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What does APA’s takeover offer for Envestra mean for bondholders?

by Gavin Madson | Mar 04, 2014

Key points

  1. Change of control clause will not be invoked, business as usual for bondholders.

Yesterday Envestra Limited (Envestra) announced that they will take the existing takeover offer from the APA Group to shareholders for their consideration. The board has done this on the basis that the Independent Experts Report concluded that offer represented fair value for Envestra’s shareholders and was thus in their best interests.

The Envestra bonds include a change of control clause which I have previously noted would be unlikely to be enforced as the potential acquirer (APA) has the same credit rating as the target (Envestra). Envestra’s release noted that the Envestra board had:

“sought and received appropriate assurances from sufficient Envestra financiers, in a form acceptable to APA, that any change of control resulting from the Scheme will not be deemed “unacceptable” under Envestra’s debt financing arrangements”.

We note the following definition of a change of control per the Information Memorandum for the Envestra bonds:

“Change in Control – A change in control of Envestra will constitute an event of default under the Intercreditor Deed Poll if the Majority of Financiers declares such change is unacceptable.”

For the scheme to succeed it will need approval of 75% of the votes cast and a 50% majority of number of shareholders - Malaysian CKI holds 17.5% of Envestra and has not made a public statement of its intentions.