Odyssey wins EAG battle

US private equity firm Odyssey Investment Partners has succeeded in winning the bitter battle for control of AIM-listed silicon chip testing group EAG Inc.

Odyssey was supporting the management buyout of the company but faced a competitive offer from SVTC Technologies, itself backed by US private equity groups Oak Hill Investors and Tallwood Venture Capital.

In July, Odyssey submitted an offer, recommended by EAG’s independent directors, of 110p a share. However, that was trumped by SVTC with a 120p a share proposal.

The latter deal was subsequently recommended by EAG’s board, before Odyssey submitted an enhanced offer at 130p a share. This offer, valuing EAG at £87m (US$165m), has now gone unconditional, with shareholders representing 92.8% of the total share capital accepting the proposal.

SVTC has said that it will not increase its offer, which has subsequently lapsed.

The bid battle attracted some controversy because EAG Inc and its directors were not bound by the City Code on Takeovers, despite being listed in London.

This is because the company is registered in Jersey, has its corporate headquarters in Dublin, and sees most of its business take place in the US.

Stephen Nash, a partner at law firm Eversheds, says that for the Code to apply for an AIM-listed company, it must be incorporated in the UK, the Channel Islands or the Isle of Man and have its central management based there.

Since the EU Takeover Directive came into force in 2006, fully listed companies have only needed to meet one of these requirements in order for the Code to apply.

Nineteen of the largest 20 companies to float on AIM last year were incorporated outside the UK. Many were mining companies with international operations, so the Code did not apply.

Eversheds’ Nash adds that many in this situation, including EAG, have clauses in their constitutions to say that they will try to abide by the Code in takeover offer circumstances.

“Most would try to incorporate Rule 9 of the Code, which insists that a shareholder that takes more than a 30% holding in a company must make a mandatory bid for the remaining shares,” he says.

However, the more intricate rules are in danger of being ignored in competitive bid situations. In the EAG case, all parties involved promised to abide as closely as possible with the Code. However, SVTC was initially concerned that Odyssey did not have sufficient funds to follow through with the offer.

Lazard acted as nominated adviser to EAG on its flotation in June last year, with Numis as broker. Both advised EAG on the recent approaches, which value the company at less than the £125m raised at 265p a share on admission to AIM. Credit Suisse advised Odyssey while Torch Partners and GCA Savvian acted for SVTC.