FEDERAL COURT OF AUSTRALIA

Archer Capital 4A Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc [2015] FCA 960

THE COURT ORDERS THAT:

1.    The application be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    These proceedings arise out of a process conducted in mid-2011 by Archer Capital Pty Limited (“Archer”) for the sale of all of the shares then held by the 51 applicants in MYOB Cayman Holdings Limited (“MYOB”). The applicants claim damages from The Sage Group plc (“Sage”) for breach of contract on the express terms of a “Final Offer” letter dated 15 August 2011 and implied terms as pleaded, estoppel and misleading or deceptive conduct. Those claims are summarised at [83]-[97]. The claims result from communications made by Mr Guy Berruyer (Sage’s CEO) around 8.30 pm on 18 August 2011 that Sage would not buy all of the MYOB shares unless either the effective price for them was reduced by $175 million or a transaction for $1.35 billion was put to Sage’s shareholders for their approval as a “class 1” transaction under the UK Listing Rules.

2    The applicants were, as original parties or by accession between 11 May 2009 and 11 April 2011, parties to a shareholders deed relating to their shares in MYOB (“Shareholders Deed”). They comprise the first to third applicants (“Archer Investors”), the fourth to sixth applicants (“HarbourVest” or the “HarbourVest applicants”), the seventh applicant (“Lentesco”), the eighth and ninth applicants (“Squadron” or the “Squadron applicants”) (together “Institutional Investors”), and the tenth to fifty-first applicants were members of MYOB’s management in 2011 or entities associated with them. I will refer to the fourth to fifty-first applicants as the “non-Archer applicants”.

3    Neither MYOB nor Archer is a party to these proceedings.

Contents of judgment

4    For reference:

    The background of the proceedings is at [7]-[82].

    A summary of the applicants’ claims is at [83]-[97].

    The discussion of the “authority” issue is at [98]-[124].

    The discussion of the “Alternative Contract” claim is at [125]-[186].

    The discussion of the representation and estoppel claims is at [187]-[201].

    The disposition is at [202].

    Schedule 1 sets out a list of the Dramatis Personae.

    Schedule 2 is a detailed chronology of events and evidence, including an assessment of the witnesses.

    Schedule 3 sets out relevant provisions of the Shareholders Deed. Schedule 3 also sets out relevant provisions of the management agreements under which the Archer Investors delegated power to Archer to manage their investments, including power to sell them.

Conclusion

5    The parties provided comprehensive and thoughtful submissions on fact and law for which I am grateful. I have also had regard to the detailed chronology including references to the transcript prepared by Sage’s legal advisers and marked up by the applicants.

6    For the reasons which follow, I do not accept that any of the applicants were parties to any agreement of the kind alleged by the applicants nor do I accept that any actionable representation was made to any of the applicants by or on behalf of Sage nor was any estoppel raised.

Background

7    At the relevant time, MYOB was the holding company of the MYOB Group which develops and sells accounting and business management software in Australia and New Zealand.

Archer

8    Archer is a private equity firm that specialises in leveraged buyouts. At the relevant time, Messrs Peter Wiggs and Gregory Minton were the managing partners of Archer and they were directors of the Archer Investors. The Archer Investors together held more than 63% of the shares in MYOB. Under management agreements between Archer and the Archer Investors, Archer managed the investments of the Archer Investors and had delegated power to sell the investments: see Schedule 3.

9    Mr Andrew Gray was a partner of Archer who led the team which acquired MYOB in 2008/2009 for funds advised by Archer and HarbourVest entities. He was experienced in private equity transactions having been employed by a number of local and international firms. Mr Gray had portfolio responsibility for MYOB at Archer and he was a director and the Chairman of MYOB from January 2009 to September 2011. In 2011, Mr Gray led the MYOB sale transaction team.

10    Archer generally held businesses for a period between 3 and 7 years and for that reason Mr Gray regarded it as important that Archer be able to exit investments at its discretion and that it have the capacity to offer the entire business for sale to achieve the maximum value for the asset.

Shareholders Deed

11    The Shareholders Deed contained provisions which enabled the Archer Investors to sell shares comprising together more than 50% of the MYOB shares to a third party and to require the other shareholders to sell their shares as a result of the Archer Investors exercising “drag along” rights or implementing an “exit proposal”. The principal provisions for that purpose were clauses 18-23.4 (see Schedule 3). The Archer Investors had the power to appoint three directors of MYOB. They exercised that power and in addition to Mr Gray, the directors appointed by Archer Investors were Mr Wiggs and Mr Craig Wood (“Archer Nominee Directors”).

Commencement of sale process

12    MYOB was an attractive and high value asset. In late 2010, Mr Gray formed the view that a good return on the MYOB investment could be achieved if it was sold in late 2011, as activity by private equity firms resumed after the global financial crisis. In consultation with the Archer investment committee (comprising Messrs Minton, Wiggs and Gray and two other Archer partners), Mr Gray began to consider options for the sale of MYOB. In early 2011, Archer commenced preparation for the sale of MYOB.

    Mr Gray appointed Mr Aidan Allen of UBS AG (Australian Branch) (“UBS”) as Archer’s adviser in relation to a possible transaction involving MYOB. UBS is a global investment bank with offices in Sydney and London. UBS was engaged without a written mandate. Mr Allen said that it was customary for him to deal with Archer on the basis that UBS’ engagement would only be formalised when a transaction had been effected.

    Allens Arthur Robinson (as it then was) (“Allens”) was engaged by MYOB to provide “legal advice in connection with the potential monetisation options being explored in relation to the MYOB Group”. Allens’ engagement letter (signed by Mr Tom Story) indicates that Allens was authorised to act on the instructions of Mr Tim Reed (MYOB’s CEO), Mr Simon Martin (MYOB’s CFO) and executives of Archer including Mr Gray and Mr Frank Heckes (Archer, Investment Director). Allens is a prominent Australian commercial law firm commonly involved in large transactions including those with international aspects.

Focus on private equity bidders

13    In June-July 2011, Messrs Gray and Allen decided they would run an informal process for the sale of MYOB. Three private equity firms were selected as possible bidders because they had indicated their interest and Messrs Allen and Gray were satisfied that they had the financial, managerial and technical capacity to run an enterprise such as MYOB and a track record of significant mergers and acquisitions. The firms were Bain Capital Partners, LLC (“Bain”), Kohlberg Kravis Roberts & Co LP (“KKR”) and Hellman & Friedman LLC (“H&F”). Without formal documentation of the process (other than confidentiality deeds), the private equity bidders were given access to the MYOB data room on 5 July 2011, a draft sale agreement on 24 July and Mr Allen informed them that they should provide “indicative proposals” by 11 August 2011. Mr Allen envisaged that there would then be a short period of negotiation in which they could “enhance their proposals in order to secure the asset”.

Sage

14    Sage is a listed public company in the United Kingdom. Sage also develops and sells accounting and business management software. In 2011, members of Sage’s executive included Mr Berruyer, Mr Paul Harrison (CFO), Mr Michael Robinson (General Counsel) and Mr Ivan Epstein (CEO of Sage Africa, Australia, Middle East, Asia).

15    In late June 2011, Mr Epstein contacted Mr Gray to express possible interest in acquiring shares in MYOB, but said Sage was not interested in being involved in an auction and required a period of exclusivity. Sage appointed Deutsche Bank AG (“Deutsche”) as its financial adviser and Allen & Overy (“A&O”) as its legal adviser in relation to a potential purchase of MYOB. Like UBS, Deutsche is a global investment bank with offices in Sydney and London. A&O is a prominent international commercial law firm with offices in Sydney and London.

16    Sage signed a confidentiality deed with MYOB on 7 July 2011. Around that time, Mr Longstaff reiterated to Mr Allen that Sage was not prepared to engage in an auction and it was only willing to engage on an exclusive basis. Mr Allen told Mr Longstaff that that was not going to happen and Archer thought Sage would “find it challenging to pay the multiple we are looking for”.

17    In contrast to the private equity firms with which Messrs Gray and Allen were comfortable and trusted to engage in the sale process in a manner to which they were accustomed, both Mr Allen and Mr Gray had reservations about including Sage in the process arising out of Sage’s late stage withdrawal from an earlier similar process for the sale of TeamSystem (a similar business to MYOB in Italy) in which UBS had acted as adviser to the vendor, Bain. These reservations were made worse by Sage’s initial insistence on exclusivity. It was nevertheless thought useful to engage with a trade bidder as a trade bidder is typically in a position to outbid private equity firms because of the synergistic benefits that a trade bidder is able to derive from a potential acquisition that a non-industry participant cannot.

Form of draft share sale agreement issued by Archer

18    On 3 August 2011, UBS gave Mr Tim Longstaff of Deutsche a form of the share sale agreement proposed by Archer. The draft indicated that: it was to be executed by all of the MYOB shareholders; it was to be governed by the law of Delaware; the parties acknowledged and agreed that “this Agreement was formed in the place where it was last executed by any party to it ...”; and the sentence above the space provided for execution clauses stated: “Executed in the Cayman Islands”.

The first phase: exclusivity v certainty

19    Until mid-August, Archer regarded Sage’s interest as a “fishing expedition”.

20    Sage persisted in its pursuit of exclusivity up until 6-7 August, relying on a high indicative offer price for MYOB and its “credentials” as a suitable buyer in the same industry. This is reflected in two “offer” letters which Sage submitted. They were addressed to the directors of MYOB for the attention of Mr Gray at Archer’s address and they are identified as the “Indicative Offer” letter on 27 July and the “Formal Offer” letter on 4 August 2011: Schedule 2 at [30] and [44]. Both letters indicated that Sage was prepared to pay a cash amount of $1.35 billion for 100% of the shares in MYOB, were marked “subject to contract”, indicated that they had full board endorsement, contained expiry dates, indicated that they were governed by English law, contained express words negating any intention to create a binding agreement and sought exclusivity under a separate agreement which would be binding. The “Indicative Offer” indicated that no further approvals were required to move to a firm contract but that “[p]rior to submission of a final binding offer, we will require a final approval from Sage’s Board, which can be obtained in a very short timeframe”. The “Formal Offer” did not contain that indication, but rather “very low risk to signing and closing” and it listed five “conditions” which included regulatory approvals including “no objection” by the Australian Competition and Consumer Commission (“ACCC”), satisfactory due diligence, agreement to terms with MYOB management and no material adverse change to MYOB’s business.

21    In response, Archer emphasised its need for “certainty” and eliminating “execution risk”. At this early stage, the suggestion was that this would be achieved by a $50 million break fee and a public announcement as the price for “exclusivity”, “insurances” which Sage was not prepared to give. Through Messrs Allen and Gray, Archer indicated that before exclusivity could be entertained, Sage would need to undertake due diligence enquiries, review a draft share sale agreement and consider reducing the conditions indicated in the “Formal Offer” letter; these were “not “games”, just a staged process”. Not surprisingly, Archer sought a level of commercial assurance that Sage was not just engaged in a fishing expedition and that the price proposed in the “offer” letters was not illusory before it would entertain exclusivity.

22    Sage slowly came to understand that Archer insisted on a “staged” process: Schedule 2 at [34], [35], [39], [47], [49] and [52]-[53].

The second phase: full speed to a share sale agreement, possibility of “an exclusivity”

23    However, on 6 August 2011, in the nature of negotiation, ground was conceded. Sage may have been unrealistic in its expectation of achieving exclusivity at this early stage on the basis it proposed, and Mr Gray might think them “flakey” but Sage had indicated a high price and it was a useful stalking horse with the private equity bidders: Schedule 2 at [58].

24    Mr Harrison reported a conversation he had with Mr Gray on that day: “I asked him straight whether he could envisage granting us exclusivity absent the two requirements which were off limits from our perspective. He conceded he could.” According to Mr Longstaff’s report of a conversation he had with Mr Allen on the same day, Mr Allen “[was] at pains to say that they can foresee an exclusivity at a point short of us being completely finished our work. But more certain than now”: Schedule 2 at [54]-[55].

25    Mr Berruyer concluded in an email to a Sage director, Mr Tony Hobson on 7 August 2011: “We don’t think we can get exclusivity under terms that we can accept. We have come to conclude internally that we will drop our requirement, and try rather to move towards SPA at a rapid pace.”

26    Sage was given access to the MYOB data room around midnight on 8 August 2011 as a result of giving up its pursuit of “exclusivity” and commencing to engage in the “staged” process which Archer required of them, with the intention of moving at a rapid pace to execution of a share sale agreement. There is no evidence that Sage had any insight in relation to the timetable at this time.

The private equity bidders

27    The private equity bidders completed their due diligence investigations (save for “black box” due diligence) around this time. On 10 August 2011 one private equity firm provided a proposal addressed to Mr Allen at UBS; the proposal was described as a “committed offer”. The other two private equity firms provided proposals on 11 August 2011 both addressed to Archer to the attention of Mr Gray and different other people at Archer. Both of the latter two offers were marked “subject to contract”, one described itself as a “final binding offer to acquire MYOB” and the other described itself as an “offer letter” but contained language which indicated that the offer was “final and binding”, and both contained governing law clauses. All required a period of exclusivity before the execution of a share sale agreement and two were expressed to be open for acceptance until 12 August 2011.

28    Mr Gray said he was unconcerned about the short deadlines imposed by the bidders; Mr Allen was concerned about momentum: Schedule 2 at [69].

Acceleration

29    On 11 August 2011, Mr Allen sent one of his “messages” emails to Messrs Gray and Heckes (among others) for their approval: Schedule 2 at [68]. He suggested that after clarifying issues around their proposals he should get back to one of the private equity bidders by the evening of Friday 12 August with the messages:

-    was hoping for perfect clarity with respect to preferred bidder - do not have a clear preferred bidder

-    you are highly certain but behind on price

-    propose to continue until Sunday resolving outstanding issues and give you the opportunity to improve your offer

and for Sage the messages were that they “need to hurry up, i.e.”:

-    things are moving more quickly than anticipated

-    there is significant prospect that we will be in a position to sign a transaction by close of play Sunday that is “competitive” with revised proposal

30    Mr Allen discussed whether “price” should be raised with Sage at this time, but it was ultimately agreed that it was too soon to speak to Sage about price; Mr Allen was concerned that it would result in a price reduction (not without cause, given Mr Berruyer’s musings on that issue, see Schedule 2 at [30] and [63]). Mr Allen conceded that a letter from Sage would be useful in negotiations with the private equity bidders: Schedule 2 at [76]-[77].

31    On 12 August 2011, Mr Allen told Mr Longstaff that “things are accelerating” and that Archer may have to deal with the private equity bidders. Mr Longstaff sought a commitment that MYOB would not be “sold or promised” before Tuesday at 6 pm. The final paragraph of the email in Schedule 2 at [75] is a simple recognition that it would be inappropriate for Messrs Longstaff and Harrison to suggest to the Chief Executive Officer of a substantial UK based listed public company that he embark on a flight literally to the other side of the world if he could not be sure that the asset would still be available for sale when he arrived.

32    Read together, the emails in Schedule 2 at [74], [75], [78] and [79] demonstrate that Messrs Longstaff and Allen agreed an extremely ambitious work plan “targetting [sic] Monday night” for “a final offer in the form of a Sale & Purchase Agreement (“SPA”) that has been agreed between us”. This allowed time for Mr Berruyer to fly to Australia and meet Mr Reed and for a Sage board meeting scheduled for 5 pm Sydney time on 15 August 2011 to be held. Mr Longstaff indicated that “signing” would need to be co-ordinated with public communications about the transaction.

33    In my view, it is clear that at this stage, Sage intended to become bound only by way of executing a share sale agreement the timing of which was to be co-ordinated with public announcement. It is Mr Gray’s evidence that at this time he still saw Sage as being involved in a “fishing expedition” and there is a demonstrated willingness in Mr Allen’s commentary to trade “certainty” for “price”.

The “spanish auction”

34    Archer fully employed its control of the informal sale process. Although the applicants described the process as an “informal auction”, that suggests rather more structure than the process came to have by Sunday, 14 August 2011. Mr Allen described it as a “spanish auction”: Schedule 2 at [91]. It is not clear what that term means, but it appears that all of the bidders came to understand that Archer was unreliable about the meaning of deadlines and willing to alter the process to suit its own ends due to the ad hoc, opportunistic manner in which Archer acted over the period of 12-14 August 2011. It also appears that the private equity bidders were given some “visibility” of Sage’s position on price: Schedule 2 at [93].

35    Two teams from the private equity firms flew into Sydney on 13 August and the third was already in Sydney. They were ready to negotiate. On the morning of Saturday, 13 August, Mr Allen proposed to Mr Gray a timetable for the private equity bidders to be asked “clarification questions” on Saturday, 13 August 2011, with revised proposals to be provided by 12.30 pm Sunday and a “preferred bidder” to be selected at 3 pm on Sunday after Archer met to consider the proposals: Schedule 2 at [85]. This was not consistent with Mr Allen’s conversation with Mr Longstaff on 12 August or decisions ultimately made by Archer on 14 August 2011.

36    On 12-13 August, two important things happened.

“Class 1” emerges

37    First, on 12 August, Mr Longstaff advised Mr Allen that Sage proposed a structural change to the share sale agreement by the introduction of “Continuing Debt”. Mr Longstaff reported his conversation in these terms: “I had a chat with UBS re class 1 and our proposed structure to ameliorate. Presented our idea as a way to maximise certainty for them”: Schedule 2 at [81]. I accept that this is an accurate reflection of their conversation: see Schedule 2 at [82]-[83].

38    If the transaction was a “class 1” transaction the UK Listing Rules would require Sage shareholder approval of the transaction. “Class 1” requirements are summarised in Schedule 2 at [27]-[28] but in general terms, whether the “class 1” threshold is crossed depends on the “percentage ratio” of the proposed consideration for a transaction to the market capitalisation of the listed company at the time of the transaction. Mr Allen knew that but does not appear to have given the matter much attention, regarding the “Continuing Debt” as a “Sage” issue. Sage had been concerned about “class 1” issues for some time and had been reluctant to raise the issue in the context of the “Indicative Offer” and “Formal Offer” letters: Schedule 2 at [29], [31], [42] and [66].

39    Mr Longstaff expected Archer to raise the issue as early as 5 August 2011 in light of a fall in Sage’s share price: Schedule 2 at [46] and [49]. It is also clear that Sage considered that proposing a condition precedent to a share sale agreement would put it at a competitive disadvantage to the private equity bidders and it was “quite likely a deal breaker”. Mr Harrison was therefore relieved when he received advice from Deutsche on 12 August that “Continuing Debt” would mitigate the risk of the proposed consideration crossing the “class 1” threshold due to falls in Sage’s share price: Schedule 2 at [70]-[72] and [112].

40    The proposal was that Deutsche would lend MYOB $125 million of “Continuing Debt” to pay out other commitments so as to reduce the “headline” consideration for MYOB by that amount. The outcome would have the same economic result for MYOB shareholders. A revised draft of the share sale agreement containing provisions dealing with “Continuing Debt” and a paper prepared for Mr Longstaff explaining cash flows was circulated by Allens on the evening on 13 August 2011 to Messrs Gray, Allen and Heckes, among others: Schedule 2 at [91].

Sage becomes credible – ACCC condition dropped

41    Second, on the evening of 13 August 2011, Sage indicated that it would bear the “ACCC” risk, which was not regarded as great; “no objection” by the ACCC had been a condition of a share sale agreement proposed in the “Formal Offer” letter: Schedule 2 at [91].

42    As a result of Sage dropping the “ACCC condition”, Archer began to treat Sage’s interest as serious and the different paths taken by the private equity bidders and Sage collided over the weekend of 13-14 August 2011.

Mis-evaluation of risk?

43    Although both the “Continuing Debt” and “ACCC” issues were dealt with in the same email chain, it is fair to say that Messrs Allen and Gray paid little or no attention to the potential significance of the first of these things and great attention to the second and Mr Gray said he was unaware of the “class 1” issue until 18 August 2011. Both Ms Lee’s email set out in Schedule 2 at [91] and Mr Story in his evidence explained the “Continuing Debt” mechanism as “ensuring” that Sage shareholder approval would not be required and they addressed the issue of shareholder approval in a warranty in the draft share sale agreement (see the summary of the “prevailing draft” at [61] below). However, having regard to how the “class 1” threshold is calculated, Mr Longstaff’s explanation to Mr Allen that “Continuing Debt” “ameliorates” (not “eliminates”) the “class 1” issue was accurate and not misleading.

44    This mis-evaluation of risk persisted: mid-morning of 15 August 2011, Mr Longstaff circulated to Messrs Allen and Story a copy of an advice from Norton Rose (Deutsche’s lawyers) in relation to the “Continuing Debt”, a proposed three day loan to MYOB. Mr Allen forwarded it to Mr Heckes without much attention; he regarded “class 1” compliance as a “Sage” issue: Schedule 2 at [116].

The “stretch target” given to private equity bidders

45    Archer received revised proposals from two of the private equity bidders on Sunday, 14 August (with one expressed to be open until 5 pm on 15 August 2011). Messrs Gray, Minton, Wiggs, Allen and Story met in the afternoon of 14 August 2011 to consider the private equity offer letters.

46    The consensus view was that the offers from the three private equity bidders that had been received were of a sufficient magnitude that Archer should proceed with one of the offers rather than commencing a full formal auction process. It was decided that as the Sage offer was considerably higher than the offers from the private equity bidders, Archer should try to hold back the private equity bidders and Sage should be given a limited timeframe to complete its work and finalise its position. However, it was essential that Sage move as quickly as possible as there was concern that the private equity firms would lose interest or walk away. There was some nervousness about whether Sage would really come through, based on its behaviour in the TeamSystem process.

47    The solution was the creation of a “stretch target” for the private equity bidders (which Mr Allen doubted they would meet) and ad hoc deadlines which did not meet the expectations of either the private equity bidders or Sage. Mr Gray decided to give the private equity bidders access to “black box” due diligence; that was not seen as risky because they were not trade buyers. Mr Allen obtained instructions on “messages” for the private equity bidders in the email stream set out in Schedule 2 at [102].

48    Messrs Gray, Minton and Heckes decided to tell the private equity bidders that Archer had not been able to identify a “preferred bidder” and they would be given an opportunity to enhance their bids by way of a “stretch target” which was set at a discount to the existing postion of the “strategic”. They were told that if they met the “stretch” target, “this is the price that we will deal for certainty right now and through to tomorrow morning”. This was clearly inconsistent with Archer’s undertaking to Sage given on 12 August 2011; the reconciliation proposed by Messrs Gray and Allen was not convincing: Schedule 2 at [105]-[106]. The upside for Archer was that a further proposal from Sage might not only enhance Sage’s credibility as a bidder; it might also promote better bids from the other bidders. The downside risk was that the private equity bidders would not react well to the introduction of the trade bidder and slowing of the process which was well recognised by Mr Allen and the principals at Archer: Schedule 2 at [93] and [102].

How Mr Longstaff sees things “playing out”

49    At 8.45 pm on Sunday 14 August, Mr Longstaff responded to Mr Allen’s “messages” and their conversations in an email to Mr Allen setting out how he saw the next few days panning out in a shorthand fashion: Schedule 2 at [107]. Notable features of that communication are: (1) it encompasses the time from when Mr Berruyer will meet with Mr Reed to signing and announcement; (2) it expresses a hope that an advanced draft of the share sale agreement being available by 5 pm on Monday, 15 August but other processes being less advanced; (3) the Sage Board meeting being held and depending on how that went, the provision of “a letter” with a mark-up of the share sale agreement; (4) time for some discussion; (5) it then employs the expression “[a]ssuming we reach agreement” as being a predicate to black box due diligence being given; (6) “calling” of the MYOB shares by exit notices being issued; (7) settling a communications plan; and (8) “[s]igning will be a function of the completion of the foregoing and sequencing the last signature in Cayman and London Stock Exchange opening hours. Ideally Sage would announce in the morning London time.”

Mr Allen reports responses from bidders

50    In his email of 9.24 pm Mr Allen reported to Messrs Gray and Minton about the responses from the private equity bidders: one was stony, another was probably gone and the last did not think it would “hit the ask”: see Schedule 2 at [108]. Mr Allen later told Mr Longstaff that he did not expect the private equity bidders to meet the “stretch target”; in effect he told Mr Longstaff it was simply a device to buy time although the promise to sell if anyone met the target would be honoured: Schedule 2 at [118].

51    Mr Allen translated Mr Longstaff’s 8.45 pm email as: Sage “expect[s] to be in a position to commit post Board meeting but want to sign on Thursday (said we could discuss)”: Schedule 2 at [109].

52    In my view, Mr Longstaff’s 8.45 pm email does not reveal an intention by Sage to be bound before execution of the share sale agreement.

53    At 2.05 am on 15 August Mr Gray wrote to Mr Allen: “The Thursday thing is an issue. Tim L needs the heads up before the board meeting that they have to sign tonight.” This concern is not consistent with Mr Gray’s evidence that he regarded the “Final Offer” letter as a binding commitment once “accepted”. Mr Minton’s evidence was that he was conscious that markets were skittish and one of the bidders was unhappy; Archer was keen to appoint a “preferred bidder” which would be the highest bidder, subject to the conditions of the offer. At 5.30 am, he said to Messrs Allen, Heckes, Wiggs and Gray (among others) that “I also think we need to push them all on the basis that we want to close this out now, we just need the offer that is capable of acceptance, which we don’t have yet”: see Schedule 2 at [111] and [113].

The “spanish auction” causes friction

54    Mr Gray confirmed another one of Mr Allen’s “messages” emails at 7.24 am on Monday, 15 August 2011 in preparation for a meeting between Messrs Allen and Longstaff. The force of the “message”, as delivered by Mr Allen at a meeting with Mr Longstaff around 11 am, was that Archer would sign an agreement with a private equity bidder that night unless Sage indicated a higher price and a commitment “to sign” a share sale agreement first thing on Tuesday with conditions precedent dealing with black box due diligence and obtaining warranty insurance. Mr Allen proposed that a “[s]ensible announcement strategy would be facilitated but discussion was around 8.00am London (5.00pm Sydney) on Thursday”: Schedule 2 at [114] and [118].

55    Mr Reizes did not take well the conversation with Mr Allen in the evening of 14 August. During the morning of 15 August 2011 it became apparent that KKR had run dead and was not answering calls; it was a cause of some friction between Messrs Allen and Gray.

56    Mr Longstaff took badly what Mr Allen told him when they met around 11 am and he threatened to sue Archer and Mr Allen if MYOB was sold before the Sage board met at 5 pm and Sage had had an opportunity to put forward a proposal, Mr Berruyer having only landed that morning and not yet having met with Mr Reed. This threat was not well received by Mr Gray who threatened not to meet with Mr Berruyer that afternoon. Mr Gray was mollified by Mr Longstaff’s assurance that the threat had been his, not Sage’s: Schedule 2 at [120]. Although Mr Longstaff’s threat featured in some submissions, I do not accept that it had any legal significance.

Messrs Berruyer and Harrison meet

57    Messrs Berruyer and Harrison met with Mr Gray mid-afternoon on 15 August 2011. Mr Berruyer discussed the circumstances of Sage’s withdrawal from the TeamSystem process. Messrs Berruyer and Harrison convinced Mr Gray of both their sincerity and ability to complete a transaction. For reasons explained in Schedule 2 in relation to my assessment of Mr Gray as a witness, I do not accept that Mr Berruyer used the language of a “final binding proposal”. I do accept that Mr Berruyer spoke in similar terms to Mr Gray as he spoke to Mr Minton the next day: see Schedule 2 at [122]-[123] and [151].

“Final Offer” letter

58    At 5 pm on 15 August 2011, the Sage board met. At 7.25 pm on 15 August 2011, Mr Longstaff sent an email to Messrs Gray and Allen attaching a letter from Sage headed “Sage Final Offer to acquire MYOB”. The email said: “Following the Board meeting, attached is Sage’s final offer letter. We remain available tonight as needed to close out such of the small number of remaining points as are needed.”

