was exploring a sale; that that price was the highest price that the Purchaser was prepared to pay and was an appropriate transaction for the Company to enter into after a review of other potential strategic alternatives.  The Scheme Document also identified the possible 'negative factors' arising from entering into the transaction including, inter alia, the risk of litigation and the interests that certain Mimecast directors and executive officers may have with respect to the transaction, in addition to their interests as Mimecast shareholders generally as described in the statement.  Nonetheless, the board recommended the transaction to the shareholders.

16.      Accordingly, we regarded it as appropriate to sanction the Scheme, and did so having received an undertaking from the Company and the Purchaser to the effect that both shall be bound by the Scheme and execute and do or procure to be executed all such things as may be necessary or desirable for the purpose of giving effect of the Scheme.

Authorities

Companies (Jersey) Law 1991. 

In the Representation of Cazenove Capital Holdings Limited [2013] JRC 168.