The legal action launched by minority shareholders against the USD 4.8bn take-private of international school operator Nord Anglia Education [NYSE:NORD] surprised its highly leveraged buyer group and could impact the internal rate of return (IRR).
As first reported by this news service in early September, the Nord Anglia take-private buyer group, which includes Canada Pension Plan Investment Board (CPPIB) and funds affiliated with Baring Private Equity Asia Group, has been hit by USD 801.4m worth of dissent at its USD 32.5 per share merger price.
Details of the dissent are laid out in a petition filed on 9 November in the Cayman Grand Court and reveal that more than 20 funds, holding 23.7% of the company’s shares, dissented the deal, which had an equity value of USD 3.3bn and an enterprise value of USD 4.8bn. Baring already owned 67% of Nord Anglia, which operates 43 international schools globally.
A source close to the deal admitted the buyer group had been surprised by the level of dissent, but said it is hoping that a future court adjudicated fair value award will not be too painful for the company, as the merger price was reasonable.
The level of dissent in Nord Anglia marks a huge ramp-up in the amount of money being deployed in pursuit of fair value claims under Section 238 of Cayman Islands Companies Law. Prior to Nord Anglia, a total of just USD 283m worth of shares had dissented the previous 14 fair value claims filed in Cayman since January 2015.
Those legal actions were brought against deals worth a combined USD 21.8bn (equity value), most of which were Chinese ADR take-privates. The majority of these cases involved dissent from just one or two funds that owned a small percentage of the share register.
Until now, the dissent trend and its subsequent lengthy legal process has chiefly been considered an attractive investment opportunity for hedge funds and an annoying distraction for buyout groups and managements. This is because only the dissenters receive payment following a court fair value ruling or settlement, hence limiting the additional cost to the buyout groups.
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