59    The “Final Offer” letter was on Sage letterhead and provided as follows:

STRICTLY PRIVATE AND CONFIDENTIAL
SUBJECT TO CONTRACT

15 August 2011

The Directors
MYOB Cayman Holdings Limited
c/o Mr. Andrew Gray
Archer Capital
[address]

Dear Andrew

Sage Final Offer to acquire MYOB

Further to our letters dated 27 July 2011 and 4 August 2011 (together, the “Previous Offers”) and our subsequent meetings with representatives of MYOB Cayman Holdings Limited (“MYOB” or the “Business”), The Sage Group plc (“Sage”) are pleased to submit to you a final offer (“Final Offer”) for the acquisition of 100% of the fully diluted share capital of MYOB.

Valuation

Sage is pleased to reconfirm its Previous Offers and present a Final Offer of A$1.35 billion cash consideration for 100% of the fully diluted share capital of MYOB on the pricing basis laid out in the prevailing draft of the Share Sale Agreement (“SSA”).

Sage has received full board approval for this Final Offer.

Whilst apparently unchanged, the Final Offer does represent an increase in economic cost to Sage as we have assumed significant additional risks, such as ACCC approval, and absorbed several items found in due diligence that may normally be considered for adjustment.

Conditions

Sage has made this Final Offer as certain as possible within the limitations of data made available to us and the ability of your advisors to respond to us. Sage has met or exceeded every timetable set for it.

Sage’s Final Offer presents a high degree of certainty for MYOB’s shareholders, only being conditional upon matters that you knew we would be conditional upon including:

•    the matters set out in the SSA, such as the requisite foreign investment approvals in Australia and New Zealand where applications have been submitted and we fully expect approvals in the ordinary course;

•    review of the black box due diligence (“BBDD”) material, which has been withheld from us to date. Our review of material provided is complete;

•    as they are dependent on the BBDD material, finalisation of our due diligence reports so that these may be provided to the warranty insurers and enable finalisation of this policy for both of our benefit; and

•    agreement on the SSA where great progress has been made. Our legal advisors plan to meet Allens tonight to close out the small number of technical points, subject to your advice.

Timetable

We understand your desire to remove any market risk and have no desire to defer signing unnecessarily. Our way forward has been discussed extensively with UBS and Sage will make available substantial resources to proceed expeditiously to signing. Michael Robinson, Sage General Counsel, will remain in Australia with delegated authority to settle all matters. This includes finalising the BBDD, progressing our understanding with management and the structuring of their arrangement (although our offer is not conditional upon this), confirming warranty insurance and settling the SSA.

We also want to ensure that adequate time is spent preparing communication for the UK market, together with Sage and MYOB customers and staff which we would do in conjunction with MYOB management.

Conclusion

This Final Offer represents an attractive and de-risked transaction for MYOB’s shareholders. We believe it represents a sufficient basis to be appointed as preferred bidder and we wish to discuss the basis upon which this can occur as it will achieve a faster final agreement.

This offer expires 5.00 pm Thursday 18 August 2011.

Yours sincerely
The Sage Group plc

Guy Berruyer                Paul Harrison
Chief Executive Officer            Group Finance Director

60    Although the “Final Offer” letter indicated that it would not be a condition that Sage had agreed terms with MYOB’s management, Mr Gray told Mr Longstaff late that evening that he was concerned about it since Archer had no “visibility” of the terms on which Sage proposed to deal with management. Mr Longstaff speculated to Mr Berruyer that Mr Gray’s interest was both personal on behalf of Mr Reed and “genuinely about risk reduction … he thinks that unless we have management comfort we are a risk”: Schedule 2 at [137].

61    The “prevailing draft” referred to in the “Final Offer” letter is a draft of the share sale agreement which Ms Kristy Lee of Allens circulated at about 3.31 pm on 15 August 2011 to Mr Reede, Story, Allen and Longstaff (among others): Schedule 2 at [125].

Outstanding issues in negotiation of share sale agreement

62    At 1.17 am on 16 August 2011, Mr Story sent an update to Messrs Gray, Heckes and Allen (among others) concerning the status of the draft share sale agreement in relation to Sage and Bain. In relation to Sage, Mr Story said (as written):

...

Some material issues remain, although we should be able to resolve in due course. Those issues are:

•    Sage SSA requires certain members of management (not specified yet exactly who) to rollover a portion (not specified yet) into Sage consideration rights (terms not specified yet). So effectively the Sage SSA is conditional on management.

•    Sage has agreed to reconsider its position on tax on proceeds indemnity, which we indicated remains a significant commercial issue. We have indicated that at this stage, it is too late to work through drafting on this concept with E&Y - the indemnity just needs to go.

•    Although the gap has been closed on the tax withholding/dedication issue, we expect that E&Y will still have issues with Sage’s approach, so further tax discussions required tomorrow.

•    Sage rejected requested indemnity for MYOB Cayman directors that are being asked to approve DB $125 million loan structure to avoid requirement for Sage shareholder approval. We have indicated that this position needs to be reconsidered.

•    We required deletion of Sage’s request for MYOB Cayman directors to certify all warranties. Sage has agreed to reconsider.

•    Significant additional warranties requested by Sage need to be worked through with E&Y and MYOB management (regardless of W&I [warranty & indemnity] insurance protection, we still need management and advisers to be comfortable with warranty package).

•    Sage needs to be review black box before it can sign an SSA.

63    At 3.45 am on 16 August, Mr Berruyer reported to Messrs Robinson, Harrison and Longstaff that the conversations between the bankers had been preoccupied “with two key topics: management incentive and timing (sign asap). But we suspect price could be on the table tomorrow morning … so nothing is sure.” Mr Gray told Mr Allen that management was the “key outstanding issue”. Mr Longstaff acknowledged to Messrs Gray and Allen that in this regard Sage accepted Mr Gray’s “desire to increase certainty” and proposed a meeting with Messrs Berruyer, Reed and Gray which was held later that morning.

64    Messrs Gray and Minton held meetings with Messrs Berruyer, Robinson and Harrison and with representatives of Bain in the morning of 16 August 2011. At the Sage meeting Mr Berruyer told Mr Minton that the “Final Offer” letter represented “certainty for us”: Schedule 2 at [151]. Mr Gray accepts that timing for signing and announcement was discussed. I accept that Mr Berruyer did not explain Sage’s focus on the timing of signing and announcement in terms of the obligation to comply with UK Listing Rules for disclosure or shareholder approval: Schedule 2 at [150]. Mr Berruyer’s contemporaneous correspondence indicates that the focus was “on management incentive which they saw as a central problem. ... this might still change after negotiation”: Schedule 2 at [153].

65    Following the meeting Mr Berruyer left for the airport and Mr Harrison remained; powers of attorney authorising Mr Robinson to act for Sage and its subsidiary which would act as purchaser were executed.

Consideration of proposals

66    Although Bain submitted a revised proposal at its meeting with Messrs Gray and Minton on 16 August 2011, Mr Minton considered that there was a $140 million gap between its offer and Sage’s and he saw no utility in trying to “walk up” the Bain offer; the Bain representatives were told that their offer was materially below the best offer.

67    Messrs Gray, Wiggs, Minton, Allen and Story met at UBS’ offices to consider the offer letters. The meeting discussed the risks around the transaction and in particular the “Final Offer” letter received from Sage. Mr Gray noted that Sage was a public company, the offer had Board approval, Sage had gone through an extensive period of due diligence and the only substantial issues remaining were finalising the share sale agreement and the review of the black box due diligence material. Mr Allen said: “There was obviously some other issues that were mentioned in the … offer letter, but Andrew [Gray] went through and said that he felt, on the face of it, that they were risks that we could take a view on, and in the context of a final offer from a reputable company such as Sage, that … those risks were clearly manageable in the context of the increased purchase price”. The consensus was that the Sage offer was superior. Mr Minton said that “... we formed the view that the gap was sufficiently large between Sage and … the private equity bids. … I didn’t think that they were going to either bridge that gap or get higher, in the timeframe we were talking.”

68    Mr Allen was asked “to engage with Allens, and reach out to Mr Longstaff again, and to talk to him about managing the conditions and the achievement of those conditions through the course of as tight a timetable as possible … We were told to accept the offer. ... Nothing more broadly than that.” Mr Gray said that he thought Sage’s “final binding proposal” was “capable of acceptance”.

69    Messrs Minton and Gray then went into the room where the Bain representatives were waiting and told them that Bain had not been successful and that Archer had elected to go with the trade buyer.

70    Mr Gray then held the view that a deal would be done. He and Mr Minton repaired to the Rockpool Bar and Grill near UBS’ offices to celebrate.

Email headed “Sage proposal to preferred bidder status and completion”

71    Messrs Allen and Story went to another room at UBS and called Mr Longstaff. Mr Allen told Mr Longstaff that Archer was close to making a final determination, that “the major sticking point that we had with respect to their proposal was the execution or the meeting of the conditions referenced in their offer”, and that he needed “to help [him] find a way to actually give Archer some real confidence in relation to how quickly we could move through and knock out those conditions”.

72    In the presence of Mr Story and in telephone contact with Mr Gray, Mr Allen had the email exchange with Mr Longstaff on 16 August 2011 at 5.28 pm (sent Longstaff), 5.32 pm (sent Allen), 6.05 pm (sent Longstaff) and 6.14 pm (sent Allen). The course of the exchanges is set out below (email addresses have been deleted, italics are insertions effected in Mr Allen’s emails, underlined words are insertions made in Mr Longstaff’s emails, strike through indicates removal, bold is editorial comment indicating the email in which the change occurred) (errors in original):

From: [Mr Allen]

Sent: Tuesday, 16 August 2011 6:14 PM

To: [Mr Longstaff]

CC: [Mr Harrison]; [Mr Robinson]; [Mr Minton]; [Mr Gray]; [Mr Story]

Subject: RE: Sage proposal to preferred bidder status and completion [I]

Attachment: Legal Disclaimer.txt

Thanks Tim,

I have spoken with Andrew Gray and Greg Minton from Archer, and we are prepared to proceed on the basis of what is detailed below. On that basis I can also confirm that Archer has decided to appoint Sage as sole preferred bidder, and confirm that conversations with alternative bidders will cease.

___________________________________________________________________

From: [Mr Longstaff]

Sent: Tuesday, 16 August 2011 6:05 PM

To: [Mr Allen]

CC: [Mr Harrison]; [Mr Robinson]

Subject: Sage proposal to preferred bidder status and completion [I]

Classification: For internal use only

Aidan

There are two elements to moving forward:

•    How much time does Sage need to finish it’s work … we can be quick

•    When can Sage sign and announce

Sage requires time to do its work properly. Steps and (latest) times are:

•    Immediate preferred bidder status [Allen 5.32 pm]

•    Immediate access to black box due diligence

•    Immediate start on W&I policies (not yet provided)

•    By 9.00am Wednesday

-    Management Compensation/Equity Terms (we can send over shortly and will resolve at best speed subject to Paul Harrison’s availability for any changes) [Longstaff 6.05 pm]

-    agreed form SSA between A&O and Allens including a CP on warranty and indemnity insurance [Allen 5.32 pm] at Sage’s absolute discretion [Longstaff 6.05 pm]

•    2.00pm Wednesday – completion of black box due diligence

•    3.00pm Wednesday – finalisation of legal and accounting due diligence reports

•    3.00pm Wednesday final due diligence reports sent to W&I arrangers for distribution and finalisation of policy

•    Finalisation of W&I thereafter the only outstanding item. We envisage that this will be completed by the latest 9.00am Thursday, but we will work in good faith to having this completion ASAP (or Sage convinced that the risk is manageable), potentially Wednesday evening. We are mindful that RCA need to go offshore Wednesday night to finalise underwritings in London and NY [Allen 5.32 pm]

Once the above steps are complete, Sage has no further steps to perform. However, we need further time to prepare appropriately for an announcement that is the company’s largest ever acquisition. I am told this point was explicitly discussed between principals this morning. Friday morning (London) is the earliest possible announcement acceptable to Sage.

We agree that a mechanism needs to be found for Archer to be wholly off risk/Sage wholly on-risk from finalisation of work (3:00pm Wednesday) [Original “Thursday 9.00am latest” amended to “2:00pm Wednesday” by Allen 5.32 pm and “2:00pm” changed to “say 3:00pm” by Longstaff 6.05 pm] to Sage announcement (Friday afternoon Australia). Some sort of signing and escrow, contracts signed and held at A&O or even a reasonable (~$10m) break fee are open for discussion. Allens and A&O to discuss ASAP but Sage (NOT Archer) signing and depositing at A&O strongly preferred. [Longstaff 6.05 pm] Any mechanism agreed between parties would be subject to finalisation of warranty and indemnity insurance [Allen 5.32 pm] with parties working in good faith to remove this ASAP. Sage can never be in a place where alleged satisfaction of W&I insurance triggers announcement. [Longstaff 6.05 pm]

The above timetable is aggressive but we are prepared to work towards it, dedicating all resources, on the basis that if you agree to the above Sage is immediately appointed sole preferred bidder and all other conversations with alternative bidders ceases.

We look forward to hearing from you ASAP, and no later than 6.30 pm when Paul Harrison is leaving for the airport.

Tim

Handshakes

73    Soon after Mr Allen sent the 6.14 pm email, Mr Longstaff called Mr Allen and said that he felt that “it would be a good thing for all parties to meet and shake hands before Paul jumped on a plane”.

74    Messrs Gray, Minton and Allen went to the foyer of the Deutsche Bank building where they met with Messrs Longstaff, Harrison and Robinson. It was a happy meeting, with hand shaking and smiles. Mr Gray said “[w]e’re obviously very excited about the deal” and Mr Minton said that Sage would be “perfect stewards of the business”. Mr Harrison said “we think that you guys have managed a great business here and done very well with it, and let’s move quickly to wrap this up”.

75    In his email that night to Messrs Berruyer and Epstein, Mr Harrison reported that “Greg and Andrew made a point of coming over to shake hands on it just as I was leaving”.

Reactions on 16 August 2011

76    Mr Harrison left in a taxi for the airport. Messrs Gray, Wiggs and Minton returned to the restaurant and were subsequently joined by Messrs Allen and Reed. Mr Gray said that “we were reasonably excited because it was the largest transaction that Archer … had completed – and the largest exit. It was a situation of strong value creation for the Archer shareholders, which are superannuation funds and the like.” Mr Gray was very excited: see Schedule 2 at [175].

77    Sage was given access to “black box” due diligence at 7 pm on 16 August 2011.

78    The Sage “camp” was notably more measured: Mr Longstaff’s comment at 6.35 pm was “[p]ositive step”; Mr Harrison’s comments were “[p]ositive development”, and “[w]e’re not legally quite there so let’s chase everything down”: Schedule 2 at [174].

79    Mr Reede circulated a revised draft of the share sale agreement incorporating a $50 million increase in the amount of “Continuing Debt” and deleting Schedule 11 (dealing with management retention terms) and replacing it with a schedule titled “Worked Example”: Schedule 2 at [181].

80    At 9.21 pm, in an email response to Mr Healy and others of H&F (and Mr Gray), Mr Allen wrote:

Thanks guys, preferred with the strategic in the vicinity of what was discussed. More water to flow and will keep you updated...

81    Following a Reuters article which appeared that evening concerning the possibility of Sage acquiring MYOB, at 11.51 pm, Sage made an announcement on the Regulatory News Service in which it noted press speculation of a potential acquisition of MYOB, going on to say:

Sage can confirm that it is currently considering a potential acquisition of MYOB. However there is no certainty that it will proceed. The company will provide further information, if and when appropriate.

82    Mr Price (of Deutsche) told Mr Story of the imminent release of the announcement and Mr Story advised Messrs Allen, Gray, Minton and Heckes: Schedule 2 at [182]-[188].

Applicants’ claims

Contract and Alternative Contract claims

83    The applicants claim the “Final Offer” (see [58]-[59] above) was “certain, capable of acceptance and intended to create legal relations upon acceptance” and that as a result of their acceptance of the “Final Offer”, there was a “Share Sale Agreement” between Sage and the applicants for the acquisition by Sage of the applicants’ MYOB shares on the terms of the “Final Offer”.

84    The applicants rely on the following modes of acceptance:

    Mr Allen’s email sent at 6.14 pm on 16 August 2011 (see [72] above); and/or

    The “handshake” meeting in the foyer of the Deutsche Bank building shortly after the 6.14 pm email during which the applicants plead that the attendees said words to the effect of “[t]hat’s great, it’s a done deal” and Mr Harrison said “[w]e’re very happy, we think this is a great business and we look forward to moving on with it”; and/or

    Conduct between 16 and 18 August 2011 being: allowing Sage access to “black box” due diligence following the 6.14 pm email; the conversations between Messrs Gray and Minton with Bain at UBS’ office, between Mr Reizes of KKR and Mr Gray and between Messrs Allen and Healy (of H&F) (the applicants say that in the conversations Archer “informed the other bidders ... that their offers had been rejected and that Archer would cease negotiations with them”); issuing “exit notices” to MYOB shareholders and facilitation agreements to HarbourVest investors, Squadron investors and Lentesco on 17 August 2011 and the return of powers of attorney and facilitation agreements; and agreeing the written form of a share sale agreement: Amended Statement of Claim dated 10 April 2012 at [53]-[62(vii)].

85    The applicants say that by reason of these things, Sage was appointed “preferred bidder” and conversations were terminated with the competing private equity bidders and the applicants informed the private equity bidders that their offers were rejected.

86    The applicants plead that the express terms of the Share Sale Agreement were:

(1)    subject to satisfaction of the specified conditions, Sage would pay to the applicants $1.35 billion on return for 100% of the fully diluted share capital of MYOB on the pricing basis set out in the prevailing draft of the share sale agreement; and

(2)    Sage’s obligation to pay $1.35 billion to the applicants was subject only to:

(a)    approval of the sale under the Foreign Acquisitions and Takeovers Act 1975 (Cth) and Overseas Investment Act 2005 (NZ);

(b)    a review of the black box due diligence material;

(c)    finalisation of Sage’s due diligence reports; and

(d)    agreement being reached between Sage and the applicants on a share sale agreement.

87    The applicants say that the “Share Sale Agreement” contained implied terms that upon satisfaction of the conditions, Sage and the applicants would execute an agreement in the form of the agreed share sale agreement and Sage would cause its nominee to execute the agreement; the parties would allow a reasonable period of time for the fulfilment of the conditions; and each party would do whatever was reasonably necessary on its part to allow the other parties to take the benefit of the contract. Alternatively, if there was no such agreement (which the applicants deny), the applicants claim an implied term to the same effect save that Sage and the Archer Investors would execute such an agreement and Archer would procure the other MYOB shareholders to do so.

88    The applicants say that they do not contend that upon acceptance of the “Final Offer” a contract arose that was intended to the final and complete statement of their agreement. Rather they say they contend for an interim agreement of a similar nature to the contract found in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 (and, on appeal, G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 (“G R Securities”)) and therefore falling within the so-called “fourth category” of Masters v Cameron (1954) 91 CLR 353 cases recognised in G R Securities.

89    They say that during the pendency of the interim agreement, Sage was afforded the status of “preferred bidder” while the parties worked to satisfy the conditions of the “Final Offer”. The applicants acknowledge that if one or more of the conditions could not be satisfied despite the parties’ good faith efforts, then no obligation to sell or acquire MYOB shares would arise. They say that no party was free to withdraw for any other reason, but a mutual promise may readily be implied that they would sign a contract once it was agreed and if one party refused to co-operate, the innocent party may be entitled to treat that lack of co-operation as a repudiation of the contract, relying on Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60 (“Moffatt”) per Keane JA (as he then was) at [34].

90    Alternatively, if there was no legally binding agreement between Sage and the applicants (which they deny), the applicants say that the “Final Offer” was accepted by Archer “in its own capacity and on behalf of the other Archer Investors” by Mr Allen’s 6.14 pm email, and/or the handshake meeting and/or the conduct.

91    Sage says (among other things) that the “Final Offer” letter was not capable of giving rise to a binding agreement between Sage and some or all of the applicants, that Mr Allen’s 6.14 pm email was not an “acceptance” of a “final binding offer”, that the “handshake” meeting did not give rise to any contractual relationship between Sage and the applicants and there were no such implied terms as those claimed.

Repudiation

92    The applicants claim that all of the conditions set out in the “Final Offer” letter had been satisfied when Sage repudiated the contract by providing an unequivocal indication that it no longer intended to adhere to the terms of the contract; they rely on a telephone call between Messrs Berruyer and Minton at about 8.30 pm on 18 August in which Mr Berruyer indicated that Sage wanted to pay $175 million less. They say that in a telephone call shortly afterwards, Mr Longstaff told Mr Minton that Sage was not willing to pay $1.35 billion for MYOB and there was no justification for that: see Schedule 2 at [270]. That was followed by the correspondence from Mr Story referred to in Schedule 2 at [276] by which they say that Sage’s repudiation was accepted.

Damages claim

93    The applicants seek damages from Sage for breach of a contract between the applicants and Sage pleaded at [50]-[52] of the ASOC or an “Alternative Contract” between the Archer Investors and Sage pleaded at [69A]-[69P] of the ASOC. Alternatively, they claim the same damages by reason of estoppel pleaded at [70]-[74] of the ASOC (see [97] below).

94    Based on an offer valuation report prepared by Mr Michael Potter of Axiom Forensics (“Potter Report”), the applicants submit that the measure of their loss is $186,589,263 together with interest and costs under each of these claims. The applicants say that if, contrary to their submissions, there is any limit on the amount that the Archer Investors may recover under the Alternative Contract, then their damages should be $111,618,057: see the applicants’ submissions at [187]. For the sake of the record, I note that only section 10 of the Potter Reply Report was read into evidence.

Misleading or deceptive conduct

95    The applicants claim that by reason of statements made by Sage in the “Final Offer” letter, through emails from Mr Longstaff referred to in Schedule 2 at [74]-[75] and [107] and by Mr Longstaff in conversations with Mr Allen pleaded at [29] of the ASOC, Sage represented to the applicants that if the “Final Offer” were accepted by Archer:

a.    it would pay the applicants $1.35 billion for 100% of the fully diluted share capital of MYOB on the pricing basis set out in the “prevailing draft” of the share sale agreement (“Representation A”);

b.    it would pay that amount subject only to the fulfilment of the conditions identified in the “Final Offer” (“Representation B”);

c.    it would allow a reasonable period for the conditions referred to in the “Final Offer” to be fulfilled (“Representation C”);

d.    the offer was final, certain and capable of acceptance and Sage required no other approvals to complete the purchase (“Representation D”); and

e.    Sage had determined that it would not seek shareholder approval as a condition precedent to it completing the purchase referred to in the “Final Offer” (“Representation E”);

and:

f.    Representations A-D are with respect to future matters and Sage did not have reasonable grounds for making those representations, relying on the statement in A&O’s 19 August 2011 letter that it became clear before Sage’s “Final Offer” on 15 August 2011 that “there were potential Class 1 concerns”; and

g.    contrary to Representation E, at the time Sage made the Representations, Sage had not determined that it would not seek shareholder approval as a condition precedent to completing the purchase of the MYOB shares.

96    The applicants claim that the Representations were misleading or deceptive and Archer relied on them in accepting the “Final Offer” and rejecting the competing bids. They say that as a result, they lost the ability to continue the sale process with the private equity bidders in an orderly manner and thereby suffered loss. The applicants claim that, based on the Potter Report, the measure of damage is $34,776,986, being the difference between the value of the consideration offered by KKR at around 4.03 pm on 19 August 2011 and the value of the consideration which Bain agreed to pay in the “handshake” deal at around 3.50 am on that day. They claim contraventions of s 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth), s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and/or s 1041H of the Corporations Act 2001 (Cth).

Estoppel

97    The applicants claim that, induced by the Representations, they assumed that if Archer accepted the “Final Offer”, they would have a legal relationship with Sage of a kind referred to in Representations A-E (the “Assumed Legal Relationship”). They plead that in reliance on the Representations and the Assumed Legal Relationship Archer acted to its detriment by permitting Sage to have access to the black box due diligence materials and by discontinuing its negotiations with other prospective purchasers and thereby (1) losing the opportunity to continue to negotiate with each of KKR, H&F and Bain and thereby to elicit improved consideration, and (2) as a result also of telling bidders their offers had been unsuccessful, being unable to re-establish meaningful negotiations. They say that Sage knew that it acted this way in reliance on the Representations and Assumed Legal Relationship, but Sage failed to avoid the detriment by fulfilling the Assumed Legal Relationship, and is estopped “from departing from the effect of the Representations and Assumed Legal Relationship and should pay equitable damages” calculated in the same way as the breach of contract claim.

Authority

98    The parties to these proceedings have provided detailed written submissions and argument about a range of issues which only have relevance to the extent that the applicants are parties to the alleged contracts or received the alleged representations.

99    The applicants claim that Archer and the Archer Nominee Directors were authorised to and did act at all times on behalf of all the applicants in relation to the sale or potential sale of MYOB shares: ASOC at [9].

100    The applicants rely on:

(1)    the fact that the applicants were original parties to or have become bound by accession to the Shareholders Deed, the Archer Investors held 63% of the MYOB shares, Archer had power to sell the Archer Investors’ shares under the management agreements between Archer and the Archer Investors, and the fact that Messrs Wiggs and Minton were directors of the Archer Investors and thereby had authority to act on their behalf, that Messrs Wiggs and Minton were also “managing partners” of Archer, and that Messrs Gray, Wiggs and Wood were Archer Nominee Directors, all of which Sage accepts;

(2)    the express terms of clauses 18.1, 22 and 23.4 of the Shareholders Deed (which are set out in full in Schedule 3); and

(3)    terms which they say should be implied into the Shareholders Deed empowering a shareholder with 50% or more of the Common Shares who wishes to transfer all of its shares to a third party to accept, and thereby bind, all shareholders of MYOB to an arm’s length bona fide offer from a Third Party (as defined in the Shareholders Deed) to purchase all of the Common Shares in the capital of MYOB. The applicants plead that such implied terms are necessary to give business efficacy to the Shareholders Deed, are so obvious as to go without saying, are capable of clear expression and do not contradict express terms of the Shareholders Deed: ASOC at [8A].

101    At [179] of their closing submissions, the applicants say that this authority is implied by the provisions of the Shareholders Deed. They put it this way:

(1)    clause 18.1 provided that members of MYOB holding 50% or more of the ordinary shares and Management A shares (ie the Archer Investors) who wished to transfer all of their shares to a third party have an option to require all other members of MYOB to transfer their shares to that third party (a “drag along” right);

(2)    clauses 22.1(a) provided that the Archer Investors could at any time give an “exit notice” to the other shareholders indicating their intention to sell at least 50% of the shares in MYOB to a third party;

(3)    clause 22.1(b) provided that, upon the giving of an exit notice, the other shareholders must work together in good faith and use their best endeavours to ensure that the proposed sale is effected;

(4)    clause 22.2 provided that, upon receipt of an exit notice, each of the other shareholders would provide a power of attorney enabling the directors of Archer to do all things to give effect to the transactions in that shareholder’s name; and

(5)    clause 23.4 provided that each of the other shareholders irrevocably appointed MYOB and its directors (including the Archer Nominee Directors) as its attorney to complete and execute such instruments as its attorney thought necessary or desirable to give effect to any of the transactions contemplated by clauses 17 to 22 of the Shareholders Deed.

102    They say that because it was wholly within Archer’s power to require each of the non-Archer applicants to transfer their shares on terms agreed by Archer for a sale to a third party, Archer had both in terms and effect an option to require the non-Archer applicants to sell their MYOB shares to a third party nominated by Archer. By entering into the Shareholders Deed, all shareholders in effect armed Archer with the capacity and authority to conduct negotiations for a sale and to agree terms with a prospective purchaser, to which those shareholders would be bound if Archer exercised its rights under the Deed. The ability to accept an offer from a third party to acquire 100% of the shares in MYOB must be necessary for and incidental to the express rights granted to Archer under the Shareholders Deed to compel the sale of all of the shares in MYOB and therefore forms part of Archer’s implied actual authority as an agent, relying on Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 at 150 per Jordan CJ. Actual authority to contract for another as agent may be inferred or implied from the relationship of the parties: Permanent Trustee Co Limited v O’Donnell [2009] NSWSC 902 at [337]-[338].

