Brigadier Acquisition Company Limited, controlled by Michael Shina the owner of Crew Clothing, is reported to have applied to the U.K. Panel on Takeovers and Mergers (the “Panel”) to revoke its £22 million offer for British menswear chain Moss Bros, arguing that the consequences of the COVID-19 pandemic constitute a material adverse change condition (MAC). Given that the deal was only announced on 12 March 2020, when the current crisis was already underway, such an application is surprising.
Reliance on MAC clauses, particularly in the context of public company M&A, is relatively uncharted territory in the United Kingdom. The Takeover Code requires any company which has announced a firm intention to make an offer for a U.K. target to proceed with the offer unless exceptional circumstances have arisen affecting the offeree company, which could not reasonably have been foreseen at the time of the announcement. To succeed in its attempt, Brigadier would have to demonstrate that COVID-19, and the impact of the steps taken to contain it, are so material in the context of the offer that they represent “an adverse change of very considerable significance striking at the heart of the purpose of the transaction in question.”
In addition, the adverse change must be of long-lasting effect. Moss Bros announced on 25 March that it expected the effects of COVID-19 to result in a “significant reduction” in revenue and profitability for the year ending 30 January 2021, but confirmed that it was too early to quantify such impact.
The test of whether a MAC may be invoked has a very high bar, as was established in 2001 when WPP was unsuccessful in its attempt to invoke a MAC to withdraw from its £455 million offer for the media company Tempus following the 9/11 terrorist attacks. Allowing Brigadier to pull out at this stage of the Moss Bros offer on the grounds of COVID-19 would set an unhelpful precedent that could bring significant uncertainty to the process for future offers, and it seems unlikely that the Panel would support such an application.
