Prime Restaurants Inc., owner and operator of a network of casual dining restaurants and pubs (including one of my wife’s faves, East Side Mario’s!), announced this week that it had entered into an agreement to be acquired by Cara Operations Limited by way of a plan of arrangement under the Business Corporations Act (Ontario). One of the more interesting aspects of this deal is the fact that the parties agreed that Cara’s obligations to acquire Prime would be conditional on Cara completing an offering of securities or other financing transaction to finance the acquisition. The acquisition agreement also contains a “go-shop” provision that permits Prime to solicit other bidders for a better deal until Cara waives its financing condition. If Cara can’t complete the financing and the acquisition agreement is terminated, Cara has to pay a reverse break-fee of $3 million to Prime (which is equal to the amount of the break fee that becomes payable to Cara following expiry of the go-shop period).
This is different from what we are used to seeing in Canadian public M&A transactions. Usually the purchaser lines up bridge financing in advance of announcement of the acquisition and then tries to obtain alternative financing on better terms so that ultimately it doesn’t need to draw on the more expensive bridge. Here, it appears that Cara didn’t believe it needed the safety net that bridge financing provides and that Prime’s board of directors was able to get comfortable the reverse break-fee and go-shop provisions were adequate trade-offs for agreeing to a financing condition. Presumably Prime’s financial advisors gave some guidance to the Prime board on Cara’s ability to complete the financing in current market conditions.
Note that applicable securities laws would have prohibited a financing condition like this if the parties had structured the transaction as a take-over bid. The take-over bid rules require that the purchaser make adequate arrangements before the bid to ensure that the required funds are available to make full payment for the shares. This is one of many important distinctions between the plan of arrangement and take-over bid structures.
It will be interesting to see whether the Canadian public M&A market will have an appetite for financing conditions or whether this is just a special one-time dish.