103    The applicants say that provisions of the Shareholders Deed for the service of exit notices and powers of attorney are directed to the process of giving effect to a transaction entered into by Archer but are not a necessary precondition to the primary right of Archer to bind all shareholders to sell their shares to a third party nominated by Archer. They say it is the existence of the contractual power to compel the result that confers the authority; the need for the powers of attorney from each shareholder is only to effect valid transfers of those shareholders’ shares upon completion of a share sale agreement.

104    In effect, the applicants ask the Court to accept that Archer had the power (and agency) to cause the applicants and a purchaser to be in a direct contractual arrangement before the machinery under clauses 22 and 23.4 of the Shareholders Deed had been put in operation. They say the propounded interpretation of the Shareholders Deed is necessary to give it business efficacy.

105    Sage does not contest that Archer was authorised to sell the Archer Investors’ MYOB shares but that is all it does not contest.

Non-Archer applicants

106    I reject the applicants’ claim that before the machinery provisions of the Shareholders Deed had been engaged Archer or the Archer Nominee Directors had the power or authority to bind the non-Archer applicants to an agreement to sell or transfer their shares to Sage (or any other purchaser). I do not accept that the Archer Investors ever had the power to bind a non-Archer shareholder to an agreement with a third party to sell or transfer its MYOB shares to that third party, even though the Archer Investors did have a power under the Shareholders Deed to initiate a process which would have that result. As the Archer Investors did not have that power, Archer could not have it. I do not regard Sage’s objections to the applicants’ claim as merely technical.

107    The applicants’ submissions are attractively benign: they say that Archer acted for the benefit of all MYOB shareholders in its conduct of the sale process. Mr Gray said that that is what he thought he was doing when he considered the “Final Offer” letter.

108    However, Mr Gray also gave evidence that the sale process was conducted on the basis that Archer thought it was timely having regard to the interests of the private equity funds it managed; the greatest benefit would be achieved by a sale of 100% of the MYOB shares and the Shareholders Deed was designed to give Archer Investors flexibility to decide when and how to “exit” the investment. The fact that if Archer did conclude a contract with Sage it might deliver a benefit to the non-Archer applicants does not mean that it is accurate to say that Mr Gray or Archer acted on their behalf or in their interest. There is no evidence (and the applicants do not claim) that the non-Archer applicants were asked for any authority to engage in the sale process on their behalf before 17 August 2011 or that Archer consulted with them about the timing or nature of the sale process or about any interest any of the non-Archer applicants might have had in retaining their shares. There is no evidence that a significant number of shareholders even knew of the Sage proposal until 17 August 2011: see Mr Martin’s email to management shareholders in Schedule 2 at [214].

109    The applicants’ claims relate wholly to the express terms of the Shareholders Deed and terms which they say should be implied. The Shareholders Deed conferred the right on the Archer Investors to act in a self-interested way in deciding the timing and nature of any proposal by which the existing ownership structure of MYOB would be unwound. The right to sell at least 50% of the MYOB shares was conferred under clause 18 of the Shareholders Deed and the Archer Investors had wider “exit” rights conferred exclusively on Archer Investors under clause 22. Clause 22 gave Archer Investors the power to initiate an “Exit Proposal” relating to a “Share Sale”, that is, the sale by Archer Investors of at least 50% of the MYOB Common Shares. There were limitations on Archer Investors’ rights where a purchaser wanted to acquire less than 100% of the shares: see clause 19.2(e) in relation to “tag along rights”.

110    Clauses 18.1 conferred an option on Archer Investors to require other shareholders to transfer their MYOB shares to a third party. The option was exercisable by serving a “Drag Along Notice” under clause 18.2 and the shareholder could be required to provide to a third party purchaser “reasonable warranties” specified in the “Drag Along Notice”.

111    Clause 22 was different. Clause 22.1(b)(vii) indicates that part of the co-operation which might be required of a shareholder to give “effect” to an “Exit Proposal” set out in an “Exit Notice” is the transfer of shares and surrender of share certificates. “For the purpose of giving effect” to clause 22, clause 22.2(a) provides that following receipt of an “Exit Notice” the shareholder must “deliver to the Board on request powers of attorney, in a form required by the Archer Directors”. There are a number of features of clause 22.2(a) which lack clarity, including by whom the “request” must be made and how extensive the powers conferred by the power of attorney may be; for instance, whether it can only authorise execution of share transfers and the surrender of certificates as expressly referred to in clause 22.1(b)(vii), or whether it can go further to empower the giving of warranties or undertaking of other obligations to “effect” the “Exit Proposal”. It is unnecessary for me to decide these issues, but given that the power to determine the form of the power of attorney resides not in Archer Investors but in MYOB directors (albeit that they are directors nominated by Archer) it might tend towards a more narrow reading of the form the power of attorney should take.

112    Clause 22.2(b) deals expressly with default by a shareholder in its obligation to “Transfer” shares, and applies clause 20.3 (which applies to Institutional Shareholders) and clause 21.5 (which applies to management). Those clauses ultimately apply clause 23.4 “with appropriate modifications”. Clause 23.4 is a power of attorney given by “non-Original Investors” (therefore not including the HarbourVest applicants or Archer Investors) to MYOB and its directors to “complete and execute such instruments … as the attorney thinks necessary or desirable to give effect to any of the transactions contemplated by” clauses 17-22. Clause 18.3(d) is to similar effect as clause 22.2(b) if a shareholder defaults in selling shares pursuant to a “Drag Along Notice”.

113    Mr Finch SC pointed out that share transfers “don’t just happen out of the blue”. Something has to precede it. He said that “something” is one or more agreements under which the transfer would be required to happen. He submitted that what happens to effect the transfer – the minutiae of the procedural mechanisms in clauses 18 and 22 – is not to be confused with whether or not the Archer Investors had power to deal with the non-Archer applicants’ shares. He submitted that Sage’s submissions were in error insofar as they suggested that sale of the non-Archer applicants’ shares could not be effected under the Shareholders Deed before that machinery had been set in motion.

114    There is force to much of what Mr Finch submitted. I agree that the proper characterisation of the expropriation mechanisms in clauses 18 and 22 is that they are designed as “completion” mechanisms following an agreement between the Archer Investors and a proposed purchaser of the Archer Investors’ shares who wants to secure more MYOB shares than the Archer Investors. I also accept that Archer and its advisers acted on the reasonable assumption that the Shareholders Deed put the Archer Investors in a position to ensure delivery of 100% of the shares in MYOB to a proposed purchaser. The evidence demonstrates that carrying out the “formalities” identified by Mr Finch was considered by Archer and its advisers to be a stage in the sale process and while they had a view that they would use clause 22 rather than clause 18, they retained the flexibility to use both: see Schedule 2 at [90] and [107]. They were entitled to think that.

115    However, they were not entitled to think that as a result Archer (either in its own right or as delegate of the Archer Investors) had the power or authority to enter into a contract with a third party imposing direct contractual relations on the non-Archer applicants with the third party. Mr Finch’s submissions proceeded from the assumption that that was the only way that Archer Investors could secure an “Exit Proposal”. That assumption and the submissions based on it are necessitated only by the fact that the form of share sale agreement proposed to bidders by Archer was one which would be executed by or on behalf of all Archer shareholders.

116    I do not accept the applicants’ submissions because that is not the only way Archer Investors could secure an “Exit Proposal”. It was open to the Archer Investors as holders of more than 50% of the Common Shares to agree to sell their shares under an “Exit Proposal” and commit to cause non-Archer applicants to transfer their MYOB shares to the purchaser pursuant to a “Drag Along Notice” or an “Exit Notice” for consideration which the purchaser agreed to pay. The Archer Investors could undertake to the purchaser to exercise their powers under the Shareholders Deed for that purpose and completion of the sale of Archer Investors’ shares might be conditional on delivery of the non-Archer applicants’ shares in accordance with the expropriation provisions of the Shareholders Deed. I accept that such an agreement would not have been prohibited by clause 17 so long as the Archer Investors complied with clause 18 and 22 (as appropriate) because it would be a “Transfer ... expressly permitted or provided for in clauses ... 18 ... or 22 of this Deed” within clause 17.1(b).

117    There was significant argument about whether or not clause 17 prohibited Archer from entering into an agreement with a purchaser which was binding on the non-Archer applicants before the expropriation mechanisms of clauses 18 and 22 were engaged. Since I do not accept that Archer (or the Archer Investors) had power to enter into such a contract binding on non-Archer applicants, there is no scope for clause 17 to have relevance.

118    Clauses 18 and 22 do not constitute options under which Archer Investors may acquire the shares (nor have the applicants suggested that they are). The mechanisms of the Shareholders Deed confer the right on the Archer Investors as proposing vendors of at least 50% of the MYOB shares to sell their shares and to initiate the expropriation processes of clause 18 and/or be subject to the “Tag Along” process of clause 19, depending on the nature of the proposal. I do not accept that there is any express or implied agency conferred on the Archer Investors as a result of clauses 18 and 22 of the Shareholders Deed.

119    It is notable that the Shareholders Deed confers no power of attorney on Archer Investors to complete those expropriation processes under clauses 18, 22.2 or 23.4. It was open to the parties to include such a power of attorney in the Shareholders Deed if that was what was intended. Those who drafted the Shareholders Deed expressly devised clause 22.2(a) in a way which gave to the Archer Nominee Directors the power to approve the form of the power of attorney which might be required to effect an exit proposal and clause 23.4 reposed the power of attorney which it provided for on MYOB and the MYOB directors, not the Archer Investors.

120    Archer Investors could, of course, approach a Court to enforce the provisions of the Shareholders Deed but I do not consider that that power to compel a result invested the Archer Investors (or through them, Archer) with the authority the applicants claim. To enforce the provisions of the Shareholders Deed it would have been necessary to prove that the provisions of the Shareholders Deed had been complied with in all material respects. As an aside and to address one technical argument raised by Sage: if the Archer Investors could prove that “Exit Notices” were received by the non-Archer applicants I consider it doubtful that the fact that they were sent by email rather than by the post or facsimile as specified by clause 38 would have been an impediment to enforcement.

121    Clauses 18 and 22 effectively provide for the expropriation of non-Archer applicants’ shares at a time to suit the convenience of the Archer Investors. As expropriation provisions, they should be narrowly construed. There is no basis in the relationship of the parties to the Shareholders Deed or as shareholders of MYOB to imply an authority on the part of Archer Investors to sell the other shareholders’ MYOB shares. To the contrary, these are significant investments and it is not a small thing to take away that property or to expose them to the risk of a damages claim from the purchaser designated by the Archer Investors or from someone else to whom the non-Archer applicants might have properly agreed to transfer their shares at a time when the non-Archer applicants did not know of the Archer Investors’ intentions.

122    Where parties to a Shareholders Deed are sophisticated and well advised and the provisions are detailed, coherent and clearly designed to accommodate different interests, the Court should be reticent to construe the deed otherwise than in accordance with its express terms. Further, in accordance with principles expressed by the High Court in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 it will be rare that the occasion arises to imply terms in these circumstances.

123    I see no necessity in the interests of commercial efficacy and in the face of the express mechanisms detailed in the Shareholders Deed to imply terms into the Shareholders Deed which would authorise the Archer Investors to bind non-Archer applicants to a contractual relationship with a third party except by adherence to the express expropriation provisions of the Shareholders Deed.

124     For the sake of completeness:

(1)    Despite the terms of the ASOC at [11], the applicants acknowledge that UBS did not enter into a contract on behalf of the applicants. The applicants say that communications with UBS were communications with Archer and should be evaluated in that way.

(2)    The applicants provided no written or oral submissions in relation to the matters pleaded at [58], [58A] and [58B] of the ASOC on the issue of whether the despatch of “exit notices” to, and the execution and return of powers of attorney by, the non-Archer applicants and execution and return of facilitation agreements by the HarbourVest applicants, Squadron applicants and Lentesco between 17 and 19 August 2011 amounted to ratification of the contract alleged by reason of the “Final Offer” letter, the 6.14 pm email and the handshake meeting which occurred on 15-16 August 2011. The applicants did not provide evidence of the content of any conversations with officers of the HarbourVest applicants, Squadron applicants and Lentesco pleaded at [58A] of the ASOC. I accept Sage’s submissions that all of the exit notices, powers of attorney and facilitation agreements post-dated 15-16 August were focussed on the execution of a share sale agreement in the future (see Schedule 2 at [211]-[217]). There is nothing in them or the correspondence related to them which indicates that the non-Archer applicants were asked to ratify conduct pre-dating them. There is nothing which demonstrates that the non-Archer applicants had knowledge of the matters which they were being asked to ratify, or that by their actions intended to or did authorise the Archer Nominee Directors under powers of attorney to ratify, any of Archer’s conduct on 15-16 August 2011.

Alternative Contract claim

125    As I have not accepted that the Archer Investors or Archer had authority to bind the non-Archer applicants to the alleged agreement with Sage, I will now only consider whether the Archer Investors have made good their claim to an Alternative Contract with Sage as alleged at [69A]-[69P] of the ASOC, which save for the alleged parties is relevantly the same as the contract alleged at [41]-[43] and [46]-[52] of the ASOC.

Principles relating to intention to create legal relations

126    It is uncontroversial that in determining whether the parties have reached a binding agreement, the Court must ascertain the “objective intention” of the parties. It is not enough that the parties reached a consensus; they must have intended that the consensus arrived at will be legally binding, enforceable by a court: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326, 329 per Mahoney JA. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction: G R Securities at 634 per McHugh JA (with whom Kirby P and Glass JA agreed). In that case, the use of the words “legally binding agreement in principle” demonstrated an intention to be bound immediately even though there was an expectation that a further contract would be substituted for it.

127    Determining objective intention is a fact based inquiry. Although judges are wont to formulate guiding “principles” or “propositions”, those “principles” and “propositions” are subservient to the fact-specific objective finding of the parties’ intention: Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 (“Sagacious”) at [66] per Giles JA (with whom Hodgson and Campbell JJA agreed). See also Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248 at [26] per Glass JA (McColl JA and Young CJ in Eq agreeing).

128    Intention may be found in a series of communications or a single document. It is the intention that a reasonable person would discern that the parties had concerning the subject-matter of the alleged contract if that reasonable person had the parties’ knowledge of the words and actions communicated to each other and of the surrounding circumstances: Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 655 per Campbell JA (with whom Mason P and Tobias JA agreed).

129    I do not accept that there is any presumption in favour of an intention to create legal relations in a context such as this. It is a factual inquiry. I endorse the comments of Tadgell J in Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 177 that:

No intention to make a promise can be imputed to a person whose words and conduct, objectively considered, do not lead to the inference that he intended to make one. Negotiations, no matter how heavily commercial in character, are no substitute for such an intention ... when the question is whether the legal effect of the transaction is promissory, there is no presumption that it is ...

130    It is uncontroversial that labelling a document “subject to contract” is not determinative of whether the parties intended to be bound before the execution of a formal agreement. However, the use of the phrase usually creates a presumption that the parties did not intend that document to be binding, but rather the basis for a future contract. The applicants rely on Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [73] per Young CJ in Eq (as he then was) for the proposition that the presumption may be weaker outside the context of contracts for the sale of land. However, Young CJ in Eq made no finding to that effect and the issue is always one of intention determined objectively.

131    The conduct of the parties after the time the alleged contract arose may be relevant for the purpose of casting light on the meaning of communications and whether the parties intended to be legally bound: Sagacious at [69]; see also [105]-[106] in relation to the probative value of subsequent inter partes and internal communications.

Consideration of contract claims

132    I have concluded that the Archer Investors have not made good their claim to an Alternative Contract with Sage as alleged at [69A]-[69P] of the ASOC.

133    Although the applicants relied heavily in argument on the decision in Moffatt, the features of the alleged contract in Moffatt are markedly different from this case and in my view the case offers little guidance to the proper interpretation of the “Final Offer” letter and the alleged forms of acceptance. The contract in Moffatt bore much closer resemblance to the form of the facilitation agreement letter proposed between Archer and the other Institutional Investors. The Moffatt contract was a simple document, the parties were clear, it was unconditional and “acceptance” was indicated by a signature on the document; none of that is present in this case.

“Final Offer” letter not addressed to Archer or the Archer Investors

134    The “Final Offer” letter is at [59] above. Sage did not address the “Final Offer” letter to any of Archer, the Archer Investors or the applicants and the applicants’ submissions proceed on the basis that this fact is irrelevant. I do not agree.

135    The “Formal Offer” letter was addressed to the directors of MYOB care of Mr Gray at Archer. I note that Mr Gray was the Chairman of MYOB and the Archer offices were his normal business address. Objectively, Sage meant to address the “Final Offer” to MYOB and it did not result from a mistake or want of logic.

136    First, the “Final Offer” letter is addressed in the same way as the “Indicative Offer” and “Formal Offer” letters. This mode of indication of interest by Sage was never the subject of complaint by Archer for itself or on behalf of the Archer Investors. This is notable in light of the sophistication and commercial experience of Archer’s officers and their access to expert advice.

137    Second, the first paragraph of the “Final Offer” letter refers to “our subsequent meetings with representatives of MYOB” and makes no reference to Archer. Similarly, the “Formal Offer” letter said: “Other than Appendix 1, which for the avoidance of doubt will be legally binding, no other parts of the letter of Offer will bind Sage nor create any obligations on Sage or MYOB” (emphasis added). These are clear indications that Sage considered that it was dealing with MYOB and intended to do so.

138    I do note that while the “Indicative Offer” letter was addressed to the directors of MYOB it said that it was available to “Archer” until a specified date; that language was not repeated in subsequent letters which simply stated a date by which the offer would “expire”. This duality between Archer/MYOB was also represented in the form of the exclusivity letter proposed by Sage, which was addressed to the directors of Archer but open for acceptance “for and on behalf of” MYOB.

139    In my view the “duality” in the earlier “Offer” letters reflects the fact that both Archer and MYOB were seen to be involved in running the process. The lack of clarity is consistent with the fact that Allens’ engagement letter is with MYOB in relation to a possible transaction involving its “monetisation” yet UBS’ engagement was with Archer; Mr Gray is the common denominator.

140    Third, the “Final Offer” letter addresses the interests of all of the shareholders, not simply Archer Investors, and that is language more appropriately directed to the directors of MYOB who are obliged to act in the interests of all shareholders, not just the interests of Archer Investors.

141    Fourth, the final act of the sale process was intended to be a share sale agreement signed by all of the shareholders of MYOB, governed by the laws of a State of the United States of America and last signed in the Cayman Islands. This careful structuring proposed by Archer/MYOB would indicate that the parties did not intend to be bound to a contract to buy and sell MYOB shares (whether interim or otherwise) before the formal share sale agreement was entered into by last signature in the Cayman Islands. If the “Final Offer” letter were to give rise to any legal relationship, the fact that the parties would be Sage and MYOB would avoid argument that any interest in MYOB shares passed before a contract was signed in accordance with the proposed offer. In that context, the phrase “subject to contract” has great force and should not be seen as mere surplusage. Whether or not proposals put by other bidders included the words “subject to contract” in “offers” which were expressed to be “final and binding” has no relevance: I have not been called upon to determine the legal effect of those documents and they do not speak to how the very different Sage “Final Offer” letter should be interpreted.

142    The applicants suggest that the fact that Sage addressed the “Final Offer” letter to the directors of MYOB can be attributed to a convention of addressing an offer intended to be capable of acceptance by shareholders to the directors of the company. I do not accept that submission. The applicants provided no evidence of such a convention. None of the private equity bidders observed that “convention”: one private equity bidder addressed its letter to Mr Allen at UBS and the other two private equity bidders addressed their letters to Mr Gray and another Archer officer at Archer. It is true that Chapter 6 of the Corporations Act mandates that a bidder’s statement first be served on the target company, but it nonetheless requires that offers be made to each shareholder and only the shareholders can accept the offers. A justification for an offer being directed to the directors of a target company is that they are in a position to provide advice to shareholders concerning the offer, however neither directors nor the company has the power to act as agent for the shareholders to accept the offer in the absence of an express provision in the constitution or in some other document. MYOB and its directors did have a power of attorney under clause 23.4 of the Shareholders Deed, but that power could only be exercised after Archer Investors had invoked clause 18 or clause 22 and not before.

Process

143    In their reply submissions at [18], the applicants suggest that the “Final Offer” letter was not capable of acceptance by MYOB. There is some force to that argument, although not in support of the consequence suggested by the applicants. The “Final Offer” letter does not expressly state how the “offer” might be accepted: contrast the form of the document in Moffatt at [9] and the form of the facilitation agreement proposed by Archer to the Institutional Investors in this case: see Schedule 2 at [213].

144    Despite the prevalent use of “offer” language in the “Final Offer” letter, it is my view that properly construed the “Final Offer” letter was not intended to be a contractual offer capable of acceptance or to form the basis for a legal relationship short of an executed share sale agreement. Rather, the “Final Offer” letter and the 6.05 pm/6.14 pm emails set out a basis for the process to move forward and for Sage to be admitted to the next “stage”, that of “preferred bidder” during which there was still work to be done and material matters which remained to be agreed during a very tight timeframe.

145    The applicants point out that the “Final Offer” letter had an expiry date and did not include the language that had been in the “Indicative Offer” and “Formal Offer” letters specifically negating the capacity to accept the offer or form binding legal relations. It is difficult to understand why the letter contained an expiry date other than to indicate a desire that negotiations progress briskly. The other indications are strong that there was no intention to create a legal relationship. In addition to stating no clear method of acceptance, the letter was marked “subject to contract”, it did not contain the “governing law” language which had been in the previous “offer” letters (and which would be appropriate in a document which sought to create a legal relationship), and most importantly it did not contain a statement of the kind in G R Securities affirming an intention to be bound in principle.

146    In my view, objectively assessed, the 6.14 pm email did not constitute an “acceptance” of the “Final Offer”; it contained no language of “acceptance”. It simply stated that the 6.05 pm email was a basis on which Archer was “prepared to proceed” and appointed Sage the “preferred bidder” and undertook that “conversations” with the private equity bidders would “cease” for an unspecified period; that is not consistent with an intention to enter into a legal relationship at that time either in the nature of the contract pleaded or the “interim” contract for which the applicants contended in its submissions.

147    Mr Gray’s belief that the 6.14 pm email constituted an “acceptance” and any colloquial usage of “acceptance” by Messrs Gray, Minton or Allen in their consideration of the “Final Offer” letter in relation to whether Sage should be appointed “preferred bidder” does not alter that view. However, even if they were right and the 6.14 pm email were capable of being characterised as an “acceptance” of the “Final Offer” letter, none of Archer, the Archer Investors or the applicants was the person to whom the offer was made so they could not be the person with whom a contract was formed even if it was their conduct which fulfilled the asked-for consideration.

148    The “Final Offer” letter followed by the “process” emails of 5.28 pm to 6.14 pm was consistent with how the sale process was run by Archer/MYOB as far as Sage was concerned: an “Offer” letter addressed to MYOB, followed by negotiation of the next stage in the process.

149    There are a number of factors which contribute to my view concerning the process. Throughout, Sage had no control and little visibility of the process by which Archer with the co-operation of MYOB intended to effect a sale transaction. The communications in the period to 6 August 2011 in which Messrs Gray and Allen insisted on Sage undertaking due diligence and commenting on the share sale agreement before it would contemplate exclusivity stated that what they were asking for was “not “games”, just a staged process”: see [20]-[24] above.

150    Between 12 and 16 August 2011, the “spanish auction” period, Sage was forced to respond to ill-defined deadlines and its work was not finished at the time the “Final Offer” letter was given to Messrs Gray and Allen under the pressure that they were exerting on Sage to produce a final proposal at a time when Sage’s work was not finished.

151    Sage’s primary source of information about the process was conversations between Mr Longstaff and Mr Allen. I am satisfied that in those conversations, Mr Allen employed the term “preferred bidder” to refer to the stage in the sale process at which Archer would identify the bidder with which it would deal to close out remaining issues concerning the draft share sale agreement and execute an agreement within a short period or not at all. Mr Allen was remarkably consistent in his usage: see the “timetable” emails with Mr Gray on 11 August (Schedule 2 at [68]), 13 August (Schedule 2 at [85]), his draft “messages” to bidders email of 5.43 pm on 14 August 2011 (Schedule 2 at [102]), the language of the 6.14 pm email and Mr Allen’s “farewell” email to Mr Healy on 16 August 2011 (at [80] above). It is also notable that (whoever was the “source” of the “leak”) the Reuters article on 16 August 2011 said that the “preferred bidder could be chosen as soon as Tuesday - source” (Schedule 2 at [182]). It is not a usage to which Mr Gray ever objected and Mr Minton freely used the expression in his evidence.

152    In my view, it is appointment as “preferred bidder” to which Mr Longstaff refers in his 8.45 pm email on 14 August 2011 in which he uses the phrase “[a]ssuming we reach agreement” which Mr Allen translated as Sage “expect[s] to be in a position to commit post Board meeting but want to sign on Thursday” in his report to Messrs Gray, Heckes and Minton (among others) at 9.24 pm (see [49] and [51] above and Schedule 2 at [107]-[109]). I reject the applicants’ submission that Mr Allen’s report supports the proposition that Sage understood that its final proposal would be a “final binding offer” by which Sage would be committed to enter into a share sale agreement in the form agreed subject only to the conditions set out in the “Final Offer” letter. The language of the last dot point of Mr Longstaff’s email, which sequences “signing” in the Cayman Islands and the opening of the London Stock Exchange, indicates to me that the intended point of contract was to be at that time.

153    The term “preferred bidder” is not a term of art; it takes its meaning from the context in which it is used. Simple English would suggest that if there is a “preferred bidder”, other bidders must remain, especially in a context where the timeframe in which actions must take place is unspecified but it might be expected to be short. It is not the same as saying someone has been selected as purchaser and that term is not used. I accept there may be circumstances in which the appointment of a “preferred bidder” gives rise to a contractual relationship. However, that is not a necessary consequence and the entire context is relevant in making a determination.

154    The context in which the term “preferred bidder” is used in each of the communications relates to the stage in the sale process at which the person selected to close out remaining issues concerning the draft share sale agreement. Mr Allen’s suggested program for engaging with the private equity bidders on 13-15 August set out in his 13 August email was: (1) clarification questions; (2) “select preferred bidder”; (3) provide access to black box due diligence, engage with Allens, management rollover discussions, and prepare execution versions of the share sale agreement; and (4) sign.

155    I accept that Messrs Gray, Minton and Allen assumed that the “preferred bidder” would be the entity with which a share sale agreement would ultimately be signed. That is a reasonable assumption, but it is not conclusive as to the issue of whether Archer’s act of appointing Sage as “preferred bidder” created a legal relationship. Mr Allen’s program is silent about what would happen if the preferred bidder did not conclude a contract quickly. The program was designed for private equity bidders and Messrs Allen and Gray thought that they knew how they would behave. However, the suggested process leaves open the possibility that conversations with other bidders would cease briefly while negotiations were conducted with the “preferred bidder” for a short time, but Archer would remain free to revert to other bidders if that became necessary or convenient. Indeed, that is something that Mr Longstaff dreaded: Schedule 2 at [197].

156    I do not accept the applicants’ submission that the fact that this was a competitive process and the “Final Offer” letter contained limited conditions compels the view that an “interim” contract was formed with some or all of them at the point of appointment of a “preferred bidder” on the basis that Sage requested Archer to reject the other bids and knew that the result would be that competitive tension would be destroyed. Mr Longstaff’s 5.28 pm and 6.05 pm emails and Mr Allen’s responses at 5.32 pm and 6.14 pm on 16 August 2011 discuss the basis on which appointment as “preferred bidder” might occur. Mr Longstaff’s emails do ask that conversations with other bidders cease and the 6.14 pm email indicates that Archer acceded to that request. However, there is no request that other bids be rejected. There is no timeframe expressed for the moratorium on conversations and there is nothing which would preclude Archer/MYOB from resuming conversations. There is some evidence that that is how Sage expected that Archer might behave; as Mr Clayton told Mr Berruyer at 5.55 am on 16 August 2011: “Based on my previous experience they will pick a preferred bidder in the morning and work flat out with that bidder until its [sic] done - or fails in which case they will go to second choice. It is very hard to control the timetable in these end games.”

