Break Fees, Lock-Ups and Disclosure: Wattyl´s Brush

The recent decision regarding the proposed takeover of paint manufacturer Wattyl Limited (Wattyl) provided an opportunity for the Takeovers Panel (Panel) to consider the appropriateness of the size of a break fee by reference to target annual profit rather than market capitalisation, and the appropriateness of failure to satisfy a regulatory condition as a trigger for payment of a break fee. While the Panel has not yet given reasons for the Wattyl decision, the undertakings given may be instructive as to the Panel’s rationale.

Background

On 13 February 2006, Barloworld Limited announced a $3.80 per share takeover bid for Wattyl, proposed against the background of a $3.25 per share bid by Allco Equity Partners (AEP) made in December 2005. Alongside the increase of 17 per cent on the AEP offer, the Barloworld bid contained a break fee agreement valued at $3.2 million, payable if AEP’s rival bid succeeded, if the Wattyl board failed to recommend the Barloworld bid, or, should the board