Goosehunting funds are exploring the possibility of suing CNMV for blocking them on Applus

War public acquisition offers (takeover offers) Applus created an unprecedented situation in Spain, in which worst bidder may take control of the listed company, which caused forceful intervention from National Securities Market Commission (CNMV) which could lead to litigation.

Last week, the market watchdog chaired by Rodrigo Buenaventura banned – as a precautionary measure – a group of opportunistic funds or goose hunters from purchasing Applus shares for resale after Apollo Global Managementone of the contenders to fight for the Spanish operator ITV.

CNMV argues that there may have been an “agreement” between these investors and Apollo, so under the law they cannot buy Applus’ securities at a price higher than the takeover offer formulated by that offeror. at a price of 12.51 euros per share.

Apollo already bought 22% Applus To hedge funds in January last year, and if they continued to buy shares of companies on the stock market now, they could turn the takeover war in their favor, making it easier for the New York fund to take 50% of the capital, despite its rival consortium I Squared vs TDR Capital– offers a higher price 12.78 euros per share.

Given the fears of such an outcome and the unusual stock market activity of these funds, among them Samson Rock and Maven Investments– having learned the final offers on April 26, I will buy even higher 12.78 eurosThe CNMV has decided to end this operation.

Surprise and reaction

The supervisory authority’s decision was received with surprise by stakeholders. Last week Apollo released a statement showing ready to cooperate with CNMV demonstrate that their actions are compatible with takeover laws and that their agreements with hedge funds were announced in January and do not represent any concerts. The fund’s aim is to try to persuade the regulator in a friendly manner over the next few days before the proposals are approved and the shareholder acceptance period begins.

Answer hedge funds if the CNMV approves a ban on their transactions. Sources close to these investors, who increased their positions in Applus equity during the bidding war in anticipation of improved prices, believe that talking about an “agreement” with Apollo for 22% of sales contracts makes no sense, and they note that The decision of the supervisory authority will violate the freedom of the marketwhich would allow them to buy shares at the price they want and sell them to whomever they prefer.

” takeover legislation It does not establish that the winner must be the one who makes the best final offer in a takeover war, and does not force investors to accept it,” they recall from those around these firms.

The first legitimate use of funds would be to use appeal to the CNMV, if this body does not lift the warning blockade. If they are not taken care of, they may imagine controversial administrative appeal to the National Court.

Given the timing of these legal battles, it will be virtually impossible for the funds to stop the takeover process, making it easier for I Squared and TDR to achieve their takeover target. subject to receipt of 50.01% of Applus shares.

In this case, investors on the goose chase may continue to fight in court. demand compensation from the state for property damage that they may have suffered as a result of this operation.

The entire conflict arises from clauses in the purchase and sale agreement for 22% of Applus, signed and notified by the CNMV in January. At that time Apollo paid 10.65 euros per share hedge funds, including, in addition to Samson Rock and Maven companies included Sand Grove, Millenium, Man GLG, Harris Associates, TIG Advisors, Melkart and Boldhaven.

These contracts stipulated that if Apollo made a “successful” final bid higher 10.65 euroswould compensate hedge funds with 100% difference in price. With a takeover bid 12.51 eurothis will mean delivery 1.86 euros.

But if someone else is the winner and Apollo sells its 22%, it will pay the fund only 75% of the capital gain (1.59 euros in case of final price I Squared and TDR). Assuming that the New York fund has decided to maintain its participation for at least one year (under some contracts, two years), I wouldn’t have to pay the goose hunters anything.

Considering this last scenario and the fear of being left with only 10.65 euros per titlefunds began buying shares on the stock market even at prices higher than the offers to facilitate Apollo’s “success” since they were compensated for capital losses in these acquisitions compared to what they could have earned on the securities transferred in January. .

The exception to this operation is Sand Grovewhose contracts protect you in any scenario.

The key to the fight is determining whether these provisions are imply the existence of a “concert” between Apollo and the funds.

Regulator arguments

The Applus case will set a precedent for future takeover bids in Spain, at least with regard to the behavior of takeover funds, which are playing an increasingly important role in these processes, accumulating significant stakes in companies receiving bids.

Regardless of whether this deal has a legal basis, it is logical at least for the CNMV to update its Q&A consultation on takeover bidsand may even require some legislative changes.

The key question is the presence or absence “concert” between Apollo and hedge fundswhich will prevent them from buying shares above that offeror’s takeover price.

Last week, the CNMV said the “activities” of these investors in Applus “may constitute an agreement with the aim of acquiring control of Applus, to the extent that several entities, with contractual communication and clear economic incentivethey will tacitly or explicitly cooperate to ensure that Manzana (a subsidiary of Apollo) gains control.

Apollo responded that the situation was “complex and new” and indicated a willingness to work with the CNMV to demonstrate the “compatibility” of these agreements with takeover law.

The precedents of Telepizza and MásMóvil

The Applus Services takeover battle is not the first time a transaction of this type has risked ending up in court due to complaints from takeover funds.

In a sentence KKR on Telepizza and in the consortium Lorca Telecom (KKR, Cinven and Providence) on MasMovilSome investors took legal action when they realized that the takeover prices approved by the CNMV were not fair. In the first of these cases, the National Court and the Supreme Court found that Polygon (the plaintiff fund) could not make a claim because it did not have shares in Telepizza, but had simple derivatives on the price of this company. In MasMovil’s proposal, the National Court rejected appeals Polygon, Blackwell, Fourworld and other fundsalso due to “no right” to appeal, and the case has now gone to the Supreme Court.

In the case of Applus there are also gooseberry hunting funds. mostly derivativesbut, as demonstrated throughout the trial, his influence and ability to translate these titles into action is evident.