157    While I accept that appointment of a “preferred bidder” was a significant milestone and it may dampen the enthusiasm of other bidders, that fact is not of itself determinative of the nature of the legal relationship between the “preferred bidder” and the person who appointed them as such. Objectively speaking, the process with which Archer said it was “prepared to proceed” would maintain pressure on Sage and the shortness of the timeframe would mitigate the risk that other bidders would abandon the sale process. It is consistent with an expectation that the preferred bidder would conclude an agreement quickly or not at all. It does not compel the conclusion that Sage and all of the applicants were bound to execute an agreement if the form of the share sale agreement was finalised before or after the timetable envisaged in the 6.05 pm email. As indicated under the heading “Authority” I do not accept that Archer had the power or authority to bind all applicants ahead of the expropriation mechanisms of the Shareholders Deed being activated. Given the form of the share sale agreement proposed by Archer/MYOB, there is no basis on which to infer that any such arrangement was created between Archer Investors and Sage. These are circumstances materially different from those considered by the Court in Moffatt.

158    Further, by saying that “conversations” with other bidders would “cease” Archer did not give Sage the exclusivity which Archer specifically refused up to 6 August 2011. While it does not deliver the “certainty” which Archer demanded as the price for “exclusivity” up to 6 August 2011, the process set out in the exchange of emails leading up to the 6.14 pm email is consistent with a process which Mr Allen said on 6 August 2011 that they could envisage: “an exclusivity at a point short of [Sage] being completely finished [its] work. But more certain than now”. This is a view also expressed by Mr Gray to Mr Harrison on the same day (see Schedule 2 at [54] and [55]).

159    The applicants say the whole tenor of the negotiations was about removing uncertainty from Sage’s offer so that no “real risk” remained and that there was no point in Sage doing all of the intensive due diligence work that it did if it could still walk away if its “Final Offer” was accepted. Putting to one side the issue that the “Final Offer” was not, in my view, “accepted” in a contractual sense, I do not accept this submission as made. It is true that the “Formal Offer” and “Final Offer” letters, Mr Berruyer’s statement to Mr Minton that Sage’s offer represented “certainty for us” and Mr Longstaff’s email to Mr Allen at 7.49 am on 16 August 2011 set out in Schedule 2 at [144] demonstrate Sage’s awareness of Archer’s desire for “certainty”. I am satisfied that the “certainty” which Mr Gray required after 8 August 2011 and which all of the bidders understood and tried to deliver related to “execution risk” or the term used by Mr Gray “conditions to completion”.

160    The work which Archer required Sage to undertake in order to be taken seriously was directed to minimising the “conditionality” of the share sale agreement. In considering “offer” letters Archer assessed the risk that an executed share sale agreement would not be completed by the transfer of shares and the payment of the agreed purchase price because a condition of the agreement was not met. The enquiry was not directed to the appointment of a preferred bidder as such; that risk would be dealt with by a short time to finalise and sign a share sale agreement.

161    It is “execution risk” to which the term “de-risked transaction” referred in the “Formal Offer” letter. In order to disclose the “sufficient basis” to move to the next stage, the “Final Offer” expressed the “conditions” which it envisaged and they were essentially process steps: black box due diligence, finishing due diligence reports and getting warranty insurance, foreign investment approval and “agreement on the SSA”. These were all things in relation to which Mr Gray said he was in a position to assess “completion” risk.

162    I do not accept that the inclusion in the “Final Offer” letter of a condition dealing with agreeing a share sale agreement indicated that Sage intended to be bound to MYOB or anyone else to execute such an agreement. Such an interpretation is inconsistent with the terms of the “Final Offer” letter which recognised the desire to remove “market risk” and indicated Sage’s lack of “desire to defer signing unnecessarily” and the email exchanges between 5.28 pm and 6.05 pm. Those emails attempt to establish a process for how the gap between Sage “finish[ing] it’s [sic] work” and “[w]hen can Sage sign and announce” could be bridged. The use of the “wholly on risk” and “wholly off risk” jargon in the 5.28 pm to 6.14 pm email exchange and subsequently is not helpful. It is however clear that: (1) Sage refused to undertake a step that would result in it being obliged to announce in the United Kingdom before it was ready to do so; (2) it was willing to accommodate Archer’s desire to have a token of its commitment ahead of execution of a share sale agreement if a way could be found to accommodate that without breaching the first requirement; (3) signing and placing an executed share sale agreement with its own lawyers was something it might accommodate but it expressly refused to lodge a signed agreement with Archer’s lawyers; that did not give rise to a commitment as subsequently recognised by Messrs Minton and Heckes; and (4) a mechanism was never agreed (Schedule 2 at [223], [244], [246] and [260]).

163    Mr Gray’s concern about the timing of execution of the share sale agreement is curious. His anxiety on this issue between 14-16 August is inexplicable if he believed that Sage’s “Final Offer” letter would be “final and binding” upon Archer’s acceptance and in light of his evidence that he regarded the 6.14 pm email as an acceptance. Mr Minton explains his desire to have a signed and publicly announced transaction in terms of seeking to ensure that a transaction does not fail just because someone wants to walk away, however, a legally binding agreement can be sued on whether formal or informal. In my view, this anxiety coupled with the fact that a mechanism was never agreed is a strong contra-indicator of an intention to form a contract as alleged on 15-16 August 2011.

164    One of the “market risks” was a falling share market which would affect the calculation of the “class 1” threshold in relation to Sage. Much of the argument about whether compliance with the UK Listing Rules was or was not a condition of the “Final Offer” letter was not to the point.

165    Archer/MYOB and their advisers were put on notice of the “class 1” issue by Mr Longstaff’s advice to Mr Allen on 12 August 2011, by Ms Lee’s email of 13 August which contained the “Continuing Debt” proposal and a worked example, the fact that the draft shareholder agreement was amended immediately afterwards to accommodate “Continuing Debt” and a warranty dealing with Sage shareholder approval and by Mr Longstaff’s email to Mr Allen on the morning of 15 August 2011 containing the Norton Rose advice about the “Continuing Debt” loan.

166    To an objective by-stander, commercially sophisticated participants with suitably expert advisers dealing with an entity subject to common and well-known regulatory requirements of markets for listed securities such as those in Australia and the United Kingdom would be expected to construct their arrangements so as to meet those regulatory requirements. There is a strong public policy reason for such an interpretation. If Sage was to assume the regulatory risk before the share sale agreement was executed it would be expected that any legally binding agreement anterior to it would deal with the issue but that did not occur. I do not consider that it was open to Archer or its advisers to regard this just as a “Sage” issue or to conclude that the mechanism would “ensure” compliance with the UK Listing Rules. Archer’s failure to insist on either a break fee or a mechanism for establishing when risk would pass before determining whether to appoint Sage as “preferred bidder” and its failure to respond to the “leak” announcement in any meaningful way objectively indicates that Archer/MYOB accepted that Sage was under no legally binding obligation for the short time envisaged in the 6.05 pm email in which to finalise a legally binding arrangement and this was a “stage” in the process.

167    I accept that Sage understood that it would put it at a competitive disadvantage to the other bidders if it sought to include a condition of the share sale agreement dealing with shareholder approval because this would have raised unacceptable “execution risk”. For that reason Sage did not discuss with Archer or its advisers how closely it was monitoring the threshold. Mr Longstaff plainly, and to my mind reasonably, expected that Archer and UBS would do so especially after 12 August 2011. Mr Longstaff thought that that was the cause of Mr Minton’s urging to finalise and sign the share sale agreement on 18 August 2011. However, I accept it appears that, subjectively, Archer and its advisers simply did not focus on the “class 1 issue” in assessing whether Sage should be appointed as “preferred bidder” on 16 August 2011 either through insufficient attention being paid to the detail of the “class 1” issue which had been raised with them or because of the lure of a transaction $140 million better than the next bid. I do not accept that Sage represented that the “Continuing Debt” mechanism “ensured” compliance with the Listing Rules.

168    The facts that: (1) the “class 1” threshold can only be determined at the time a transaction is entered into and Mr Allen knew that; (2) the “class 1” issue was not addressed in any of the Sage “offer” letters, not even the “Final Offer” letter which was issued after the matter had been raised with Archer; (3) the issue was not dealt with in the 5.28 pm to 6.14 pm email exchange; and (4) the draft share sale agreement contained a warranty that no shareholder approval was required and it was introduced after the “class 1” issue was first raised, are in combination a powerful indication that there was no intention to bind a listed public company to an interim arrangement at any time before the share sale agreement was executed.

Reactions

169    The reactions of the respective parties after 6.14 pm on 16 August 2011 are telling. Mr Gray’s ebullience in his conversation with Mr Epstein on the evening of 16 August 2011 is consistent with him holding a firm belief that a contract would be signed quickly with Sage for a price around $140 million ahead of the next best bid (see Schedule 2 at [175]). However, the reactions of Mr Longstaff and the Sage executives were measurably more restrained: “[p]ositive step”, “[p]ositive development” and “not legally quite there”. Even with legendary English understatement, these comments are inconsistent with a belief that a legally binding commitment had been given: it is consistent with relief that a “significant” stage had been passed but with more work to be done to get over the line in a very short timeframe.

170    Further, Sage’s announcement to the regulatory information service later in the evening was consistent with these reactions by the Sage executives: Schedule 2 at [186]. There is a curious lack of response from Archer if it did not think this announcement was accurate. Mr Allen said he complained to Mr Longstaff, but the response that Mr Longstaff gave is not evidence that he thought that there was a binding agreement to proceed. Given the magnitude of the transaction, that Mr Allen satisfied himself with personal speculations about a basis on which such an announcement might be made is not consistent with a belief that there was a binding agreement of the kind pleaded or contended for by the applicants: Schedule 2 at [190]-[191]. That Mr Gray did not know of the announcement is not credible; it was the cause of comment at the management meeting between Mr Reed and MYOB’s senior management (Schedule 2 at [214]) on the morning of 17 August 2011, both Messrs Allen and Story knew of it and Mr Story said he told Messrs Gray, Allen and Heckes. Mr Gray’s lack of reaction is more consistent with understanding that the statement was accurate and the desire to move quickly to an executed share sale agreement.

171    For completeness, the applicants rely on Mr Longstaff’s comments to Mr Minton after his call with Mr Berruyer as reported in his file note (schedule 2 at [270]) and email of 18 August 2011 in which he said “[w]e have promised and will sign tonight”: see Schedule 2 at [251]. In relation to the email, Mr Longstaff is discussing the “on risk”/“off risk” language of the 6.05 pm email in relation to which the parties never reached agreement. The wider context of that email is inconsistent with a belief that Sage was bound to proceed. Mr Longstaff said: “Archer are very concerned that market movements will “rob” them of the deal. So they are being very forceful about being “off risk” tonight (they claim 6.00pm)” and “Guy, I suspect they will need a call with you to hear that Sage and you have every commercial intent to deliver etc etc. There will be threats of “going back to private equity”, but realistically they chose us for a reason ...”

172    Mr Minton’s file note reports Mr Longstaff as saying there is “no reason or justification” for Sage to withdraw: however, he did not say Sage was not entitled to do so. In my view Mr Longstaff’s comments overnight on 18/19 August 2011 need to be seen in the context of concern about reputation risk for Deutsche (Schedule 2 at [267]), presumably loss of “success” fees if the transaction did not proceed and genuine belief that it was a good transaction in his client’s interest if Mr Berruyer would just be a little brave (Schedule 2 at [277]).

Handshake meeting

173    The applicants rely on the handshake meeting (see [73]-[75] above) as evidence that “the parties” considered that they had concluded a binding agreement. While admitting that a handshake is not conclusive, they say that the Court should approach its task with a “strong disposition to give effect to the intentions and expectations of the negotiators who by their handshake signified that they had concluded a binding agreement”; they rely on Agius v Sage (2003) V ConvR 54-664; [1999] VSC 100 at [51] per Byrne J.

174    I do not accept that the handshake meeting gave rise to contractual relations. In my view it was no more than a courtesy in recognition of Sage’s appointment as preferred bidder and the language employed is consistent with that. As Gleeson CJ explained in Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551; [1995] NSWCA 166 at 14,552:

As the decision in the Australian Broadcasting Corporation case illustrates, the fact that parties to negotiations have agreed upon the major matter under discussion, confidently believing that the remaining matters to be decided will be sorted out later between them or their lawyers, without any difficulty, can sometimes create a misleading appearance of consensus. Such parties may well believe that they have a “deal” or a “bargain”, and speak and act accordingly, whilst at the same time knowing and intending that further and more detailed agreement is necessary. For that reason, conduct such as shaking hands, or using the language of agreement, can be ambiguous. The resolution of the ambiguity may require more detailed factual and legal analysis.

175    This statement was affirmed by a Full Court of this Court more recently in Factory 5 Pty Ltd (in Liq) v State of Victoria (No 2) [2012] FCAFC 150 at [65] per Rares and Dodds-Streeton JJ. Even if that view were wrong, any contract solemnised in that fashion would have been between Sage and MYOB.

Conduct

176    The “Final Offer” letter was not “accepted” by Archer on behalf of some or all of the MYOB shareholders.

177    Having regard to the process described above, in my view Archer/MYOB acted as “packager” of a MYOB sale transaction. Neither Archer nor MYOB acted as agent for or under delegated powers of any of the MYOB shareholders in the conduct of the process; Archer acted in its own right. The structure of the sale process and the draft share sale agreement proffered to bidders by Archer/MYOB resulted from the knowledge that the Archer Investors (and therefore Archer as their delegate under the management agreements) could cause a share sale agreement to be executed by all shareholders as a result of the exercise of powers under the Shareholders Deed. In my view the bidders also understood Archer/MYOB to be acting on this basis.

178    Archer’s conduct after 6.14 pm on 16 August 2011 is consistent with Archer playing the role of “packager”, not with any form of “acceptance” of the “Final Offer”. If I am wrong and the “Final Offer” letter was capable of acceptance and Archer, rather than MYOB was capable of accepting it (which I view as misconceived), then I am satisfied that because Archer with the co-operation of MYOB acted as “packager”, any such acceptance was not on behalf of the MYOB shareholders. As neither Archer nor MYOB is a party to these proceedings, any contract arising from their “acceptance” would not be relevant.

179    The fact that Archer/MYOB gave Sage access to “black box” due diligence at 7 pm on 16 August 2011 is not conduct consistent only with a contract of the kind alleged by the applicants. It is also consistent with the “stage” of the process which had been reached. If Archer/MYOB wished Sage to proceed to enter into a share sale agreement which was not subject to a condition dealing with satisfactory due diligence, it was commercially necessary to allow this. Although the applicants alleged that the “black box” due diligence was commercially sensitive, they have not demonstrated how or any detriment which they suffered from allowing Sage access to it. Despite a suggestion from an investment banker associated with one of the bidders that the bidder would not view giving a trade buyer access well, there is no evidence that that was a component of negotiations with Bain or KKR on or after 18 August 2011.

180    It is not clear what language was used in communications to the private equity bidders in advising that Sage had been appointed “preferred bidder”, however it is clear from the evidence that the process was not over until the share sale agreement was signed by a bidder. Certainly Mr Allen’s “farewell” to Mr Healy of H&F, late in the evening of 16 August 2011 (“preferred with the strategic” and “[m]ore water to flow and will keep you updated”) did not amount to “rejection” of an offer nor did it indicate the finality that “rejection” implies. This is the only contemporaneous evidence of the language used; it is consistent with the preferred bidder being first among bidders still in the process without a committed agreement. Mr Minton said he told Bain at 3 pm on 16 August 2011: “We’re going to accept an offer from another bidder. The price gap is sufficiently large that we aren’t going to try to walk you up. Thank you for all of your hard work. You ran a great bid.” This language does indicate that all things being equal, MYOB would be sold to Sage but it is a gracious statement of the status which (as subsequent events proved) did not burn goodwill. In relation to the last bidder, Archer executives were having trouble getting KKR to respond to them at all due to the conduct of the process over the weekend of 13-14 August. In cross-examination Mr Gray said that he spoke with Mr Reizes on 16 August to tell him that Archer was “proceeding ahead with the trade … buyer” (see T 381). Mr Gray’s Statement of Anticipated Evidence suggested more definitive language. I have some concern about whether Mr Gray managed to engage with Mr Reizes at all at this time and I accept the more unguarded response given in cross-examination. This conduct too is consistent with Archer’s role as “packager” of the transaction. This cannot amount to acceptance by conduct since MYOB was the party to which the “Final Offer” letter was addressed.

181    In any event, the correctness of Mr Longstaff’s belief that “private equity never dies” and of Mr Clayton’s understanding of how the process would work (see [156] above and Schedule 2 at [197]) was demonstrated by the fact that both Bain and KKR were willing to engage 48 hours after the preferred bidder was identified, and Bain’s only concern was that Archer’s indication that the investment was still available was real and not a ploy by Archer to now use private equity as the stalking horse. Archer and the private equity bidders all expected to be able to engage that way. Mr Gray pointed out in evidence that even if Mr Reizes had been reluctant to speak to him, KKR could always have been contacted through its financial adviser.

182    The role of the MYOB shareholders was, and was always intended to be, limited to those steps which occurred on and from 17 August 2011 after Archer initiated the despatch of “exit notices” and powers of attorney and the facilitation agreement letters to Institutional Investors in MYOB. Even the Archer Investors, by their corporate officers, executed a power of attorney in favour of MaplesFS Limited, not Archer. It is true that by issuing the “exit notices”, Archer triggered management “ratchets”, which it would only do if it was comfortable that a share sale agreement would be executed. In this case, Archer’s risk in doing this was relatively small: as at 14 August 2011, it had offers from a number of private equity bidders with which Archer acknowledged it would be willing to proceed except for the fact that Sage was a higher bid (in the order of $140 million). With the very short timeframe it had allowed Sage to conclude an agreement, Archer was in a position to go back to the bidders (as it did) and expect to execute a transaction on acceptable terms. It accommodated this risk in the form of the power of attorney which it issued with the “exit notices” which did not state who the purchaser would be.

183    Given the nature of the informal process, without documented understanding of what appointment as a preferred bidder meant in a contractual sense (as may be found in formal tender documents), I do not accept that the identification of a bidder as the “preferred bidder” is conduct amounting to “acceptance”, but rather that an uncertain but short period of limited exclusivity had been entered into with the expectation that a contract would be finally negotiated and signed with the preferred bidder. In my view Archer and the private equity bidders understood the process was not over until a final binding share sale contract had been entered into with the preferred bidder. The failure of the shareholders of MYOB and a preferred bidder to conclude a binding agreement would have consequences because it would open up the opportunity for the other bidders to negotiate on price, and the scope of that price negotiation would be a function of the enthusiasm of the other bidders and how Archer ran the process from that point.

184    The fact that Archer sought a facilitation fee from the non-Archer Institutional Investors on 17 August 2011 (set out in Schedule 2 at [213]) is indicative that it acted as a “packager” and not as delegate of the Archer Investors in the process. This arises from the timing of the request for the fee and the fact that a fee was asked for at all. The facilitation agreement letter prepared by Archer expressly provided: “Archer enters into this Engagement and will perform the services required under it in its capacity as principal, and not as your agent or representative of any other person.” This language is consistent with Archer acting in its own right in relation to the transaction, not as agent for the Archer Investors or any of the other applicants and there is nothing which suggests that Archer thought it needed to account to the Archer Investors for that fee. Given that Archer’s powers to effect an “exit proposal” under the Shareholders Deed derived from the management agreement with the Archer Investors, if it was acting for the Archer Investors in the whole process, not in its own right, it is difficult to see why Archer, in its own right, would have been entitled to a facilitation fee from the other investors. In any event, it is difficult to see how Archer seeking a facilitation fee could amount to “acceptance” conduct in relation to Sage, since there is no evidence that Sage asked for this conduct or even knew of it.

185    For the sake of completeness, the applicants plead that the form of the share sale agreement was agreed by 7.30 pm or alternatively 8.30 pm on 18 August 2011, essentially because Messrs Story, Reede and Longstaff understood that the outstanding issues for negotiation had been settled, with a late increase in the amount of the “Continuing Debt” being proposed and accepted: Schedule 2 at [255] and [263]. They say that this fulfils the fourth “condition” of the “Final Offer” letter, which accords with how Mr Gray said he read the letter, including the label “subject to contract”. Because I reject the applicants’ claims for other reasons, it is unnecessary for me to decide whether this argument is made out. However, it is my view that the stated condition of the “Final Offer” letter was not satisfied simply because advisers appear to have formed the view that the form of the agreement had been settled. Issues other than those set out in the conditions were incorporated in the course of negotiation and that was not regarded as illegitimate; how the “BankLink” transaction would be dealt with is one such example and there was also extensive consideration of the requirements of management which was said to be a “condition” of the “Final Offer” letter. Whether the share sale agreement is in an acceptable and agreed form is a matter for the principals and in a complex transaction that will most normally be demonstrated by execution of the agreement by all parties.

186    As I have formed the view that there is no agreement of the kind alleged by the applicants, it is unnecessary to consider, what (if any) scope there might be for implying terms into that agreement.

Representations and Estoppel

187    The Representations as pleaded are summarised at [95] and the estoppel is summarised at [97].

188    For the same reasons as set out under the heading “Authority”, even if the applicants were able to establish that the pleaded Representations were made to Archer and that they were misleading or deceptive, Archer had no authority to receive them on behalf of the non-Archer applicants and there is no evidence that the non-Archer applicants knew the terms of the “Final Offer” or acted in any manner to their detriment in reliance on them. The evidence only supports that the Institutional Investors (other than the Archer Investors) were told of a proposed transaction on 17 August 2011: Schedule 2 at [211]-[212]. The other non-Archer investors appear to have been told of the possibility of the sale as a result of the “leak” in Mr Martin’s email to management shareholders in Schedule 2 at [214]. While it might be expected that at least Mr Reed did know of the “Final Offer” letter, there is no evidence that Archer acted with his authority, as opposed to his co-operation. These claims for the non-Archer applicants must fail.

189    In relation to the Archer Investors, I have found that Archer acted on its own behalf as “packager” of a transaction in the conduct of the sale process, so in my view their claims must also fail since they were not the recipients of the Representations and were not in a position to form the alleged assumptions on the basis of those Representations. While it is true that the Archer Investors’ directors (Messrs Wiggs and Minton) knew of the “Final Offer” letter, there is no evidence that any action they took was in their capacity as directors of the Archer Investors.

190    In any event, I am not satisfied that the Archer Investors could make out their claims as pleaded even if Archer did act as their agent or delegate.

191    First, the ASOC at [44] claims that “Sage represented to the Applicants that if the Final Offer was accepted by Archer”, there would follow the matters the subject of the Representations. The condition of the claim cannot be made out, since the “Final Offer” was not susceptible of “acceptance” and the “Final Offer” was not directed to Archer for reasons already mentioned.

192    Second, while I do accept that the “Final Offer” letter represented that Sage would pay $1.35 billion on the pricing basis set out in the prevailing draft for 100% of the fully diluted share capital and that it named four conditions, I do not accept that Sage had stepped back from its requirement to become bound only by an executed share sale agreement. Weight must be given to: (1) the fact that Sage and Archer thought that there would be price negotiation following the issue of the “Final Offer” letter in the context of the “spanish auction” being conducted by Archer; (2) the indication that the offer was “subject to contract”; (3) the fact that the desire to limit market risk by not deferring signing “unnecessarily” was acknowledged with equal emphasis on the requirement for time to prepare for communications in the UK; and (4) the request for appointment as the “preferred bidder” was coupled with a request for a discussion concerning the basis on which this might occur in the context of a sale process which Sage might reasonably expect to be ongoing even after that appointment for reasons given at [156]-[158] above. When these things are taken with: (1) the fact that I have found that Mr Longstaff’s 2.40 pm email on 14 August 2011 referred to appointment as “preferred bidder” when he used the phrase “assuming we reach agreement”; and (2) the terms of the 6.05 pm email, which clearly separate the finalisation of Sage’s work and the time at which risk would pass, for reasons previously given in my view it is clear that Sage did not make, and Archer could not have acted upon, an unqualified representation in the terms pleaded in Representations A and B because of the failure to address definitively the issue of when risk would pass to Sage in the “Final Offer” letter, in the 6.05 pm email or subsequently.

193    Third, the applicants plead that Sage had no reasonable grounds for making Representations A-D and they rely on the letter from Mr Reede of A&O set out in Schedule 2 at [279] in which Mr Reede said “it became clear prior to Sage’s final non-binding proposal on Monday 15 August that there were potential Class 1 concerns”.

194    Sage correctly points out that the next sentence of Mr Reede’s letter said: “Sage initially sought to address this through the structure of the acquisition and the continuing debt in the MYOB Group and discussed this openly with you and your clients” and goes on to point out the stock market decline which had occurred “since Monday” and the concerns expressed by its shareholders. It is clear that on 12-13 August 2011, Sage shared with Archer its concerns about complying with the “class 1” requirements of the UK Listing Rules, albeit reluctantly and on the basis that it believed that it had a solution which would “ameliorate” the risk: see [37]-[40] above.

195    The fact that Archer and its advisers appear to have mis-assessed that risk does not denigrate from the fact that they had been put on notice of the “class 1” issue and it was a reasonable expectation that thereafter Archer and its advisers would have regard to the issue: [43]-[44] and [164]-[168] above. Language in the “Final Offer” letter asserting that Sage had made the “Final Offer” “as certain as possible” was accurate in relation to this issue. Indeed, the reference in the “Final Offer” letter to the “pricing basis laid out in the prevailing draft” was a reference to “Continuing Debt”.

196    I accept Sage’s submission that at the time Mr Longstaff gave Messrs Gray and Allen the “Final Offer” letter it had a reasonable basis to believe that the solution would be effective as Mr Price had confirmed the solution with the UK Listing Authority (Schedule 2 at [70]) and a Deutsche briefing paper prepared shortly before the Sage board meeting at 5 pm on 15 August 2011 assessed the risk that shareholder approval would be required as low and went on to state that: “Discussed Listing Rules application with UKLA; Transaction structure within Class 2 parameters.” It will be recalled that Deutsche was Sage’s “sponsor” in relation to this issue and Sage was entitled to believe that it was well qualified to give the adice.

197    Fourth, I do not accept that the “Final Offer” was final, certain and capable of acceptance and I do not accept that Sage represented that it required no further approvals. The applicants rely on the fact that the draft share sale agreement contained a warranty that no shareholder approvals were required to enter into that agreement. A warranty of that kind speaks at the time the agreement is entered into; the fact that a draft agreement contains such a warranty does not constitute a representation during the period of negotiation that such a requirement will not arise before the agreement is executed and that is particularly not so when notice had been given that a “class 1” issue required “amelioration” and whether the threshold is crossed depends on the share price. It was an issue of which Sage was entitled to think Mr Allen and Allens (and through them, Mr Gray) was aware. For the same reason, I do not accept that Representation E was made out in the terms pleaded.

198    Having regard to all of the circumstances, I also do not consider that Sage engaged in misleading or deceptive conduct.

199    As the Representations have not been made out, the estoppel claim as pleaded must also fail, whatever Mr Gray’s stated beliefs in relation to the “final and binding” nature of the “Final Offer” letter or Mr Minton’s evidence that (without stating a view as to the legal conclusion) he would have not dealt with Sage exclusively had he known that it would be free to walk away after 6.14 pm on 16 August 2011. Mr Minton acknowledged that his eagerness to have a share sale agreement executed was the risk that a bidder could walk away ahead of that time. There is no logic to that concern if the 6.14 pm email or some other of the alleged modes of acceptance gave rise to a binding commitment. I do not accept that in all of the circumstances described in these reasons it was reasonable for Archer (for itself or on behalf of others) to have thought that there was an Assumed Legal Relationship.

200    In relation to the claimed detriments, I note matters addressed previously in these reasons. First, there is no evidence of detriment from Sage being given access to “black box” due diligence. Second, appointing Sage as “preferred bidder” had the foreseeable consequence that other bidders may become less engaged, however the short period which Sage was given to reach an executed share sale agreement did and was intended to mitigate that risk which I consider that Archer thought worth taking for $140 million better consideration than the next bidder. In my view Sage’s appointment as the preferred bidder was a known stage in the process; the private equity bidders understood that there was “[m]ore water to flow” (as Mr Allen told Mr Healy) following the appointment of a preferred bidder for the reasons suggested by Mr Clayton at [156] above. As mentioned previously, while there was a risk that bidders would seek to take advantage that a “preferred bidder” did not execute a final share sale agreement, MYOB was an attractive asset for which there had been three engaged private equity bidders making offers. The consideration paid by Bain Capital Abacus Acquisition Pty Ltd was greater than its best offer before Sage was appointed as “preferred bidder” so any “detriment” is theoretical as to the extent to which Archer might have “walked up” other bidders. We do know that they were not willing to meet the “stretch target” and there would be less incentive if the trade buyer was not named the “preferred bidder” to reach that target. Further, Archer’s own actions over the weekend of 13-14 August caused KKR to be disengaged for a period and it is unknowable whether Bain and KKR could have been “walked up” more if Sage had not been appointed or if Mr Gray had not elected to complete a transaction with Bain on 20 August 2011 after the 24 hour “exclusivity” period to which Archer had committed and eschewed further negotiation with KKR.

201    For completeness, I note that the applicants made a number of submissions based on Mr Berruyer’s musings about the possibility of reducing the price offered at some time: Schedule 2 at [30] and [63]. Although Mr Berruyer contemplated reducing the consideration offered by Sage by $175 million in late July and early August, I am satisfied that Sage’s efforts from the delivery of the “Final Offer” letter until around 8.30 pm on 18 August 2011 were directed to acquiring MYOB at the price specified in the “Final Offer” letter. Whether or not Mr Berruyer’s commercial judgement was sound on 18 August, and whether or not in fact the requirements of class 1 technically applied to the transaction, in my view it was open to Sage to act as it did any time before the share sale agreement was finally executed and exchanged.

Disposition

202    For these reasons I will dismiss the application. The parties sought an opportunity to be heard on costs after the delivery of judgment. I will consult the parties as to how they wish to proceed.

Associate:

Dated:    28 August 2015

Schedule 1: DRAMATIS PERSONAE

Archer camp

    Allen, Aidan (UBS, Managing Director)

    Angus, Damon (Allens)

    Bell, Richard (Allens, Senior Associate)

    Gray, Andrew (Archer, Partner)

    Heckes, Frank (Archer, Investment Director)

    Lee, Kristy (Allens, Senior Associate)

    Li, Michelle (UBS, Associate Director)

    Minton, Gregory (Archer, Managing Partner)

    Scott, Ian (Ernst & Young Law, Partner)

    Story, Tom (Allens, Partner)

    Wiggs, Peter (Archer, Managing Partner)

Sage camp

    Berruyer, Guy (Sage, Chief Executive Officer)

    Bryant, Charles (Deutsche, Managing Director)

    Burkitt, Francis (Rothschild)

    Charlton, Ralph (Sage, Director of Public Relations)

    Clayton, David (Sage, Board Member, Director)

    Epstein, Ivan (Sage AAMEA (Africa, Australia, Middle East, Asia), Chief Executive Officer)

    Geary, Karen (Sage, Head of Human Resources)

    Griffith, Andrew (Sage, Director of Investor Relations)

    Hankinson, Mark (Deutsche)

    Harrison, Paul (Sage, Group Finance Director)

    Hobson, Tony (Sage, Board Member, Chairman)

    Longstaff, Tim (Deutsche, Managing Director, Co-Head Consumer & Industrials team for Australia and New Zealand)

    Mann, Duncan (Deutsche, Vice President)

    May, Gavin (Sage, M&A Director)

    Price, Andrew (“Drew”) (Deutsche, UK Corporate Broking, Director)

    Reede, Michael (A&O, Partner)

    Robinson, Michael (Sage, Company Secretary and Group Legal Director)

    Rolfe, Mark (Sage, Director)

    Stanton, Kenneth (Deutsche)

    Swift, John (Sage, Treasury)

    Wilkinson, Charles (Deutsche, Managing Director)

    Wong, Ka Sen (A&O, Senior Associate)

MYOB

    Birch, Andrew (MYOB)

    Boylan, Ian (MYOB)

    Ferguson, Adam (MYOB)

    Martin, Simon (MYOB, Chief Financial Officer)

    Reed, Tim (MYOB, Chief Executive Officer)

    Rogers, Alex (Harbourvest)

    Yap, Kelvin (Harbourvest)

Private Equity

    Boyce, Craig (Bain Capital Partners, LLC)

    Healy, Patrick (Hellman & Friedman LLC)

    Reizes, Justin (Kohlberg Kravis Roberts & Co LP)

    Sarkis, Walid (Bain Capital Partners, LLC)

Schedule 2: Chronology of events and evidence

1    This chronology should be read with the Background. Times are Australian Eastern Standard Time and currency is Australian currency unless otherwise indicated.

2    A substantial issue between the parties was the extent to which Mr Gray’s evidence should be accepted. I will first set out my assessment of the witnesses before moving to the chronology and evidence.

Witnesses

3    Sage elected not to call any lay or expert witnesses.

4    It may appear unfair to take a view on the applicants’ witnesses since Sage’s officers or advisers were not subject to cross-examination. However, it is for the applicants to make their case and exposing witnesses to cross-examination and their evidence to the assessment of the Court is a usual consequence of that fact.

5    I draw no general inference from Sage’s action either in its favour or against it. Sage bears no more than the usual risk run by all parties to proceedings that the unexplained failure to call a witness (for instance, in the applicants’ case, Mr Heckes) may have relevance to the capacity of the Court to draw adverse inferences from evidence on an issue because the Court did not have the benefit of hearing from a witness in a position to contradict it.

Mr Minton

6    I found Mr Minton a straight-forward and credible witness. There were some limitations on Mr Minton’s evidence; I accepted medical evidence that, although there may be gaps in Mr Minton’s memory as a result of surgery to remove a benign tumour from Mr Minton’s brain in the previous six months, he should not misremember matters. Mr Minton was also generally removed from the day to day running of the sale process and it is his evidence that he relied on advice from Archer executives in forming some of his views.

Mr Gray

7    Mr Gray’s evidence was important to the applicants’ case, since he led the MYOB sale process team, he was part of the Archer Investment Committee and he and Mr Minton were the only Archer officers whose evidence was offered. I found Mr Gray an unsatisfactory witness in many respects. Mr Gray appeared to be trying too hard and his evidence often appeared to have had more to do with conviction than fact. His evidence was frequently more forcefully given and consistent with the case theory asserted by the applicants than evidence of the same events given by Mr Allen or Mr Minton or as reflected in the documentary record. Given Mr Allen is more disinterested, I have generally accepted Mr Allen’s version of events or the contemporaneous documentary record.

8    Mr Gray’s mantra-like use of the phrase “final binding offer” in his Statement of Anticipated Evidence and in his oral evidence was unpersuasive; its repetition was self-serving and inclines me to disbelieve Mr Gray’s evidence as to the use of that term in conversations. The documentary evidence of the use of “final binding offer” between Archer and Sage is rare and early in the process. Mr Epstein reported his own use of the term in a conversation with Mr Gray in June 2011 (see Schedule 2 at [25]) and it was used by Sage in late July in the “Indicative Offer” letter (see Schedule 2 at [30]) but there is no documentary evidence that any officer of Sage used it subsequently. There is no correspondence in evidence in which Mr Gray uses that term despite his evidence that all bidders were told that they would need to submit a “final binding proposal”: see Schedule 2 at [99] and [122]. It is also not a feature of Mr Allen’s evidence or correspondence. His “scripts” on 11-14 August, which Mr Gray approved, employed the term “preferred bidder”, as did Mr Allen’s correspondence resulting from those scripts. None of Mr Longstaff’s emails reporting conversations with Mr Allen or Mr Gray refers to a “final binding offer”. It only has frequency in Mr Gray’s Statement of Anticipated Evidence and in his oral evidence. As a result, it has the character of advocacy of a position rather than persuasive evidence of fact.

9    Further, Mr Gray’s evidence that he believed that the prevailing draft share sale agreement could have been executed by the applicants as at 16 August 2011 causes me to exercise caution concerning the reliability of his evidence. Mr Gray ultimately admitted that he had not read the prevailing draft and that his view was formed by reading email traffic between lawyers as to the issues (a task he appears to have performed imperfectly); he did not ask Mr Heckes or his legal advisers if it was in fact the case.

10    Mr Gray was unwilling to admit that he was concerned about the fact that terms had not been agreed with management and that Archer had no “visibility” of Sage’s proposal as at the evening of 15 August 2011; that is contrary to the evidence of his conduct that night and the next day and it also causes me concern about how Mr Gray dealt with evidence which might not be favourable to the applicants’ case as he understood it.

11    Mr Gray would also have the Court believe that he did not read or at least did not pay attention to Ms Lee’s 13 August 2011 emails which referred to the $125 million “Continuing Debt” in relation to the need for Sage shareholder approval or Mr Story’s 1.17 am email concerning the status of the prevailing draft of the share sale agreement (including the reference to Sage shareholder approval) on 16 August. He said he did not receive Mr Story’s warning of Sage’s “leak” announcement at midnight on 16 August 2011. I accept Mr Story’s evidence that he notified Messrs Gray and Allen (among others) around midnight on 16 August 2011 that he had been contacted by Deutsche to say that there had been a “leak” and Sage was obliged to put out an announcement.

12    Mr Gray explains either not reading or not appreciating the detail of these emails on the basis that Mr Heckes had day to day responsibility for the share sale agreement, the length of many of the emails and the pressure under which the correspondence occurred, including the hour at which some of the emails were received.

13    The evidence demonstrates that Mr Gray is disinclined to detail and (like many of the officers of Sage and Archer and their advisers) was sleep deprived between 13 and 20 August. However, it was Mr Gray’s role to co-ordinate the sale process. Neither Ms Lee’s 13 August emails (as opposed to the attachments) nor Mr Story’s email at 1.17 am on 16 August was long: they were admirably direct, they dealt with significant issues and Mr Gray responded to emails in the chain of the 13 August emails. Mr Story confirms that he dealt with Mr Heckes on day to day matters relating to the share sale agreement, but I accept his evidence that he ensured that important matters were brought to the attention of Messrs Gray and Allen. Mr Gray said he read lawyers’ emails to get an understanding of outstanding issues as the basis of his belief that the prevailing draft of the share sale agreement could be executed. I do not find it credible that Mr Gray would not notice a communication from his lawyer that Sage had put out an announcement concerning the possibility of a transaction concerning MYOB. It was also the subject of comment at MYOB’s management meeting the next day. It is not credible that someone would not have mentioned it to Mr Gray.

14    Mr Gray’s unwillingness to admit reading emails from Ms Lee and Mr Story either at all or with sufficient attention leads me to doubt the basis for many of the views expressed by Mr Gray. I must conclude that either he was surprisingly inattentive for an experienced businessman accustomed to buying and selling high value assets or he has sought to minimise these issues. The apparent over-emphasis on matters which support his case, and apparent inattention to matters which do not, undermines Mr Gray’s credibility.

15    I have taken these concerns into account in determining whether to accept or give weight to Mr Gray’s uncorroborated evidence.

16    I place very little weight on Mr Gray’s evidence concerning his conviction as to the interpretation and legal effect of the “Final Offer” letter and the email exchange between Messrs Allen and Longstaff which culminated in the 6.14 pm email. I do not accept that Mr Gray turned his mind to the issue before 18 August 2011 in light of the fact that Mr Gray appears uninterested in detail, he is not a lawyer and he took no legal advice on the issue at the time. I find Mr Gray’s evidence concerning his understanding of what the appointment of a “preferred bidder” meant to be problematic; it is a term that had currency between Messrs Allen and Gray before the “Final Offer” letter was given to Messrs Gray and Allen (see Schedule 2 at [68], [85] and [102]) and its use in the 6.14 pm email was not simply a matter of adopting language used in the “Final Offer” letter. I find that it was a stage in the process conceived and operated by Messrs Allen and Gray; they contemplated and discussed the appointment of a “preferred bidder” from among the private equity bidders on 13-14 August 2011. I do accept that Mr Gray expected that the preferred bidder would proceed to agree and execute a share sale agreement. In my view Mr Gray’s evasiveness on this issue (see Sage’s closing submissions at [189]-[191], the transcript references there quoted and Schedule 2 at [87]) was out of concern for what it meant for the applicants’ case, although I also accept that Mr Gray did not turn his mind to the legal effect of that step before 18 August 2011. In any event, the legal effect of the “Final Offer” letter and the 6.14 pm email, including Sage’s appointment as “preferred bidder”, in the context in which they occurred is a matter for determination by the Court.

17    I do not accept Mr Gray’s evidence that he believed that the prevailing draft of the share sale agreement was in a form which could have been executed by the applicants; I consider that this assertion is an instance in which Mr Gray sought to enhance the weight of the evidence he was giving. He did not read the document and he did not make enquiries of Mr Heckes or Mr Story. Having said that, I do accept that he believed that there were not many issues remaining to be resolved and the parties were in a position to move quickly to resolve the issues; as much was said both in the “Final Offer” letter and in Mr Longstaff’s covering email. I do accept Mr Gray’s evidence that he thought the conditions set out in the “Final Offer” letter were matters that he could take a view on but they were not all conditions within his control.

18    I do not accept Mr Gray’s evidence set out in Schedule 2 at [122] that Mr Berruyer used the word “binding” in their conversation. The applicants submit that I should accept Mr Gray’s evidence because it is unchallenged. As mentioned, Mr Gray’s mantra-like use of the term “final binding offer” is not convincing. Without the word “binding”, Mr Gray’s evidence more closely accords with Mr Minton’s of a similar conversation with Mr Berruyer.

19    I do accept that Mr Gray and Mr Allen had conveyed to all bidders that Archer was intent on maximising certainty and eliminating “execution risk” to the extent possible.

20    I do not accept that Mr Gray was unaware of the “leak” announcement made by Sage on 16 August 2011; for reasons previously given, I accept that Mr Story told him of it.

21    In light of Ms Lee’s emails, I do not accept that Mr Gray was unaware of the “class 1” issue before 18 August 2011, although I do accept that he did not give it a great deal of attention in view of Sage’s proposal to address the issue with “Continuing Debt” which would make the issue manageable and did not change the economic effect of Sage’s $1.35 billion proposal. It is difficult to accept that the class 1 issue was not the subject of some discussion between Messrs Allen and Gray or between Messrs Gray and Heckes given the potential uncertainty that this issue necessarily entailed if a shareholder meeting was required, however neither Mr Gray nor Mr Allen said he could recall such a conversation and that is evidence that they gave the issue little attention or weight.

Mr Allen

22    I found Mr Allen to be generally a credible witness because his evidence did not carry the same character of advocacy as Mr Gray’s and it generally accorded with the written record.

Mr Story

23    I found Mr Story to be a credible witness.

Chronology and Evidence

Preliminaries

24    Between March and June 2011, Allens prepared a legal due diligence report, a data room and a pro forma confidentiality deed for those wishing to conduct due diligence, Bain & Company (unrelated to Bain) prepared a report in relation to the market in which MYOB operated, Ernst & Young (“E&Y”) were appointed as tax and accounting advisers and prepared a vendor due diligence report in relation to MYOB’s business, and UBS prepared a “Strategic Considerations” report.

25    After a telephone call with Mr Gray in June 2011, Mr Epstein relayed his conversation by email to Mr Berruyer, noting (among other things) that (emphasis in original):

I was absolutely clear on more than 1 occasion that we would not be part of an auction process and that bothered him but I think he resigned himself to the fact (I hope … and we will soon see). … I said that we are happy to enter into an NDA and would require exclusivity for a period. … We can possibly revert within a time frame of approx. 3 weeks with an indicative proposal. We can then agree on a period to confirm our offer and provide them with a final, binding offer.

26    Sage entered into a confidentiality deed with MYOB on 7 July 2011 for the purpose of Sage “considering whether to submit (a) a bid or offer (whether indicative or final, or binding or non-binding); or (b) an expression of interest, in relation to the Potential Transaction, conducting any related due diligence and future discussions with [MYOB] in relation to any expression of interest that is submitted, and negotiating and documenting, and, if applicable, implementing the Potential Transaction”. Archer responded to Sage’s initial information request on 12 July 2011.

Class 1 transactions

27    It is relevant to know that in August 2011 there was a requirement under the UK Listing Rules that certain transactions entered into by a listed entity, colloquially known as “class 1” transactions, be approved by its shareholders. One of the relevant tests for determining whether a transaction was a class 1 transaction was whether the “percentage ratio” between the consideration payable by the listed entity and its market capitalisation was more than 25%. An indemnity arrangement between the listed company and a party which was “exceptional” may also be treated as “class 1” where the maximum liability was either unlimited or was equal to or exceeded 25% of the average of the listed entity’s profits for the last three financial years. If a listed company proposed to enter into a transaction which, due to its size or nature “could amount to a class 1 transaction” it had to obtain the guidance of a sponsor to assess the application of the listing rules. Deutsche was Sage’s sponsor for this purpose in relation to the MYOB transaction.

28    If a transaction did not meet the class 1 threshold but the “percentage ratio” was or was more than 5% then it was a “class 2” transaction. Both “class 1” and “class 2” transactions required disclosure to the market “as soon as possible after the terms of the transaction [were] agreed”. The Financial Services Authority had power to modify or dispense with the application of these rules.

29    On 20 July 2011, Mr Andrew Griffith (Sage, Investor Relations Director) asked Mr Charles Wilkinson of Deutsche to “run the class tests on the transaction” and queried “what do we do if the share price falls and we tip into Class 1 during a transaction”. Mr Wilkinson advised:

… We have been tracking this and with the current share price, exchange rate and consideration it is very tight (in fact probably class 1) … Of course the actual testing date would be the day before announcement which is some way off and who knows what will have happened to the variables by then. However, if we felt it was likely that we were going to be in Class 1 territory then we would discuss that with the UKLA (unless it was completely clear cut) … If we did need a circular then I think the EGM notice period would run concurrently with the Australian regulatory clearance. … The main impact is therefore likely to be the effect it would have on the vendor. But at this stage I think it is too early to start worrying about this and certainly we do not feel we would want to raise this now with the vendor and the offer letter currently says “[Sage] requires no further approvals ahead of moving to a firm contract.” We will, however, continue to monitor things.

“Indicative Offer” letter

30    In an email sent on 25 July 2011, Mr Berruyer said to Mr Harrison that “[w]e were hoping to avoid an auction, but really we are in an informal auction” and went on to muse on the “pricing strategy” saying:

It seems to me that, if we can get exclusivity, sellers will make it such that exclusivity will only run as long as we stay on 1.35 b. The minute we will tell them that we are moving off initial price, sellers will bring back other potential buyers, which are already present and alerted about this.

Then Ivan [Epstein] has called me today to say that he is uncomfortable with 1.35b offer. His gut feel tells him that we will never move sellers from 1.35b to 1.1b. His view is that we should offer 1.25b. …

So where does this leave us?

I suggest that we ask the board permission to offer between 1.25b and 1.35b, as an approach to try to gain exclusivity…

31    On 25 July 2011, the Sage board gave its support to a “non-binding offer of Aus. $1.35 billion”. The minutes indicate that “[w]hilst there was a possible Class 1 implication, the current share price did not indicate that this would be an issue. A fall-back announcement in the case of any leaks would be prepared.”

32    On 27 July 2011, Mr Longstaff sent an email to Mr Gray attaching a letter of that date from Sage. The letter had the following features:

    It was marked and addressed as follows:

STRICTLY PRIVATE AND CONFIDENTIAL
SUBJECT TO CONTRACT

The Directors
MYOB Cayman Holdings Limited
c/o Mr. Andrew Gray
Archer Capital
[address]

    The subject line was “MYOB Cayman Holdings Limited (“MYOB” or the “Business”) – Expression of Interest”.

    The “key features” of the proposal included “reliability and credibility ensured through full Board endorsement already obtained”, “an attractive price at the top end of precedent transaction multiples”, “ability to move swiftly through due diligence, utilising our extensive industry knowledge”, and “fully financed proposal, with minimal conditionality”.

    Under the heading “Indicative Offer” it stated that:

… Sage is pleased to present an Indicative Offer of A$1.35 billion cash consideration for 100% of the share capital of MYOB on a debt-free and cash-free basis assuming a normal level of working capital.

This Indicative Offer remains available to Archer until 31 July 2011.

We believe our Indicative Offer represents compelling value for Archer, particularly against the backdrop of the high degree of certainty and speed of execution that Sage can provide.

    Under the heading “Due Diligence and Timetable” it stated that:

We understand the need to move towards a firm contract. It is our clear intention not to introduce conditionality into any final offer for the Business beyond any mandatory regulatory conditions, but rather to work with you to resolve any outstanding issues ahead of signing an agreement.

    Under the heading “Financing and Approvals” it stated that Sage intended to fund the transaction though existing committed debt facilities and cash on hand and that “[t]his provides Archer with significant certainty of financing and is a compelling feature of our Indicative Offer”. It went on to say that the Indicative Offer had been approved by the Sage Board and “[p]rior to submission of a final binding offer, we will require a final approval from Sage’s Board, which can be obtained in a very short timeframe”. Noting that Sage would promptly seek approvals from the Australian Foreign Investment Review Board (“FIRB”) and guidance from the Australian Competition and Consumer Commission (“ACCC”), Sage said that it “[did] not foresee any material hurdles to such approvals, which we expect to receive during the period of exclusivity”.

    Under the heading “Conditions of our Indicative Offer”, Sage said:

Sage’s Indicative Offer is conditional upon Archer granting Sage a 6 week period of exclusivity to enable the completion of satisfactory due diligence and signing of a binding contract. Such exclusivity is appropriate given the full value of our Indicative Offer and the significant cost and resource that Sage will invest to complete the acquisition of MYOB.

…

This letter, to be governed by English law, is subject to contract and does not constitute an offer for the shares or assets of MYOB. This letter does not bind Sage to make such an offer, nor create any obligations on Sage. …

33    Mr Heckes wrote to Messrs Gray and Allen concerning the “Indicative Offer” letter: “Exclusivity clearly doesn’t work and I have real reservations about their ability to get close to this number given their past form and some of the assumptions/conditions they allude to in their letter.” The reference to “past form” is a reference to the TeamSystem process.

34    On 29 July 2011, Mr Longstaff reported to Sage’s senior executives concerning his conversation with Mr Allen about Archer’s reaction to the Indicative Offer; the report included (emphasis added):

(Predictably) [Archer] are unable to grant exclusivity on the basis of [Sage]’s current letter. They see too much “uncertainty” in two key areas:

•    Price: they acknowledge we need to meet the management and understand better their plans before our price can be regarded as reliable.

•    ACCC (anti-trust) risk is not extinguished. In this respect he volunteered that they feel it is very low as they examined it when Archer bought in. But it exists. I suspect they may be more malleable around ACCC than price.

So their proposal is:

•    that [Sage] comes to Australia … and spends a full day with management drilling down on the forecasts and rationale. This can be as early as Monday

•    they will provide us with full vendor due diligence (E&Y accounting, Allens legal and Bain strategy) to review

•    we take a week to consider

•    we confirm (i) our price and (ii) that the review of materials has led to that point to no further issues

•    we would have needed to get comfortable with assuming ACCC risk. They will make their management and lawyers available to assist here

•    then we can discuss exclusivity

•    they would expect “confirmatory” due diligence, but any material commercial risk would be an impediment to exclusivity

I said that this would not be acceptable. [Sage] has been clear from the beginning that exclusivity is required. Our price has this built in. We are more credible than others. We aren’t going to be led along only to be granted exclusivity when there is none to be had because we’ve been in the auction. UBS said that they make this suggestion on the understanding that [Sage]’s stated position would be to decline it, in which case they are happy to have us walk. Usual game of chicken.

…

Moving into the hypothetical domain, I asked about the way forward from any point of exclusivity along his plan. He was deliberately “woolly”. They clearly want to move us forward one step at a time. Perhaps there is no clear plan or process, just a series of independent streams. …

35    On 30 July 2011, Messrs Gray and Epstein had a telephone conversation in which Mr Epstein indicated that he was keen to come to Australia to meet with MYOB management and emphasised Sage’s desire to negotiate exclusively. Mr Gray said that he told Mr Epstein that he would be welcome to meet with management but that exclusivity “wouldn’t occur unless we were bound to some arrangement that we couldn’t deviate from or unless Sage was prepared to enter into some form of break fee or non-refundable deposit of a material amount”. UBS provided Deutsche with the vendor due diligence reports of Allens, EY and Bain & Company.

Early draft documents and due diligence report

36    Allens’ legal due diligence report dated 1 August 2011 and addressed to Mr Robinson contains the following statement (emphasis in the original):

We have been requested by our client, MYOB Cayman Holdings Limited and Archer Capital Pty Limited (our Client), to provide The Sage Group plc (you) with a copy of the confidential legal due diligence report dated 8 June 2011 prepared by Allens Arthur Robinson (Allens) and Mayne Wetherell (the Report) in relation to the possible sale of MYOB Cayman Holdings Limited and its controlled entities (MYOB Group) and/or a refinancing of the MYOB Group’s debt (the Potential Transaction). …

37    On 3 August 2011, Ms Michelle Li from UBS sent a draft share sale agreement to Mr Longstaff. Clause 31 of the draft share sale agreement indicated that the agreement was to be governed by the law of Delaware and the parties acknowledged and agreed that “this Agreement was formed in the place where it was last executed by any party to it ...”. The final sentence above provision for execution clauses to be inserted is: “Executed in the Cayman Islands”.

38    On the same day, Mr Longstaff sent Mr Allen a draft exclusivity letter. The letter was from Sage and addressed to “The Directors, [Archer] Capital” and thereafter referred to “you” but the execution provision indicated that it was “agreed and accepted” for and on behalf of MYOB. It provided for a £5 million break fee if “you” (presumably Archer) breached its obligations (clause 3) and provided expressly that “nothing in this letter is intended to constitute an obligation on us to enter into a binding contract with you regarding the Transaction” (clause 5). It proposed that the document be governed by English law and the parties submit to the jurisdiction of the English courts (clauses 7 and 8).

39    Mr Allen’s evidence was that he had a conversation with Mr Longstaff in which he indicated that Archer was:

… [o]pen to exclusivity at the right price and with sufficient protections around a failed deal, for example a break fee. Without that, you guys have a track record. Before we would even entertain exclusivity, you would need to be able to convince us that there is zero prospect of movement in relation to your bid and no execution risk.

…

The way to make sure that we’re not at risk from a process perspective is to make sure that you’ve got the information so that any offer you put forward is informed and certain. Let’s target a management presentation and we will give you sufficient information to provide your informed bid. Once you have all of the information and you can give us comfort that we don’t have any execution risk in relation to your offer, then we can reconsider the exclusivity request. We need certainty of outcome before we’ll send away other bidders.

40    In early August 2011, Messrs Epstein, Harrison and Robinson from Sage attended management meetings with MYOB’s management including Mr Reed, Mr Martin and Mr Andrew Birch. Messrs Gray, Epstein and Harrison met in the foyer of Deutsche Bank Place for a “meet and greet”.

41    On 4 August 2011 Mr Andrew (Drew) Price of Deutsche sent an email headed “Class Tests” to Mr Harrison, copied to Deutsche personnel including Mr Longstaff in which he noted:

At the same time we will agree an approach with the ukla to the consideration test to try and provide some flexibility from us becoming a hostage to a move in the Sage share price the day before announcement and pushing us into Class 1 territory (which they have agreed to in principal [sic] in the past)

Happy to discuss, but hopefully accords with current wording of the revised offer letter, which is silent on the point of any shareholder approval

42    On the same day, Mr Harrison informed Mr Robinson that “[t]onight we also think we have seen a way around the class 1 – for this next stage at least”.

43    UBS provided a draft share sale agreement to Mr Longstaff. Among other things, it indicated that the agreement would be governed by Delaware law and agreement would be formed where it was last executed, and it would be last executed in the Cayman Islands.

“Formal Offer” letter

44    On 4 August 2011, Mr Longstaff sent to Mr Gray a letter from Sage headed “Sage formal offer to acquire MYOB”. The Formal Offer letter:

    was marked and addressed in the same way as the Indicative Offer letter;

    stated that “… we are delighted to submit a formal offer which delivers MYOB’s shareholders a full value, certainty of completion and an expedited timetable”;

    reconfirmed price “on a debt-free and cash-free basis, assuming a normal level of working capital and including the premium on the warranty and indemnity insurance on the basis proposed by Archer (if Sage were to seek enhanced cover any cost increment would be to its account)”;

    under the heading “Conditions”, stated that the Sage Offer “presents a high degree of certainty for MYOB’s shareholders, only being conditional upon:” (1) satisfactory due diligence; (2) FIRB and New Zealand Overseas Investment Office (“OIO”) approval and no ACCC objection within a “limited period”; (3) Sage reaching agreement with MYOB’s management on suitable retention arrangements; (4) agreement on transaction documents; and (5) “[t]here being no material adverse change in the Business prior to the signing of a binding agreement”;

    proposed that Sage be granted a three week period of exclusivity and attached a draft exclusivity agreement;

    under the heading “Timetable” said:

Sage will make available substantial resources to proceed expeditiously to signing.

Subject to the prompt availability of MYOB resources, Sage envisages signing a binding agreement within three weeks of agreement on the terms of this letter. Timing of subsequent completion would be determined by FIRB and OIO approvals (which we expect in the ordinary course).

    under the heading “Exclusivity”, provided that:

This offer expires at midnight Sydney time on Sunday 7 August 2011.

Prior to this, MYOB agrees to grant Sage a three week period of exclusivity to achieve the signing of a binding agreement as referred to above. The terms of this exclusivity are set out in Appendix 1.

This letter, to be governed by English law, is subject to contract and does not comprise an offer that may be accepted to form binding agreement. Other than Appendix 1, which for the avoidance of doubt will be legally binding, no other parts of the letter of Offer will bind Sage nor create any obligations on Sage or MYOB.

    concluded:

This Offer represents an attractive and de-risked transaction for MYOB’s shareholders. Mindful that you may be considering other proposals, including from financial sponsors, we wish to emphasise some elements of our proposal:

•    Financing certainty: not exposed to vagaries and current volatility in financial markets;

•    Archer credibility: the sale of MYOB to a leading industry player such as Sage is a robust third party endorsement of Archer’s custodianship of this business; and

•    Speed and credibility: very low risk to signing and closing.

45    The accompanying draft exclusivity agreement was in essentially the same form as that provided by Mr Longstaff to Mr Allen on 3 August 2011.

Friday, 5 August 2011

46    On the morning of 5 August 2011, Mr Longstaff sent an email to Messrs Harrison and Epstein in which, among other things, he mentions that he had been attempting to contact “UBS and Archer” to confirm receipt and pass on messages (especially regarding exclusivity). He went on to say:

Very tough night on global equity markets

-    FTSE - 3.4%

-    DOW - 4.3%

-    Sage -4.6% to 246.9

We need to keep therefore a close eye on Class 1. Whilst it may make things tougher for us, it will also hit our sponsor friends. I don’t see the need to change our letter for any implications of these developments … much water still to flow.

47    In the afternoon of 5 August 2011, Mr Allen agreed with Messrs Gray and Heckes a script of messages for Mr Longstaff in response to the Formal Offer letter. The primary points were that Sage’s price was a “private equity” price rather than an “exclusivity price”, Sage’s position on ACCC clearance was uncertain, and “ultimately where we want to be on this is in a position to announce a transaction with a break fee and a period of exclusivity”. He suggested an appropriate break fee would be in the order of $50 million. The messages included “want to work towards announcing a transaction once agreed on price”, “will give you access to the dataroom”, and “clear message here is tell us what you need to do to get to a position where you can sign and announce subject to confirmatory due diligence”. Messrs Heckes and Gray approved the script: “good script”.

48    Mr Gray’s evidence was that while he was encouraged that the Formal Offer stated that it had “full board approval”, he remained concerned about Sage’s ability to complete a transaction of this type and the document contained a number of conditions which left Sage latitude to manoeuvre while some conditions beyond Archer’s control remained outstanding. It was, nonetheless, sufficient to allow Sage access to some of the data room materials, excluding the sensitive “black box” materials.

49    Mr Longstaff reported his conversation with Mr Allen by email sent at 8.25 pm to Sage’s senior executives with the summary (emphasis added in bold and italics):

They see themselves being in a position to discuss exclusivity in the near-term subject to a few things. Most of these are about certainty … they want there to be no real risk once exclusive. The points are:

•    ACCC: vendors are not prepared to accept any ACCC (anti-trust) risk … we should consider. …

•    Exclusivity agreement: their lawyers Allens will return to us tonight a mark-up of the exclusivity agreement that will include a break fee (he ventured an excessive A$50m)

•    Price: our price is seen as a “private equity” price, not an “exclusivity” price (we knew this discussion would come eventually)

•    Due diligence: they would like to now give us access to the data room to review certain things to improve our certainty, but accept that our offer will be subject to confirmatory due diligence (we didn’t discuss length). He seems to think we would look over this in a couple of days, but what we can sensibly achieve is questionable and I’m not sure how this differs from confirmatory due diligence

•    Sale agreement: before signing the exclusivity agreement they will need a sale agreement mark-up to ensure that the gap is closable. He said that this did not have to be settled

•    Timing: he implied that this could all be complete by, say, Tuesday of next week

•    Announcement: at this time they see Sage and Archer announcing the deal, subject to confirmatory due diligence. They feel the public nature will keep us on the hook

•    Class 1: no mention

... I suggested that if clarity on these things was needed to make an exclusivity decision (as he now suggests) then he should have given us due diligence access last weekend and asked for an SPA mark-up. I said that this tactic of exclusivity being conditional on “just one more thing” was exactly what we had discussed we were afraid of and would not accept. He responded that there are not “games”, just a staged process. Tempting as it is to be disaffected about this, we should nonetheless look to the future.

DB’s very initial view is that we can seize a moment over the weekend to close this in our favour. With current market turmoil, they see us as an option to progress quickly. Private equity may be a bit ahead, but the risk profile has shifted in our favour. Naturally, they are trying to squeeze a bit more out of us in price and terms, as well as delay a little in case markets rebound. Our tactics should negate this. I stressed our Sunday deadline …

50    At 10.48 pm, Mr Story sent a mark-up of Archer’s required amendments to Sage’s proposed exclusivity agreement to Deutsche and A&O. The draft agreement was addressed to Mr Gray of Archer and provided for a deposit which would be released to the applicants if Sage did not execute a share sale agreement (with no ACCC condition) by the end of the exclusivity period and refundable to Sage if it had executed that agreement but “the Vendors” (that is, the applicants) failed to do so. The governing law and jurisdiction of courts was changed to New South Wales. It was to be executed by Sage and Archer. Mr Gray said that he thought an appropriate break fee (or deposit) would be no less than $50 million.

Saturday, 6 August 2011

51    On 6 August 2011, Mr Harrison wrote by email to Messrs Berruyer, Epstein, Robinson and Gavin May (Sage, M&A Director) (as written):

My first instinct is that it is time for us to stand firm. A week ago we put an offer forward requesting exclusivity to conduct dd. We were then asked to drop everything an go to Sydney to meet management, review data and get more comfortable with our offer. We did that. Now they put forward more conditions prior to exclusivity. I think the movement in the markets should embolden us – they CANNOT afford to lose us. We should hold firm and say we want exclusivity now.

Frankly some of their requests are fanciful – the notion that we would put pressure on ourselves by announcing now – no chance. … It is not a p/e price if p/e is not there !!

…

52    Following a telephone call between Messrs Gray and Longstaff, Mr Longstaff reported to Mr Harrison by email at 4.24 pm that Mr Gray was agitated that Sage had not taken up the offered access to the data room and concluded (emphasis added):

[Mr Gray] has got it into his head that he has “bent over backwards” for Sage and is offering you a “jump ball” that we are “failing to grasp”. Everything other than strict compliance with his views is seen as unconstructive. He is very robust (with me) that there will be no exclusivity while risk remains, but will be more polite with you.

53    Mr Gray had a call with Messrs Epstein and Harrison. Mr Gray’s evidence was that the conversation went as follows:

I said I wasn’t prepared to grant any exclusivity whilst there were any conditions in their proposal that were beyond Archer’s control. There was some further discussion. The ACCC condition was raised as one of those, I think by me as an example. I recall Mr Harrison stating that his advice was that ACCC wasn’t a risk. I responded that it wasn’t my risk – it was their risk, and I was not prepared to grant any exclusivity whilst there were any conditions beyond my control. And that the only position that might challenge that might be the inclusion of a break fee in the form of, for the avoidance of ambiguity, a non-refundable deposit of a material amount. Mr Harrison dismissed that quite quickly, I think with the words that, “That’s not going to happen”.

54    Mr Harrison reported on the conversation with Mr Gray to the Sage senior executives and Deutsche executives by email at 9.40 pm (as written, emphasis added):

Andrew’s did not address price. He was pretty much wholly focussed on certainty. Certainty is the price for exclusivity in his mind …

We told him very clearly that, if exclusivity came at a price of a non refundable deposit or an announcement then those were “insurances” around our commitment that we were not willing to give. We reiterated our credibility as a buyer and the commitment we had clearly demonstrated.

We said that, if Andrew did not want to accept our letter, that that was fine and that we would assume that the sale would revert to an auction and that we would consider our position at that time. At this point Andrew appeared to relent somewhat. … I asked him straight whether he could envisage granting us exclusivity absent the two requirements which were off limits from our perspective. He conceded he could.

Ivan and my instincts are that Andrew is nervous. I don’t want to overplay this though. We think he does not want to lose us (clearly) and that he may be prepared to drop his requirements for announcement and non refundable deposit. However, to be successful in getting exclusivity I think we would need to give him a “win” with his investment committee otherwise he would simply look like he conceded on these two points of insurance. This win needs to be around certainty and, as I mentioned before, I wonder whether there is more we can do without real cost to us on ACCC.

55    Essentially the same message was communicated by Mr Allen to Mr Longstaff later that evening. Mr Allen said that he suggested a break fee in the order of $50 million and “... the current offer is subject to due diligence and ACCC approval. We are not going to take ACCC risk and if you haven’t done your due diligence, we aren’t going to take the risk on that either. We will give you the information and allow you to do your work.” Mr Longstaff reported in an email to the Sage senior executive sent at 10.31 pm and Deutsche executives (emphasis added):

I got the sense that their position hasn’t changed much.

Again, the theme was certainty. Their path forward is that we:

•    spend one week intensively in the data room so that Archer really see our diligence as “confirmatory” not “discovery”

•    drop the ACCC condition

•    have some dialogue on the sale agreement to define better the book ends

He is at pains to say that they can foresee an exclusivity at a point short of us being completely finished our work. But more certain than now.

They say, without appreciating the complexities of Sage, that a litmus test of Sage being low risk is announcement or a break fee. For as long as we oppose these they conclude it is because we are uncertain, and if we are uncertain then there is a risk. I acknowledge this seems inconsistent with your conversation.

UBS did refer to Team Systems and how this suggested that Sage could be unreliable even late in the process. I bit back strongly on this, but it may be influencing their advice.

UBS made a range of assertions that the call made Gray worry that Sage are “flaky” and “backing away on price”, but my sense is that this is just theatre.

…

I agree they’re nervous and want us engaged, but they do still believe in their alternatives and we shouldn’t underestimate these.

56    Mr Berruyer’s understanding of the negotiations as at 6 August is reflected in correspondence with Sage’s Chairman, Mr Tony Hobson, and a Sage director, Mr David Clayton, on 6 and 7 August 2011. To Mr Clayton he said: “There has been much going on. Outcome is that we reconfirmed our offer at 1.35 b, but Archer still doesn’t want to grant us exclusivity. Essentially they want certainty of the deal, especially with what is happening.”

57    Mr Berruyer’s email to Mr Clayton is part of an email chain which included an email from Mr Berruyer at 11.11 pm (London time) asking his executive to consider a “wait and see” option or making an alternative offer, cutting the price to $1.25 billion with a break fee and accepting the ACCC risk. As a “process issue”, Mr Berruyer said: “I am concerned with the class 1 story. I don’t know these rules at all. Where do we get advice? Of course any announcement of exclusive negotiation has a potential impact here if an activist shareholder gets involved.”

Sunday, 7 August 2011

58    Early in the morning, Messrs Gray and Allen had an email exchange concerning Mr Gray’s telephone conversation with Messrs Harrison and Epstein (as written, emphasis added):

Gray:    By the way … the Sage guys said “this is your call what did you want to talk about” as their opening line. Which was all a bit odd as you had told me that Paul had wanted the call. I think it all means that they are flakey and their price is not real.

Allen:    I agree they are flakey … Not 100% sure though on commitment, let’s see what they do now. Think this weekend was about trying to get us to sign the letter and now they are a bit miffed as to what they should do.

The sell job on management was extreme. … Suspect a lot of that call was tactical. They know they are our stalking horse…

59    Mr Berruyer told Mr Hobson on 7 August 2011 (emphasis added):

We don’t think we can get exclusivity under terms that we can accept.

We have come to conclude internally that we will drop our requirement, and try rather to move towards SPA at a rapid pace. We think that PEs must be troubled with turmoil, and that might slow them down. Hence not pushing desperately for exclusivity and rather moving to SPA.

Monday, 8 August 2011

60    Deutsche, on behalf of Sage, wrote to the UKLA in relation to the application of the class 1 test to Sage’s proposed offer for MYOB. The letter noted that based on the current Sage share price, the consideration test led to a result of 26.8% which prima facie exceeded the class 1 threshold, a result which Deutsche submitted resulted from recent market volatility and proposed instead to apply a three month volume weighted average price (“VWAP”) calculation to assess compliance with the consideration test which would result in a 23.0% measure, below the class 1 threshold.

61    Sage representatives travelled to Sydney and were given access to the due diligence room from the evening of 8 August 2011. Following conversations between Mr Allen and Messrs Reed, Boylan and Martin from MYOB, some documents were withheld on the basis that Sage was a competitor of MYOB.

Tuesday, 9 August 2011

62    Mr Charles Bryant of Deutsche sent an email to Messrs Harrison and Longstaff in which he mentioned “the latest competitive intelligence” and “the pressure this puts on us to lodge a final binding offer on Tuesday AM Australian time”. He also mentioned that ongoing share price weakness made negotiations with the UKLA concerning class 1 issues “more challenging” and the need to consider the possible alternative of “injecting some debt into [MYOB] pre close and paying the shareholders a pre completion dividend” as a method of solving these issues.

63    Mr Berruyer mused by email (7.14 pm London time) to Mr Harrison who was in Australia:

I have been thinking about next steps, and about my potential visit as well as about any potential price reduction.

Specifically, I wonder, if we were to offer a reduced price, whether this should happen prior or after my visit. Of course, I’d like to discuss this with you and advisors.

One consequence of this hesitation is that I suggest you be not definitive about my visit early next week (although I am ready to fly should we decide it makes sense).

Wednesday and Thursday, 10-11 August 2011

64    Mr Reede circulated a first mark-up of comments on a draft share sale agreement to Mr Story on 10 August. The email was forwarded to Mr Gray, who directed Mr Heckes: “You have carriage of this OK. I need you to be all over this and massively in the detail.” It is Mr Story’s evidence, which I accept, that Allens dealt with Mr Heckes on much of the process involved in the transaction and he was across the detail of the share sale agreement; the “more significant” commercial points would be raised to others within Archer, such as Messrs Gray or Minton.

65    At 5.07 pm on 10 August (London time) Mr Griffith commenced an email exchange with Messrs Berruyer and Harrison pointing out that investors may draw unflattering comparisons between the revenue and earnings multiples that the proposed price for MYOB represented compared to those at which Sage was trading. He also pointed out (perhaps not entirely helpfully) that there was “no scope for slippage on the performance post acquisition” as it would be seen as Mr Berruyer’s deal and his credibility in the market place would be “impacted” by the success or otherwise of the business. Mr Berruyer responded on 11 August that “[a]s to risk to “Guy”” he was “not overly concerned about this…!” After receiving an email from Mr Griffiths sent at 12.41 pm on 11 August, in which Mr Griffith pointed out (perhaps even less helpfully) that he had had dinner with Sage’s Chairman who was “100% behind the deal”, Mr Berruyer responded on 12 August that with “well crafted communication” and “with Andrew Grant [sic?] talent plus our two brokers [sic] experience” Sage should be in the “best possible place” to meet the challenge that some analysts and brokers would think that Sage was paying too much.

66    At 2.14 am on 11 August Mr Harrison responded to Mr Berruyer’s 9 August email (at [63] above) (as written):

… on the price reduction, I feel strongly that we need greater clarity on any potential conditions precedent we will be proposing to Archer. The extent we have to seek to impose these – competition authority approval and class 1 – weakens materially our position vs a vis p/e bidders and should affect how bold we are prepared to be on price. I attended a meeting with lawyers today and feel we can probably remove the competition condition. We continue to work intensely on the class 1 issue and that is currently my no 1 concern. Clarity expected tomorrow from DB and Alan Paul. So, we need to discuss our position on price but I suggest this is later in the week.

67    On 10 and 11 August 2011, proposals were received from the three private equity bidders.

68    At 7 pm on 11 August, Mr Allen sent an email to Messrs Gray, Heckes and others at UBS with observations on one private equity bidder’s bid. After canvassing questions to be asked, Mr Allen went on (as written):

...

Also should note that the Offer expires if exclusivity is not signed by 1pm on Friday.

*** Process implications (to be discussed tomorrow)

Think where we end up from a process perspective is as follows:

*     no responses to other bidders (guiding on price potentially creates leak risk) and once we stop speaking to them they should come back in any event

*     ask relevant questions of [PE bidder] in relation to their proposal tomorrow

*    post confirmation of detailed responses, go back to [PE bidder] on Friday night with the following:

-    was hoping for perfect clarity with respect to preferred bidder - do not have a clear preferred bidder

-    you are highly certain but behind on price

-    propose to continue until Sunday resolving outstanding issues and give you the opportunity to improve your offer

*     blackbox access, SPA, insurance

-    prepared to contemplate a […] structure in order to achieve this

*     message to Sage that they need to hurry up i.e.

-    things are moving more quickly than anticipated

-    there is significant prospect that we will be in a position to sign a transaction by close of play Sunday that is “competitive” with revised proposal

*     lets debate the descriptor “competitive” but 1,235 verses 1,350 is 8%

*     the pro of “competitive” is that it gives them hope that notwithstanding behind on dd they can get there with more price

*     the con is that it tells them someone is close but not above their offer

*     hopefully we can address the con in the event that [PE bidder] improves their proposal on Sunday

Lets discuss in context tomorrow with returns and SPA analysis.

69    Mr Gray was not concerned by the short deadline specified in the private equity bids as this was common practice and they were usually adjustable if a private equity bidder were serious. Mr Allen expected to spend time clarifying the elements of the offers and any prospect of improvement, likely through intensive negotiations. He thought there would be a limited timeframe in which to do a deal because of the risk that the private equity bidders’ interest might wane, funding for such deals generally had a limited timeframe and there was always the risk of some detrimental development in MYOB’s business.

Friday, 12 August 2011

70    At 11.28 pm (London time) on 11 August 2011, Mr Price advised Mr Harrison (among others) that the UKLA had advised that the “consideration” test for class 1 purposes could not be based on VWAP but if a portion of debt (say $200 million) was left in MYOB and repayment was not triggered by the acquisition, then the consideration would be reduced to $1.15 billion and the transaction would not be regarded as class 1 at a Sage share price higher than 223p (then 250p) and with then current exchange rates.

71    Mr Harrison responded that “I think this outcome removes a very material impediment to our success”, he commented to Messrs Berruyer and Epstein (and another) that “[a]ssuming nothing changes, this is really excellent news” and he said to Mr Francis Burkitt at Rothschild (among others) that “[i]t is definitive as advice but it only works if Archer cooperates. We have not raised the topic with Archer as our competing bidders certainly have no cps [conditions precedent] relating to this and until we got the result we wanted, this would certainly materially disadvantage us” and “[a]ssuming the advice holds, we have removed a material barrier (quite likely a deal breaker)”.

72    Mr Harrison responded “[t]his makes sense” to Mr Price’s further email sent at 11.43 pm (London time) on 11 August 2011:

We have agreed that we don’t change the tactics at this stage as (a) the banks are proceeding on the assumption it is class 1 and therefore you are covering yourself for all eventualities (b) if the target says they would rather take the class 1 risk and doesn’t like our [MYOB] loan structure (unlikely on both counts I accept) then we should have the rest of the financing in place to deal with class 1.

We will however, work to have as much clarity and certainty on the structure of the AU$[200] m subsidiary loan by Monday as possible for you to provide comfort to the Target.

73    Mr Allen told Mr Longstaff that Sage would need to submit its bid as soon as possible, that Archer was getting real pressure from the other bidders and that they may get to a point at which Archer would need to deal with the other bidders.

74    At 2.40 pm, in response to Mr Allen’s advice that “things are accelerating”, Mr Longstaff sent Mr Allen an email which indicated that “[i]n the new circumstances we can get to you by 9 am Tuesday (perhaps late Monday night) a final offer in the form of a Sale & Purchase Agreement (“SPA”) that has been agreed between us”, but to do that, Sage would need access to due diligence materials (including black box), warranty insurers, Allens (with adequate instructions to progress the share sale agreement), and access to management despite the weekend.

75    Mr Longstaff’s 2.40 pm email concluded (emphasis added):

Sage have a board meeting scheduled for 5.00pm (Sydney)/8.00am (London) time Monday. This was set in reliance on our previous discussions and we are unable to move this. Sage CEO Guy Berruyer, who is fully across the detail of the project, is scheduled to come to Australia arriving 6.00am Monday primarily to meet Tim Reed ahead of the board meeting. This cannot be moved and, even if it could, wouldn’t change our timetable given the board meeting timing. It is of course harder to predict how things will move after you receive our proposal, but in considering signing timing we need to ensure that any Sage announcement is made on an orderly basis with key Sage personnel available to speak to investors etc, and proper communication with MYOB staff.

This is extraordinarily fast. Sage needs due process and will not act in an irresponsible fashion. We can only operate within the envelope of the time you have given us which, as you acknowledge, is substantially less than you have given others.

But we are not prepared to start down this path if there is no realistic prospect that it can result in success, subject to terms. In effect this means that we need a commitment that the business wont [sic] be sold or promised before 6.00pm Tuesday 16 August. Paul and I cannot ask Guy to fly down here and find the business sold before he arrives.

76    Mr Allen wrote to Mr Gray at 4.31 pm:

Thought about it. Agree on price discussion. Too early. Scared of the answer at this stage. Need the letter to ask the question of [PE bidders] on Monday and then give Guy one last chance on Monday night. Discussion with Sage therefore becomes:

-    Should be able to work around Monday night

-    Will commit to not signing anything while Guy is in the air and prior to Guy’s engagement with Tim

-    that’s all

77    Mr Allen conceded in cross-examination that it would have been useful to have a letter from Sage so that the position was clear when considering all of the bids, but “given their form” had to balance some concern that a discussion about price with Sage may result in a reduction in its bid price.

78    At 7.49 pm, Mr Longstaff sent to Mr Allen a detailed plan for work to be achieved on the weekend and for meetings on Monday, 15 August. One question related to when black box due diligence would be made available. It requested that Mr Allen respond to his email sent at 2.40 pm “[c]onfirming agreement to the approach”. At 8.25 pm, Mr Allen by email indicated general agreement with the work plan but that he would have to think about the timing of Sage’s access to “black box” disclosure.

79    At 8.21 pm, Mr Allen responded to Mr Longstaff’s email sent at 2.40 pm that:

We are comfortable moving forward on this basis (targetting [sic] Monday night) and will ensure we manage things from our side to enable you to meet this timetable.

80    At 8.30 pm, Mr Longstaff asked the Deutsche and Sage teams to prepare a brief structure/flow of funds diagram so that he could explain to UBS and various lawyers how the proposed loan structure to meet the class 1 issue would operate. It would involve Deutsche lending money to MYOB and it came to be known as “Continuing Debt” or the “continuing loan”.

81    At 9.29 pm, Mr Longstaff sent an email to Mr Reede (as well as Deutsche executives) which was copied to Mr Harrison in which he said:

I had a chat with UBS re class 1 and our proposed structure to ameliorate. Presented our idea as a way to maximise certainty for them.

In simple terms, they can’t see a problem. Obviously keen to see the detail (hence my structure diagram request) and need to think further. Interestingly, he was looking through Sage accounts to make sure we can pay for this - good sign.

Michael Reede, you should call Tom @ Allens and make sure he is talked though this early and isn’t baffled by the drafting.

82    I accept that Mr Longstaff spoke with Mr Allen on 12 August 2011 (not earlier) and advised Mr Allen that Sage proposed putting into the draft share sale agreement a mechanism to leave some debt in MYOB because if Sage acquired MYOB ungeared, it could be a class 1 transaction which might require a Sage shareholder vote. In response, to address the issue, Mr Allen raised the possibility of a “vendor note” in which the vendors left money in MYOB for a non-callable period, which Mr Longstaff declined.

83    Mr Allen denied discussing the “class 1 issue” with Mr Longstaff in any detail and I accept that evidence. I do not accept Mr Allen’s evidence given in cross-examination that Mr Longstaff said that the proposal was “just us making sure, beyond any doubt, that we’re not going to have a class 1 issue”. In cross-examination, Mr Allen resisted the characterisation referred to in [82] despite the fact that [67] of his Statement of Anticipated Evidence was more consistent with the tone of Mr Longstaff’s email which refers to ameliorating rather than eliminating risk related to the class 1 issue.

Saturday, 13 August 2011

84    Teams from two of the private equity bidders flew into Sydney (the team of the third private equity bidder was based in Sydney).

85    Mr Allen (9.04 am) and Mr Gray (12.42 pm) exchanged emails about a proposed timetable for Saturday-Monday to the following effect:

    Saturday – “clarification questions”

    Sunday – revisit responses with Archer 12.30 pm and “select preferred bidder at 3 pm”

    Sunday/Monday am – access to black box, engage with Allens, management rollover discussions, prepare execution versions

    Monday pm – sign

86    Mr Allen conceded that, although it did not play out as the timetable envisaged, the proposed timetable reflected a plan that a preferred bidder would be selected from among the private equity bidders at 3 pm on Sunday and a share sale agreement executed in the evening of Monday, 15 August 2011. It created an imperative to have a conversation with Sage about timetable.

87    In cross-examination Mr Gray said that he did not regard Sage as serious at this time. He said the term “preferred bidder” was Mr Allen’s language. His presumption was that the individual who was the preferred bidder “would have ended up in a concluded agreement”, that is executing a share sale agreement on the evening of Monday, 15 August. Mr Gray denied turning his mind to whether the concept of “preferred bidder” in any way involved the sale of anything.

88    Mr Allen responded on 13 August 2011 to the black box disclosure question raised by Mr Longstaff in his email of 12 August 2011 that “[d]isclosure letter is on the way. Re black box, the preference is to target agreement subject to”: see Schedule 2 at [74] and [78]. Mr Longstaff responded: “Understand completely”.

89    Mr Reede circulated a draft share sale agreement containing provision for “Continuing Debt” in clause 7.12 at 4.13 pm.

90    At a meeting about the draft share sale agreement at around 5 pm, Mr Story and Mr Reede had a discussion to the following effect:

Reede:    How is it proposed that all of the non-Archer shareholders will execute the share sale agreement? Are you planning to use the drag-along rights under the shareholders agreement?

Story:    We could but at this stage we plan to obtain powers of attorney prior to signing the share sale agreement.

…

Story:    ACCC approval has been dropped as a condition?

Reede:    Yes, Sage is prepared to take ACCC risk.

91    At 5.57 pm, Ms Kristy Lee from Allens sent an email to Messrs Heckes, Gray, Allen, Story and Mr Richard Bell (from Allens) (among others including Mr Ian Scott and Ms Tasha Chua from EY), and it was followed with exchanges referred to below up to 8.51 pm. The exchanges after Mr Bell’s email at 8.33 pm are between Messrs Gray and Allen alone (emphasis in original):

Lee (5.57):    Attached is a revised mark-up of the SSA from A&O, which was circulated earlier this afternoon. The mark-up is against our original draft SSA. ...

Tasha/Ian – please can you review from a tax perspective ... Two things we’d like to flag:

•    they have proposed a $125 million loan from [Deutsche] to [MYOB] in order to pay off ‘external’ debt (i.e. excludes RPS repayment).

•    they have requested an opinion from E&Y to be delivered at Completion covering the tax impacts of transactions contemplated by this agreement ...

Lee (7.21):     Set out below is a worked example that Tim Longstaff took us through earlier this evening to assist us to understand the mechanics behind the proposed purchase price calculation …

Also attached is the hand-out on proposed funds flow. The proposed $125m loan from [Deutsche] to [MYOB] is in order to reduce the headline price which is necessary to ensure that Sage shareholder approval is not required under UK Listing Rules. The first step at Completion would be to use the loan to partially repay external debt.

Bell (8.27):    Following on from Kristy’s email, attached (in clean and mark up) is revised version of the SSA summary table comparing SSA mark-ups. The attached table has been updated to reflect matters coming out of the SSA which Sage sent through this afternoon.

The key issues concerning the latest Sage SSA mark up are:

1.    Sage has moved away from requiring ACCC approval as a condition precedent.

2.    Included a new condition precedent that no Taxation Authority has issued a notification concerning the exit.

3.    All “Leakages” up to completion are for the vendor’s account - ie, will be netted off the Purchase Price.

4.    Archer (rather than each vendor) is providing the indemnity which backs the warranties/covenants concerning (i) the financial position of the MYOB Group on completion, (ii) no leakages and (iii) liability which will flow from the exit.

Gray (8.32):    On ACCC, what does moved away from requiring it mean? Is it gone completely?

Bell (8.33):    Yes, gone completely.

Gray (8.36):    They are getting serious my man.

Allen (8.41):    Yep. The plan is the right one. Timing on Monday will be critical. … Noone is going to like what we have to say to them tomorrow. … You might want to start boxing again.

I am shutting down communications internally... People now at risk of misbehaviour.

Gray (8.50):    What? Where?

Allen (8.51):    our spanish auction ...

92    Mr Allen’s evidence was that he did not recall reading the marked-up draft of the share sale agreement in any detail “at that early stage”, but he recalled having discussions around key issues, including the “Continuing Debt”. He did not say with whom those discussions were held. He said that he would have noted the issues as the emails came through, including taxation warranties which were not finalised until 18 August, but did not have the “finer details” of the draft share sale agreement in mind.

93    Mr Allen accepted that the penultimate exchange was a reference to the fact that the private equity bidders would not react well to being asked to improve their bids having regard to the introduction of Sage, a trade buyer, into the process at a late stage. He explained that “spanish auction” was a term that had been thrown around internally to describe the informal process which now involved the introduction of Sage. He thought it could also describe a process where at the end of final bids people have “some visibility” of where they need to increase their offers, although he denied that it was intended to disclose Sage’s final bid or that any such disclosure was made.

94    Mr Gray’s evidence was that he did not read the marked-up share sale agreement and did not recall seeing Ms Lee’s emails concerning “Continuing Debt” or that those emails disclosed that “Continuing Debt” was designed to avoid the need for Sage shareholder approval. He said that he was not aware of the “class 1” issue at any time before 18 August 2011. Mr Gray said that had he been aware of the issue he would have made enquiries of Mr Allen or Mr Story or Mr Heckes (as the Archer executive responsible for the share sale agreement) because he had been clear that there should be no conditions beyond Archer’s control. He specifically denied that he accepted that the class 1 issue was a reality if he wanted to deal with a listed public company and get $140 million more than was on offer from any private equity bidder.

Sunday, 14 August 2011

95    At 2.56 am, Mr Clayton wrote an email to Mr Berruyer with his analysis of likely market reaction to an announcement of Sage’s acquisition of MYOB. Mr Clayton said: “I think the price is very full … I think you will get a hard time from investors … In summary, I think we should move ahead, but expect that the shares may well go down on announcement day. Maybe as much as 10%!!”

96    Two of the private equity bidders submitted revised offers. One contained the words “Subject to Contract”. It also said: “This Offer is final and binding subject only to the execution of definitive sale and purchase documentation”. The other submitted a “committed offer” without qualification. The third offer, which had been submitted on 11 August 2011, was unchanged.

97    In the afternoon, members of the Archer Investment Committee (comprising Mr Wiggs, Mr Minton and Mr Gray) met with Messrs Allen and Story to consider the proposals that been received from the private equity bidders.

98    I accept Mr Minton’s evidence that:

I had concerns as to whether Sage was a serious bidder. … While I was conscious that there was a risk in delaying the sale process to allow Sage to catch up, I thought that the possibility that Sage could make a materially higher offer than the private equity bidders meant that it was a worthwhile risk.

At the meeting, the consensus was reached that:

(a)     as Sage was expected to submit its final offer by 5pm on Monday 15 August 2011, Sage should be given sufficient time to complete its work, for its board to meet and to submit that offer;

(b)     given the market volatility, once the best purchaser was identified the deal should be concluded and made risk-free as quickly as possible; and

(c)    Allen should engage with each of the private equity bidders and would also contact Sage.

99    Mr Gray described it as follows:

… the view that I came to was while it was not ideal to have the three private equity bidders in Sydney and waiting and us not being ready to deal with them, Sage had started to look sufficiently serious that the best course was to allow it the short amount of additional time that it required to complete its processes, conduct a board meeting and submit its final and binding offer. We should then consider which offer to accept if Sage provided a final and binding offer. … I was sufficiently … of the view that – that Sage had picked its game up and was moving rapidly and that we should try to create a time window for them to finish their work and ultimately comply with what we had been telling all of the parties, which was to submit a final binding proposal the – the best that they could.

100    Mr Gray authorised the release of the “black box” due diligence to the private equity bidders but not Sage. His evidence was that: “I was also of the view that there was less risk associated with providing those parties with the black box materials because they were not trade rivals of MYOB as Sage was. … However, Sage had not submitted a final and binding offer, at that stage I was not willing to grant access to those materials to Sage.”

101    Save for Mr Gray’s emphatic use of the phrase “final and binding offer”, I accept this evidence.

102    Mr Allen sought approval of his “messages” to the private equity bidders by an email of 5.43 pm. The messages were the subject of comment by Messrs Minton, Heckes and Gray. The exchange of emails over the next hour as follows (with Mr Gray’s last email being early the next morning) (as written):

Allen:    -    Couldn’t make a determination on a preferred bidder

-    Highest bidder has strings attached: a strategic and well through $1.3b

-    Preference for a private equity deal (attached to continued exposure)

-    Only colour I can give with respect to PE is that all are broadly in the same place on value

-    [comments directed to individual bidder on its bid]

-    Terms that prepared to deal on are $1,275 + $ 35m ….

*    $150m vendor note …

*    contractual terms as per markup

-    Understand that this is a stretch:

*    represents a discount to the high bidder for certainty

*    also represents desire for continued exposure (albeit in vendor note form)

*    not to say we won’t deal inside of these terms (absent our high bidder we would deal on current proposals)

*    but this is the price that we will deal for certainty right now and through to tomorrow morning

Heckes:     For me, danger here is that the bidders feel they are so far away that they decide to do something destabilising … or that they take umbrage at being caught in a stalking horse spiral and drop or refuse to play ball to test process strength…

I would be wary about saying anything about a strategic bid - I think it just adds uncertainty to the PE bidder’s thought process. If I’m one of these guys I just need to know that I’ve got until 10am or midday tomorrow for “best and finals” - that this is the “last look” for everyone:

-    Contract is coming back marked up so that they are in a form that Archer is willing to immediately counter-sign

-    Archer has agreed to countersign if a reserve price of $1,275 + $35(inc. $150 vendor note @ [ … ]) on this contract is met

-    If more than one bidder signs up to their Archer mark up and is above the reserve price at the final bid time (i.e. 10am) then best price wins (i.e. a “sealed auction” bid) and will revert to winner very rapidly thereafter

-    This is true last look and no one will be shopped; its time to put best foot forward and stop complaining/worrying about process

-    If no bidder hits the contract + price bogey we will consider reverting to the closest offer to what we’re now asking for that we’ve seen thus far or which we see at some stage tomorrow

-    Would not give any additional guidance on positioning so don’t bothering calling … “this is it boys, plain and simple” - Archer has seen what everyone has to offer and is now ready to deal on these terms.

I think we need to let guys let it rip right now and cannot have a situation where they’re worried about leaving anything in the tank because they think a strategic bid is coming that we are going to wait for and which they may need to yet again re-bid against. They need to know that if they hit our minimum conditions then this will trade (if not to them then to someone that’s put a better price down at 10am tomorrow).

That’s of course my view. Happy to defer to others.

Minton:    I think Frank has made some very good points and we should take it into account on how we deal with them.

Gray:    Totally agree. I think I positioned the guy coming in as the strategic in my dialogue though. If they think the strategic is well above our reserve price though I don’t think it’s destabilizing as they will feel they didn’t top a strategic.

Heckes:    Did you mention to all bidders …? If you have, don’t think it will matter much in the end as you say as long as they know we will deal if they hit or better the bogey.

Gray:    [Words to the effect that he had spoken to two of the PE bidders, but not the third]

Allen:    It may be worth you chatting to [name of officer of different PE bidder deleted] to give him the “last look” message too? I think he’d appreciate the call at this point...he’s probably feeling pretty frustrated.

Gray:    Yes. Agreed. Will do tomorrow.

103    Mr Boyce (of Bain) told Mr Allen at 7.30 pm that “[o]nce we have an agreed contract & more clarity on process, we can then revisit value”.

104    Mr Allen described what he was proposing as encouraging the private equity parties to increase their price. Mr Allen said: “Sophisticated parties on the other side knew where we were, they knew where the other parties were.”

105    Mr Allen reconciled this timetable for dealing with private equity bidders with the agreement with Sage that MYOB would not be sold or promised while Mr Berruyer was in the air as follows:

Well, we had set up a timetable that would see them potentially come back on a stretch target. We had said to Sage we wouldn’t deal the asset out from underneath them while Guy was on a plane. We told them that we wanted to hear back from them on 5 pm the following day, and Guy was on the ground in the morning, so there were all those factors. So there was also my undertaking to have a conversation with Mr Longstaff in the morning and say things were moving a little bit more quickly, to give them the opportunity to speed up, and then there was the overlay that Sage had not put any final offer forward [and] that [they] had previous form in relation to previous processes of stepping away from things. And so, you know, if you bundle all that together, I felt, yes, that we could actually keep consistent with our commitment and give private equity a stretch target. At the end of the day, it’s a judgment call.

106    Mr Gray said:

I believe all the communications … were as frank as they can be, in that there are elements of confidentiality. We are guiding people to where they can improve their proposals. It’s an auction. It happens every day when people bid for businesses. And the predominant goal of all of these exchanges was to create an appropriate amount of delay such that Sage could complete its process, have its board meeting, approve with full board approval yet again but in this situation a final … offer, and get that to us and we could then make a determination as to what we would do at that point. And that would practically occur around 5 pm tomorrow.

107    At 8.45 pm, Mr Longstaff responded to Mr Allen’s “messages” and their conversations in an email setting out how he saw the next few days panning out (emphasis added):

Here’s how I see the next few days playing out:

•    Guy [Berruyer] meetings with Tim R[eed] tomorrow as discussed

•    Hopefully the lawyers have the SSA in an agreed form, or worst case with very specifically defined issues, by 5.00pm.

•    Seems unlikely we’ll be quite there with warranty insurers, but we’re pushing hard. …

•    Board meeting 5.00pm Monday

•    Depending on how this goes, get you a letter and marked-up SSA by Monday night/Tuesday morning

•    Guy and Paul [Harrison] available for discussion till around 1.00pm Tuesday when they need to head to the airport. They will both be off air for 24 hours so use this time wisely

•    Assuming we reach agreement, we start black box DD … fast as possible

•    When BBDD is complete we can send our final DD reports to the warranty insurers. …

•    I understand Tom will commence “calling” the equity from your structure and gathering POAs (as a preference to “dragging”, although this can be done)

•    We will work with Tim R. on communications planning … Sage really wants to get this right with customers and staff

•    Signing will be a function of the completion of the foregoing and sequencing the last signature in Cayman and London Stock Exchange opening hours. Ideally Sage would announce in the morning London time.

We will move at best speed for the foregoing

108    Mr Allen reported back to Messrs Gray, Minton, Heckes and Story (among others) at about 9.24 pm concerning his conversations with the private equity bidders and Sage. One private equity firm (the principal contact of which had delayed an overseas trip to remain to negotiate) was unresponsive to proposed structural changes, one was concerned about a perceived “race to the line” and was not sure that there was “anything left” and one indicated that “practically we will make a call by 5pm tomorrow” but “don’t think they’ll be able to hit the ask”.

109    In relation to Sage, Mr Allen reported that “[c]onfirmed in good shape”, awaiting revised contracts, they were “not expecting management as a [condition precedent]” and Sage “expect[s] to be in a position to commit post Board meeting but want to sign on Thursday (said we could discuss)”.

110    At 10.40 pm, Mr Reede circulated proposed amendments to the share sale agreement to Mr Story (among others).

Monday, 15 August 2011

111    At 2.05 am, in response to Mr Allen’s email of 9.24 pm on 14 August, Mr Gray wrote to Mr Allen: “The Thursday thing is an issue. Tim L needs the heads up before the board meeting that they have to sign tonight.” Mr Allen responded at 6.19 am: “Yeh. I agree. They’ve come in from weekend though so this afternoon time to break the news.”

112    At 4.51 am, Mr Mark Rolfe (a director of Sage) had an email exchange with Mr Harrison, copied to Messrs Berruyer and Hobson in which he noted the “contrasting tone” of advice from Sage’s investor relations adviser and Deutsche as to likely market reaction to the transaction and “management assessment that shareholders would not support this if it were a Class 1” to which Mr Harrison responded shortly before the Board meeting at 5 pm:

I don’t think we feel shareholders would not support this if it were class 1. We feel they would. However, for Archer the uncertainty associated with a condition precedent of shareholder approval would most likely lead them to accept a rival offer with no such cp.

113    In further response to Mr Allen’s 9.23 pm email on 14 August, at 5.30 am Mr Minton wrote to Messrs Allen, Heckes, Story, Gray and Wiggs (among others):

I also think we need to push them all on the basis that we want to close this out now, we just need the offer that is capable of acceptance, which we don’t have yet.

114    At 7.09-7.24 am, with the words “[t]hat’s the drill” Mr Gray approved another of Mr Allen’s scripts for a discussion with Sage:

-    Need to move fast and come back to us definitively

-    We have proposals that are equivalent to Archer to your 1.35 proposal which we will sign

-    We are going to sign tonight absent confirmation that you are able to sign above 1.35b and a commitment to sign first thing Tuesday morning by CEO/Chairman

-    Guidance will be 1.45 gets you a deal with certainty, 1.4 risks a move from others.

Not in the script but accurate

-    Proposals equivalent because [detail of one of the private equity bidder’s proposals]

115    At 7.14 am, Mr Longstaff advised Deutsche executives in London by email: “This will be won or lost before the Board. Looking precarious.”

116    At 10.24 am, Mr Longstaff sent to Messrs Allen and Story a copy of advice given by Norton Rose (Deutsche’s lawyers) concerning the proposal that Deutsche lend the “Continuing Debt” to MYOB for a period of three days. Mr Allen forwarded the email to Mr Heckes at 10.25 am. Mr Story’s evidence was that it was his understanding that the short term loan was to “ensure that Sage shareholder approval was not required under the UK Listing Rules”. Mr Allen’s evidence was that “I did not consider that the terms of that continuing loan was a matter that should be of any concern or interest to Archer Capital as Sage’s offer was likely to be a straight cash offer; but … I wished to ensure that the mechanics would not impact on a deal with Sage in any way.”

117    During the morning it became apparent that KKR had “run dead”; it did not engage with “black box” due diligence and showed no interest in receiving telephone contact. KKR’s failure to respond was a matter of some consternation to Archer (Mr Wiggs noted that this response was “as predicted”) and an occasion of some friction between Messrs Gray and Allen.

118    Messrs Allen and Longstaff met around 11 am. Mr Longstaff sent a strategy note to Mr Reede at 1.19 pm which indicated that “UBS” told him that the offers received from private equity were equivalent to Sage’s in Archer’s opinion, though differently constructed. The note includes the following (as written):

•    If forced to make a decision now, they would accept these other offers as they are more certain

•    As a means of holding off others, last night they gave the sponsors a “stretch target”

-    At a level above where UBS thought they could meet

-    Promised that if one of them met this target on a “first past the post” basis then the business would be sold (even if before our deadline)

-    Expecting to hear back before Sage’s 5.00pm Board

•    Their proposal

-    Sage advise by ~4.00pm the price at which they will suggest to the Board

-    Andrew Gray available to meet before then and can agree a price in the room … Archer take Sage Board risk

-    UBS can then use this to reject other proposals, as we are “first past the post”

-    Sage confirms offer post Board, or not

-    Signing SSA Tuesday with conditions precedent for

*     Black Box due diligence (to our sole benefit)

*     Finalisation of Warranty and indemnity insurance (to mutual benefit)

-    Sensible announcement strategy would be facilitated but discussion was around 8.00am London (5.00pm Sydney) on Thursday.

•    Other points

-    Setting aside the emotion, this is just a price negotiation

-    UBS struggling to present this as other than a breach of their undertaking to us

-    UBS agree that Sage has done all asked of us and moved in an exceptional manner

-    UBS have agreed that they would play Sage differently if they had their chances again

•    Questions

-    Can we trust any new undertaking more than the last one

-    is there a case to increase price … more about judgement now than financial analysis

119    Mr Allen denied that he had suggested to Mr Longstaff that Archer would take the risk of Sage’s board rejecting the price proposed to Archer by management; in his view Mr Gray would never accept such a risk. However, Mr Longstaff’s note is virtually contemporaneous with the conversation, it is consistent with encouragement being given to Sage to increase its proposed price and there is no evident reason for Mr Longstaff to record incorrectly his understanding of the conversation on that issue having regard to his audience for the note.

120    Mr Longstaff did not react well to the discussion concerning private equity bidders. He indicated that Sage may sue “Archer” and Mr Allen personally if MYOB were sold before the Sage board met and Sage had the opportunity to make an offer. Mr Allen took the threat seriously; he obtained legal advice. Mr Gray said that he had told Mr Longstaff that Archer had been “trying to run a fair process. I was reasonably pointed, and told him that, fine, we – we won’t sell the business before the allotted time, but I have no desire, nor do I intend to meet with the Sage parties who were coming in that morning.” Mr Gray said he only agreed to meet with Mr Berruyer after being told by Mr Longstaff that the threat had been his and not Sage’s. At 2.11 pm, Mr Longstaff sent Mr Allen an email: “Just off the phone from Andy. Let’s be clear, we’re working in good faith towards a transaction. You have seen this. See great merit in Andy being available to meet Guy and Paul between 2.30 and 3.30pm as previously discussed.”

Mr Gray meets with Mr Berruyer

121    Mr Gray met with Messrs Berruyer and Harrison at Deutsche’s offices in the mid-afternoon.

122    Mr Gray’s evidence was that Mr Berruyer was at pains to assure him that Sage was credible. Mr Gray’s evidence was that Mr Berruyer said:

... I’m sure you’re aware of the [TeamSystem] process, UBS was advising Bain Capital in that process, they’re advising you in this process, and you will know that – that we – we pulled out. I need to explain to you what happened then, why it happened, and why it is different today. He then went on to tell me that, during the time of the [TeamSystem] process, he was just appointed the CEO of Sage. He was a new CEO. He stated at that time his team was not in place, and he was not prepared to move forward in that process and he did not submit a final proposal. He then went on to say that this time was different. This time he had been in the chair for a longer period of time, his team was now in place, and he was ready. This time he could commit.

He described the process that he saw happening throughout the day. He referred to a board meeting at 5 pm on Monday 15 August, Sydney time. He said there would be a board meeting, and at that board meeting, the board would approve the transaction, and they would be able to submit a final binding proposal for the acquisition of MYOB. That wasn’t surprising to me, since we were asking for that from all parties for the – for the past week.

123    Mr Gray said that Messrs Berruyer and Harrison “convinced me of their both sincerity and ability to complete a transaction”.

124    Mr Allen’s evidence was that Mr Gray reported this conversation as:

It was a good meeting, Guy talked about TeamSystem and the fact that he had only just taken control of the business. He suggested that things had now changed within Sage and they were committed to completing this transaction.

The “prevailing draft” of the share sale agreement

125    At about 3.31 pm, Ms Lee circulated a draft of the share sale agreement (being the document which appears at volume 10 of the Court Book at pp 4947-5088 in mark-up) and it is common ground that this is the “prevailing draft of the SSA” referred to in Sage’s “Final Offer” letter. Some notable features of this version were:

(1)    The parties are said to be the parties listed in schedule 4 as vendors (the applicants), “Stirling Bidco Pty Ltd” as purchaser and Sage as the purchaser’s guarantor;

a.    The purchaser indemnified the vendors and the directors of MYOB for any liability for the “Continuing Debt” (clause 7.4);

b.    The governing law was changed from New South Wales to New York (clause 29(a));

c.    The execution clause said: “Executed in the Cayman Islands”;

d.    Schedule 3 contained a warranty by the purchaser and Sage that Sage “does not require any shareholder approval to perform its obligations under and any transaction contemplated by this Agreement” ; and

e.    Schedule 11 was blank. It related to “Consideration Rights” which were the terms to be agreed between the purchaser and the management vendors. The definition of the term “Consideration Right” noted that a right to comment concerning a relevant tax issue was reserved until the terms had been agreed.

126    At 5 pm Sydney time, the Sage board met in London and authorised Messrs Berruyer and Harrison to take all steps necessary to acquire MYOB at an enterprise value of $1.35 billion and to arrange its funding. The minutes record that Mr Berruyer “noted that he had been troubled by the competition aspects of the transaction and the possible Class 1 issues. … He had been made comfortable on the Class 1 issues by the advice from Deutsche. … Although the price may be high, GSB thought it appropriate. It would be a challenge to explain to the City.” The Board approved the resolution “authorising the Chief Executive and the Finance Director to take all steps which they believed necessary to acquire the issued share capital of MYOB Cayman Holdings Limited on behalf of the Company at an enterprise value of up to Aus. $1.35 billion and to arrange funding of that acquisition”.

127    At 5.14 pm, Mr Longstaff sent an email to Deutsche executives in London in which he said (among other things): “Principals’ meeting anti-climactic. Didn’t even try to discuss price which is a bad sign.”

Sage Final Offer letter

128    At 7.25 pm on 15 August 2011, Mr Longstaff sent an email to Messrs Gray and Allen attaching the Final Offer letter from Sage: see [59] in Background.

129    Following receipt of the Sage “Final Offer” letter, Mr Allen spoke with Mr Longstaff. Mr Allen noted that the price had not increased to which Mr Longstaff pointed out that, as stated in the letter, that there had been additional costs that had been incurred through the process and Sage had managed to hold its offer at its previous indication which was implicitly an increase in their offer.

130    Mr Allen also noted that there was no mention of the management incentive arrangements, “which was clearly a critical part of Guy flying down and meeting management”. Mr Longstaff advised that management issues had been substantially resolved at the meeting between Messrs Berruyer and Reed that day and Mr Reed had been given a copy of the plan that was proposed and acceptable to Sage. Mr Allen said that Archer had no “visibility” on that.

131    Mr Minton’s evidence was that after considering the terms of the “Final Offer” letter, he assumed that if Archer accepted that offer then, subject only to the satisfaction of the conditions set out in it, Sage would pay $1.35 billion for all of the MYOB shares. He also assumed that Sage would work quickly towards satisfying all of the conditions and that there would be a reasonable time allowed for those conditions to be satisfied or otherwise dealt with. He was satisfied that the conditions were capable of being satisfied.

132    Mr Gray summarised what he said drove him to continue to deal with Sage:

... it was the entirety of the process up until that point. It was the meeting with Berruyer earlier that day. It was the statement that this was – had received full board approval. It was the collection of all of those things and ultimately, what I believed was a binding proposal in … terms that are not ambiguous in my mind at all that subject, if we were to accept the proposal, subject to then the satisfaction of some minor conditions which I believed were wholly within my control. I believed that. Then, yes, Sage would be bound to pay us $1.35 billion for 100 per cent of the share capital of the business.

133    Messrs Minton, Wiggs and Gray determined that Sage’s proposal was the superior proposal. The consensus was that further discussions should be undertaken with Sage and Bain the following day and, unless an alternative proposal was made by another bidder, Archer should accept the Sage proposal.

134    At 10.50 pm on 15 August 2011, Mr Reede circulated a revised version of the share sale agreement under cover of an email in which he noted that “[w]e seem to be very close to completing an agreed draft. Most of the changes relate to the tax discussion between EY and PwC\A&O this afternoon and should be resolved based on that discussion.” At around 11.17 pm, Mr Story responded by enquiring when management terms would be provided.

135    At 10.54 pm, Mr Harrison wrote to Ms Karen Geary (Head of Human Resources at Sage): “I have argued strongly neither to reduce the price nor to increase it. Guy and Ivan were flirting with shaving the price. I persuaded them not to. However, I would not go higher. That game is over!”

136    At 10.33 pm, Mr Allen sent an email to Mr Longstaff asking him to “call Andy re management before 10.45”. Mr Gray and Mr Longstaff then spoke concerning management retention arrangements.

137    By email sent at 11.12 pm, Mr Longstaff reported the conversation to Mr Berruyer. He noted Mr Reed’s apparent confusion arising from his conversation with Mr Berruyer about what Sage was seeking concerning the extent to which management interests would be at risk if earnings targets were missed. Mr Longstaff speculated that Mr Gray’s interest was both personal on behalf of Mr Reed and “genuinely about risk reduction … he thinks that unless we have management comfort we are a risk”.

138    At 10.50 pm, Mr Reede sent an email to Mr Story attaching a revised draft share sale agreement, noting: “We seem to be very close to completing an agreed draft. Most of the changes relate to the tax discussions between EY and PwC\A&O this afternoon and should be resolved based on that discussion. On the warranties we have not made all of the changes you requested, but then the W&I insurer has responded indicating that they are satisfied with the warranties, so that should be fine. We will be at your offices in 20 minutes.” There was a minor edit to the warranty dealing with the matter that Sage did not require shareholder approval to perform its obligations under the share sale agreement.

139    At 11.17 pm, Mr Story sent an email to Mr Reede in which he noted that Schedule 11 of the draft share sale agreement remained blank of management consideration terms and asked when they would be available “as obviously those terms will need to be reviewed and agreed with management, subject to tax review etc. before we can settle the SSA. Is there a time frame for that process to occur?”

Tuesday 16 August 2011

Mr Story reports on status of contract negotiations

140    At 1.17 am, Mr Story sent an update to Messrs Gray, Heckes and Allen (among others) concerning the status of the draft share sale agreement in relation to Sage and Bain: see Background at [62].

141    In relation to this email, Mr Gray gave the following evidence in cross-examination:

Gray:    … I don’t recall it at all and I’m not really surprised at that as it pertained to matters of the share sale agreement which is contained in the subject line. Mr Heckes was … leading those dialogues. Frankly we, throughout the entire process, had been working hard. So emails coming in, in the early hours of the morning … I probably wasn’t focusing on long emails around the share sale agreement. My focus was on running the – or continuing to run the process and be across the process issues.

Counsel:    Would Mr Heckes report to you?

Gray:        In the context of this transaction, he did, yes.

Counsel:    Yes. He was duty bound to bring to your attention any suggestion of a possible requirement for Sage to obtain shareholder approval. That’s correct, isn’t it?

Gray:    I believe, had he been of the position that a shareholder approval was required, he would have raised that to me, yes. I – I would agree with that.

Counsel:    Well, if he had been aware that, for example, had the stock market collapsed at some point in time, shareholder approval might be required and he would be duty bound to have brought that to your attention, wouldn’t he?

Gray:    … whether he’s duty bound or not, I’m – I’m highly confident he would have.

Counsel:    Yes. Where’s Mr Heckes?

…

Gray:    He still works for Archer, if that’s the question.

Counsel:    Right. If the SSA was effectively conditional upon a management agreement, was it up to Mr Heckes to bring that to your attention?

Gray:    Not – not – I would not have expected that in the same way I would have expected something like a shareholder approval to be brought to me. … he’s a senior individual within the firm, has great experience in negotiating contracts. We had all read the initial drafts, and had opined on the initial drafts that were sent out to people. So from the basis of our initial ask, we were all very familiar with the various terms, and I had confidence in his capability to bring the various minor technical issues to ground. And should there be anything that was of significant nature... he would bring it to my attention. I’m confident that he would have done that.

...

Counsel:    Right. And what I want to put to you is, you knew about this email of 16 August 2011 at 1.17 am, on 16 August, and you were total[ly] unconcerned by its contents. That’s correct, isn’t it?

Gray:    I – I don’t recall reading this email.

Counsel:    And you were unconcerned by the fact that there might be a legal requirement under the – you were aware of the class 1 divisions in the English stock exchange rules. Were you?

Gray:    No.

Counsel:    Never heard of them?

Gray:    Not until, sort of, the evening of Thursday 18 August. I’m reasonably familiar with them now.

142    At 3.45 am, Mr Berruyer wrote to Messrs Robinson, Harrison and Longstaff: “On our side, we have seen two calls between bankers, with two key topics: management incentive and timing (sign asap). But we suspect price could be on the table tomorrow morning … so nothing is sure. Andrew Grey [sic] suggested that it would be easier for TR [Tim Reed] to deal with one discussion rather than several. So we’ll try to see how they want to deal on this in the morning.” In response to Mr Longstaff’s email of 11.12 pm on 15 August, Mr Berruyer responded at 4 am: “Clearly this discussion has created some feelings and maybe some misunderstanding, although I’d be surprised as I gave TR the paper you prepared. I suggest that a quick meeting with TR should be arranged for sometime tomorrow morning before we leave. Can you help arrange?”

143    At 4.13 am an email chain concluded which relevantly commenced at 7.06 pm on 15 August. The exchange was between Mr Berruyer and Ms Geary in relation to options for personnel to “front” announcements:

Geary:    I think it needs Board Director presence. It’s at these times when this status carries weight.

Berruyer:    ... Let’s see if we will be selected or not … In my mind, announcement would be Monday or Tuesday morning London time, i.e. afternoon there, but still not sure!

Geary (19.10):    Will it hold that long? The apparent news of Bain and KKR bids are on the web.

Berruyer:    I would prefer that we have enough time to prepare a solid presentation for when Paul and I do the city call, as we expect some tough questions. This needs in my mind some serious preparation, so I thought having the weekend will give us that time to work with advisors and polish (1) our ppt and (2) the announcement.    

144    At 7.49 am, Mr Longstaff sent Messrs Allen and Gray an email with a version of the management plan given to Mr Reed the previous day and noted: “We accept your desire to increase certainty. This can be enhanced by a meeting of Guy [Berruyer] and Tim R[eed] this morning … ultimately it is a matter between them. ... Andrew, Guy is happy for you to join this.” Mr Allen’s evidence was that he then had a discussion with Mr Gray who said: “This clearly needs to be resolved. This is the key outstanding issue in relation to the Share Sale Agreement. We’re not going to take any risk in relation to that.”

145    At around 8.45 am, a meeting was held between Messrs Berruyer, Harrison, Robinson, Longstaff, Reed, Martin, Gray and Minton to discuss the proposed management plan. At the conclusion of the meeting, Berruyer said that the plan was acceptable to Sage and Mr Reed said that it was acceptable to management.

146    Mr Allen’s evidence was that he did not recall Mr Story’s email of 1.17 am, although he accepts that he would have read it later. While the management issue had been of concern in the evening of 15 August because Archer did not have “visibility” of its terms, by the morning of 16 August Mr Longstaff had given him comfort that the issue was “off the table” for Sage. He commented that legal agreements often lag commercial agreements and it was now about “knocking out the detail”.

147    At 9.36 am, Mr Story wrote to Mr Reede: “As discussed last night, the tax issues in your draft SSA remain material issues for the MYOB vendors. ... Subject to these two points being resolved, we believe that the remaining outstanding issues on the SSA can be resolved in due course.” Mr Reede responded and at 10.10 am, Mr Story wrote to Mr Reede: “The principles set out in your email are acceptable, and we can finalise the wording in point 3. in due course.”

Archer meets with Sage and Bain

148    Later in the morning, representatives of Archer held meetings with the Sage and Bain teams at UBS’ offices. The context of those meetings was that the Bain and Sage offers were the most attractive offers received and the meetings were intended to be a final opportunity for either bidder to improve its bid or for Archer to ask questions of them and clarify aspects of their bids.

149    Messrs Gray and Minton met with Messrs Berruyer, Harrison and Robinson between 10 and 11.30 am. The meeting discussed mechanics around satisfying the conditions set out in the “Final Offer” letter and management arrangements.

150    In his evidence in chief, Mr Gray said that he did not recall Sage personnel suggesting any further conditions or any necessity to link a binding nature of the arrangement to the timing of a Sage announcement or “acceptance” of the “Final Offer”; “we were focussed on the mechanics ... and how that would occur, the process for that to occur.” Sage’s desire to announce later in the week was discussed and Mr Gray did not recall “any dialogue about not being able to be bound” but if “[a]t any point in time had there been any sense that Sage was free to walk from their proposal we – we would not have been dealing with Sage. We would have been dealing with another party; period.”

151    Mr Minton said that he was comforted by statements made by Mr Berruyer concerning the circumstances surrounding the withdrawal from the TeamSystem process and that he now had his team in place and the offer had full Board support; Mr Berruyer said that the Sage offer represented “certainty for us”. Mr Minton said: “I left the meeting feeling very comfortable that the deal ... could and would be done with Sage. He made me comfortable that ... they were a natural buyer of this business.” Mr Minton was unconcerned about the conditions in the “Final Offer” letter. In relation to finalising the share sale agreement, he said that “whilst I wasn’t involved in it, my team had told me that [there were] no fundamental issues still outstanding”. He saw satisfying the conditions “as a mechanical process”.

152    Powers of attorney were executed by Sage and its subsidiary which would act as the purchaser authorising Mr Robinson to act for them. At 1.30 pm, Mr Berruyer left for the airport to fly back to the UK.

153    At 1.57 pm, Mr Berruyer reported to Mr Epstein and said: “As I write, we still don’t know whether we will be chosen or not, we believe we will know at the end of the day. We do know one PE is still there, Bain. ... Paul has elected to stay on and will be leaving by the late flight. Most of the time was spent on management incentive which they saw as a central problem. [Description of how Sage had changed its proposal to management] Paul will complement as this might still change after negotiation.”

154    At the meeting with Bain representatives, Bain provided a further amended version of their offer. Having regard to the gap between the Sage and Bain offers (which Mr Minton took to be about $140 million), Mr Minton saw little utility in trying to “walk up” the Bain offer and Archer representatives told Bain that its offer was materially below the best offer received.

Consideration of offers

155    Messrs Gray, Wiggs, Minton, Allen and Story met at UBS’ offices in the afternoon to discuss the proposals from Sage and Bain.

156    Mr Gray’s evidence in chief was that he did not think that there would be any difficulty satisfying the conditions set out in the “Final Offer” letter. He said that he did not expect that there would be a problem with Sage obtaining foreign investment approval in Australia or New Zealand or warranty insurance since some of the private equity bidders had already secured them and he expected that the “black box” due diligence could be reviewed rapidly as its content was uncontroversial. In relation to the fourth condition, agreement on the share sale agreement, Mr Gray said “I was definitively of the view that the differences were as described, small and technical in nature and we could have signed the Sage mark up as is with no impact to us whatsoever”.

157    In cross-examination Mr Gray said that he was not aware of any other conditions and while he noticed the word “including” before the list of conditions, he thought it was “just a word” and the “Final Offer” was subject only to those four listed conditions. He said: “We were not surprised when we saw these matters, because it had been discussed amongst the parties. We had been very clear that it could only include matters that were wholly within Archer’s control, and it did only include such matters, in my opinion.” He noted that Sage’s agreement on terms with management was not a condition of the “Final Offer”.

158    Mr Gray said that if he had been made aware that the “Final Offer” might be conditional on Sage shareholder approval or if he had been aware that Sage held the view that notwithstanding fulfilment of those four conditions it would not be bound if this “Final Offer” was accepted, he would have ceased discussions with Sage and proceeded with the proposals put forward by the private equity bidders.

159    Although the “Final Offer” letter did not use the words “final binding offer”, Mr Gray said that he noted the absence of words used in the “Indicative Offer” and “Formal Offer” letters which expressly said that the document did not form a binding agreement. He would have been concerned had the word “non-binding” not been removed.

160    Mr Gray said that he thought the words “subject to contract” referred to the fourth condition. He said: “I was very pleased that the [Final Offer] had dropped the requirement to sign the SSA as part of the proposal”. He thought those words “referred to the modified requirement for an agreement … on the terms of a share sale agreement, that was a modification from the [Formal and Indicative Offers] that required signing of such an agreement, so I was very pleased that we just needed to agree and reach terms on such an agreement in the final binding proposal tendered by Sage.” Having regard to the presence of the words “subject to contract” in one of the private equity offer letters, Mr Gray said that he did not pay them attention because “I was less concerned that [the private equity firm] might be flaky or unreliable, and not committed” and, in relation to this difference of treatment “each final binding proposal had their own terms, and they were different, and needed to be read in their entirety, with all of their various conditions, terms, etcetera.” Mr Gray formed these views without legal advice.

161    The force of Mr Gray’s evidence is that he was intently focussed on whether Sage would be “bound” upon “acceptance” of the “Final Offer”. He found it difficult to address clearly questions concerning to whom Sage would be bound, that is, with whom Sage would have “legal relations”. His evidence ultimately was that he thought Sage would be bound not to MYOB or Archer but to the “many participants that [he] would have been acting on behalf of” if the “Final Offer” was “accepted” before the time specified in the “Final Offer” letter. See T 302-303.

Email headed “Sage proposal to preferred bidder status and completion”

162    Mr Gray said that he and Mr Allen had several phone calls, as this acceptance email was being worked up, before it was finally tendered.

163    Mr Gray asked for the first iteration of the email exchange to be amended so that obtaining warranty insurance would be made a condition precedent of the share sale agreement because he did not want that issue to delay signing the share sale agreement. He was comfortable that it would be obtained because one of the private equity bidders had already done so.

164    Before Mr Allen sent his 6.14 pm email, he spoke with Mr Gray. Mr Allen described the timetable to him and Mr Gray indicated he said words to the effect that the timetable was acceptable to Archer. Mr Allen said that Mr Gray told him to “[d]o the deal”.

165    Mr Allen could not explain why the first dot point of the steps which had appeared in Mr Longstaff’s 5.28 pm email did not appear in his response sent at 5.32 pm. He also could not explain why his 6.14 pm email confirmed Sage’s “preferred bidder” status rather than stating that Sage’s “Final Offer” “is accepted”. His evidence was that as a commercial person he considered that Archer was accepting the offer by the email at 6.14 pm and by sending the private equity bidders away.

166    Under cross-examination, Mr Gray said that he was “generally aware” of the terms of the 6.14 pm email and only aware of its exact terms when he received it, but he was happy that the email carried out his instructions. He said that he did not recall discussing with Mr Allen that Sage would be appointed as “preferred bidder”; he did not think the exact language was significant because “the purpose was to accept the proposal offered by Sage, and agree the timetable for satisfaction of the conditions, not a massively challenging process”. In Mr Gray’s view: “The acceptance terminology was spelled out in the final binding offer from Sage, and the email from Mr Allen adopts their requested vernacular.” He agreed that he was referring to the penultimate sentence of the “Final Offer” which said:

We believe it represents a sufficient basis to be appointed as preferred bidder, and we wish to discuss the basis upon which this can occur, as it will achieve a faster, final agreement.

167    During discussions between Messrs Allen and Longstaff in relation to the “on risk”/“off risk” issue, Mr Allen told Mr Longstaff that Archer’s preference was to work towards an escrow arrangement rather than a break fee given where the parties were in the context of the transaction. Mr Allen said that Mr Longstaff indicated that he understood and that the form of the escrow was something that Allens and A&O could work on. Mr Gray said that he could not recall any discussions with Sage or Mr Longstaff about a break fee (Mr Gray’s Statement of Anticipated Evidence at [187]) but Mr Gray acknowledged being aware of the exchanges that led to the inclusion of the words “but Sage (NOT Archer) signing and depositing at A&O strongly preferred”: T 293.33-34.

168    Mr Allen had difficulty in explaining what was meant by the sentence “[w]e agree that a mechanism needs to be found for Archer to be wholly off risk/Sage wholly on-risk from finalisation of work (say 3:00pm Wednesday)” if, as he stated, he considered that Sage was committed from the time Archer “accepted” the “Final Offer”. It appears that in his view this language and the proposed escrow mechanism was directed to mitigating a practical risk that fulfilment of the four conditions in the “Final Offer” letter would not “mechanically flow through to [the share sale agreement] being signed and announced” because someone might elect to walk away. In Mr Allen’s view, putting a signed contract in escrow would make it more difficult for Sage to walk away; making an announcement would make it even harder. Mr Gray appears to have held a similar view to Mr Allen: see Mr Gray’s Statement of Anticipated Evidence at [189].

169    Mr Allen’s evidence was that there was no discussion of any requirement for Sage shareholder approval. Mr Allen said he would not recommend that such a requirement be accepted because it created too much risk.

170    Mr Gray said that at this stage he considered that he had a binding deal with Sage, subject only to satisfaction of the four conditions identified in the “Final Offer” letter. He was not prepared to deal with any party, but in particular Sage, on the basis that there would be conditions beyond Archer’s control. Mr Gray said that if he had been told that the “Final Offer” was not binding at 6.14 pm on 16 August 2011, he would have immediately re-engaged with the private equity bidders and “I certainly would have immediately ceased any further dialogue or participation with Sage, had I ever thought that they were free to walk once we had accepted their – their final binding proposal”. Mr Minton said that if he had understood that Sage would not be bound to proceed if all the conditions were fulfilled, he would have dealt with Sage, but not exclusively.

171    In response to a question whether Archer was willing to delay reaching a binding agreement until Sage was ready to make an announcement, Mr Gray responded: “Well, I believed we had a binding agreement that was subject only to the satisfaction of certain conditions, if you’re asking was I prepared to delay condition satisfaction, no I was not. I wasn’t aware, though, that it would become an issue because we did have some time to go. So I can’t – to be honest, really didn’t give it that much thought.”

Handshake meeting

172    See Background at [73]-[75].

Sage gets access to black box due diligence

173    At about 7 pm, Mr Gray gave Sage access to the “black box” due diligence materials. He said that he did that because having accepted “the final binding proposal from Sage” it was his view that “we were jointly bound to a compulsory process of satisfying conditions, a mechanical process that would unfold in the passage of time and that Sage was bound upon satisfaction of those conditions to pay us $1.35 billion for 100 per cent of the securities of the business and therefore I perceived there to be no risk in … a competitor getting access. They had – they were bound to proceed and therefore they would buy the business and that information would be theirs.”

Sage internal commentary

174    At 6.35 pm Mr Longstaff forwarded the 6.14 pm email with his 6.05 pm email in the chain to Messrs Berruyer and Epstein (among others, including cc Mr Harrison). Mr Harrison forwarded this email to Mr John Swift (Sage Treasury) who dealt with Sage’s banks, legal advisers and Deutsche colleagues resulting in the following:

Longstaff:    Positive step

Harrison:    Positive development

Swift:    Haven’t had a chance to say, Congratulations on steering through the process and winning the bid. It is wonderful news for us all!! Well done!! Good luck with the rest of the stuff

Harrison:    Thanks John. We’re not legally quite there so let’s chase everything down. You [h]ave done a really great job yourself. Roll those offers in !!

175    At 9.40 pm, Mr Epstein reported to Mr Berruyer and Ms Geary about a conversation with Messrs Gray and Reed (as written):

Ok so I have just finished a telechat with both Andrew Gray (super elated – never heard him this excited and over friendly and engaging etc, discussing rugby etc), he then passed the phone to a more measured and elated Tim Reed ... we have planned to meet up early on Mon so I will be going over to Aussie on sat. Karen as you predicted he did want to talk to his team on his own 1st (good advice thks). We will travel to both Melbourne and Sydney together and do the necessary.

Increase in “Continuing Debt”

176    Following further negotiations with MYOB management, Mr Robinson (cc Messrs Harrison and Longstaff) enquired of Mr Price (Deutsche) whether an additional $14 million in consideration due to management earn out arrangements would have an impact on class 1 analysis.

177    At 5.33 pm, Mr Price responded to Messrs Robinson, Harrison and Longstaff that if $14 (per management share) was added to the consideration it would have the effect – with the $125 million borrowing by MYOB in place – that the class 1 consideration test would be 24%. The 25% threshold would be triggered if Sage’s share price dropped from 249p to 240p.

178    At 8.15 pm, Mr Longstaff enquired of Mr Price (cc Messrs Reede and Robinson) whether a “leak” of the transaction could force Sage’s share price down and “trigger class 1”.

179    At 8.21 pm, Mr Price told Messrs Harrison, Longstaff and Robinson that if the borrowing were increased to $175 million, the Sage share price trigger for a class 1 transaction would fall to 229 p. At 8.22 pm, Mr Price responded separately to Mr Longstaff’s 8.15 pm email: “That’s my concern. We can but wait and see - but agree the larger amount of the continuing loan is therefore appropriate ... - we have 8% flex in the Sage share price (assuming fx stays flat) before we trigger from here.”

180    Messrs Price and Robinson agreed that this made an increase in the borrowing to $175 million desirable, and Mr Longstaff suggested that this should be raised by A&O with Allens as soon as possible to avoid the appearance of a change in the deal.

181    Mr Reede sent a revised draft of the share sale agreement to Allens at 11.28 pm. The draft included an increase in the amount of the “Continuing Debt” to $175 million and deleted a Schedule 11 which had dealt with management retention terms and replacing it with a schedule titled “Worked Example”. Mr Reede commented to Mr Story in an earlier email at 10:56 pm: “I think we are in very good shape. My suggestion is that we both review the draft and we have a call at 8.30am when we have been able to cast a fresh set of eyes over it. It should not take us more than 60 minutes to settle any issues.”

Sage announcement to LSE

182    At 1.05 pm London time, an article appeared on Reuters which said, among other things:

Sage enters final bid for MYOB - sources

•    KKR, Bain among other bidders for MYOB

•    Preferred bidder could be chosen as soon as Tuesday - source

•    Sage Chief Exec said in May that M&A still part of strategy.

The accompanying article went on to say (among other things):

British software maker Sage Group plc has placed a final bid for Australian accountancy software company MYOB Ltd, an asset that could sell for more than $1 billion, sources familiar with the matter said on Tuesday.

Bain Capital and Kohlberg Kravis Roberts & Co had also put in bids for the asset, two sources told Reuters on Monday.

The size of the bids was not known.

A preferred bidder could be chosen as early as Tuesday, one source said.

183    At 9.21 pm Mr Longstaff responded to an email from Mr Price under the heading “Article up on Reuters”:

Price:    FYI.

No comment being made and no announcement planned. No share price reaction or follow up from other journalists

    Just so you’re aware - Tulchan believe this will likely get a lot of coverage in the weekend press - and we should consider therefore whether we would be better served by a Friday UK announcement, so our message is in the market and clear rather than letting the messages / price expectations get loose over the weekend for a monday announcement

Longstaff:    The agreement here with the vendors is for a Friday signing afternoon in Australia and before market opens in London. They will not move this.

184    At 11.26 pm, Mr Griffith sent an email with the subject “Leak announcement on MYOB” to Mr Price and a range of people from Deutsche (not including Mr Longstaff) and Sage and an attachment titled “Project Castle leak announcement”. It said “... we have concluded that the Reuters leak today was sufficiently accurate to require a leak announcement from Sage. I have therefore attached the draft that we have previously agreed, and propose to release this shortly. ... We are also asking Deutsche to make sure that Archer are notified that we are making this announcement – of course not out of choice but as a regulatory requirement.”

185    At 11.38 pm, Mr Price advised Mr Griffith that he had done as asked saying: “I can confirm that I have spoken with MYOB’s lawyers (Allens) and informed them that this will be released shortly and we were informing them out of courtesy. They have no objection to the release and will inform their client that we made them aware before it was released.”

186    At 11.51 pm, Sage made an announcement on the Regulatory News Service in which it noted press speculation of a potential acquisition of MYOB, going on to say:

Sage can confirm that it is currently considering a potential acquisition of MYOB. However there is no certainty that it will proceed. The company will provide further information, if and when appropriate.

187    By an email of 12.12 am on 17 August 2011, Mr Price advised Messrs Longstaff and Harrison (among others) that he had spoken with Mr Story, who said he would advise the wider deal team by email and he had left a message with Mr Allen.

188    Mr Story acknowledged that Mr Price called him to say that he had tried to contact Mr Allen but failing that he wished to warn him of the announcement which he said was required under UK Listing Rules. Mr Story said, and I accept, that he advised Messrs Gray, Heckes and Minton and Mr Allen and others at UBS by email that there had been a leak, that Sage was making an announcement to address the leak and that it appeared to be an appropriate course for Sage to take and it was not something Archer should be concerned about. No such email is in evidence.

189    Mr Gray said he does not recall the announcement and he denied that either of Messrs Allen or Story raised the announcement with him.

190    Mr Allen said that he could not recall exactly how he came to know of the Sage announcement. When he did, he called Tim Longstaff and said: “What’s the deal? We’ve just concluded a deal and what’s … this press release stating that we’ve got an uncertain proposal?” He said that Mr Longstaff told him: “Look, don’t worry about it. ... [T]here has been some noise in the market. We’re just getting ahead of it and managing our disclosure obligations and ... giving the market a sense that something’s to come.”

191    Mr Allen said that he did not take it any further because at that point in time the key conditions were still to be met and so he thought Sage had some scope to engage with the market and their disclosure obligations as they did. Mr Allen does recall that he thought “they were pushing the boat out with the announcement” and “it was a particularly aggressive view. But ... you could find a way to justifying it if you have to. Because conditions still had to be met.” He also said: “I could see how you might take a view that things were uncertain.” Mr Allen said that he did not think much more about it because from his perspective “how Sage managed its disclosure obligations in the UK was entirely a matter for it”. He said he did not recall discussing the announcement with anyone at Archer but expected that he would have.

Wednesday 17 August 2011

192    There were a number of issues still to be resolved.

Sage bank funding

193    This was quickly settled. At 3.05 am, Mr Swift sent an email to Deutsche and Sage’s other banks in which he advised timing (emphasis in original):

As you know, [Sage] has been selected as preferred bidder and the vendor has ceased discussions with all other potential bidders. This is clearly excellent news and the whole [Sage] team is delighted.

We now need to work as quickly as possible to signing the SSA ...

The vendors have now given us access to the “black box” of highly confidential DD ... we do not expect it to contain anything controversial ... obviously we will need your sign-off on the full E&Y and AAR due diligence reports and the updated A&O report, before the facility agreement can be executed.

On the other hand, it will give us considerable comfort to know that the banks are ready to sign, subject only to the “black box” DD. We therefore propose the following (all times are London times):

...

* tomorrow afternoon / overnight (i.e. Wednesday evening or Thursday morning in Sydney); the SSA is signed, in escrow

* before opening of Stock Exchange on Friday: we release the finance documents and the SSA from escrow, and make our regulatory announcement

194    At 5.09 am, Mr Price advised Mr Longstaff that all banks were credit approved; the banks were signing the term loan and the “Continuing Debt” loan had been agreed and was in a position to be shared with Archer. At 7.00 am, Mr Swift advised that all four banks had agreed loan documentation which had been signed by the banks and Sage and held in escrow.

Communications

195    At 6.10 am, Mr Ralph Charlton (Sage, Director of Public Relations) circulated to Mr Epstein and Ms Geary (and another) a draft communications plan which included wording incorporated in subsequent drafts as well:

Note – this plan has been drafted subject to contracts being signed and announced on Friday 19th August. At the time of drafting contracts have not been completed, therefore the plan is subject to change.

196    At 10.39 am, Mr Longstaff sent Mr Allen (among others) a status update. It concluded: “Friday mechanics - We need to discuss and agree sequencing for comms purposes, but this can wait.”

Due diligence and warranty insurance

197    At 7.47 am, Mr Longstaff sent an email to Mr Reede and others at A&O and Deutsche (and others) advising them that the bank approvals had been obtained overnight. He went on to say (as written):

Only the paranoid survive. I work on the basis that private equity never dies and that Archer would do anything for $1m more. I therefore want to sign (and escrow) ASAP.

So there is now no reasons to delay black box DD and the preparation of your reports. Proceed at best speed towards our 2.00pm deadline, or before.

198    At 9.42 am, Mr Story told the warranty insurers: “As per the press, we are working with Sage to finalise contracts, so please put all your energies into obtaining the Sage policy asap.” At 3.25 pm, Mr Longstaff sent Mr Allen the numbers he proposed to put into the share sale agreement, including the amount for warranty insurance, noting he was awaiting a quote. To Mr Longstaff’s surprise, the insurer asked for employee numbers as that was said to affect the rate. At 5.46 pm, Mr Longstaff confirmed to Mr Allen that final due diligence reports had been sent to the warranty and indemnity insurer.

Management terms

199    At 1.49 am, Mr Mann (Deutsche) sent Mr Story the latest draft of the terms sheet for management, subject to further tax review and so subject to change. Mr Reede commented that the terms sheet would be an agreed form document with the management vendors.

200    At 10 am, Mr Minton wrote to Mr Longstaff (and then forwarded to Messrs Story, Gray, Heckes and Allen) advising that finalising the management deal was holding up Archer from issuing Exit Notices, which “[b]y our timetable” should have occurred by 9.30 am. At 10.45 am, Mr Minton sent an email to Messrs Mann, Story and Allen concerning commercial aspects of the management terms and proposing a 12.30 pm conference call.

201    At 1.50 pm, Mr Minton sent an email to Messrs Mann, Story and Allen, the tax advisers, A&O and Mr Longstaff seeking protection for management in relation to a tax issue, which he regarded as necessary to the settlement of the management terms.

202    At 6.32 pm Mr Berruyer told Mr Longstaff that an issue relating to the period of the incentive scheme had been agreed on terms suggested by management. At 6.49 pm, Mr Longstaff told Mr Allen that the management incentive scheme had been agreed with Mr Minton subject to arranging management indemnity insurance.

203    A revised management terms sheet was issued at 7.32 pm by Mr Mann to Mr Minton. Outstanding was the issue of management indemnity insurance to cover the potential tax burden.

BankLink

204    At 8.16 am, Mr Kenneth Stanton (Deutsche) drew to Mr Epstein’s attention (and Mr Gavin May, copied to Messrs Reede and Longstaff, among others) that the BankLink exclusivity deed was in favour of Archer and it expired on 29 August 2011, stated the purchase price and that neither party was under an obligation to proceed with the transaction.

205    At 10.47 am, Mr Longstaff sent an email to Mr Allen (among others) raising with him that Mr Longstaff had taken from their conversation at 11 am on 15 August that the BankLink option would come with the MYOB business and he doubted that Sage would want the option exercised within MYOB before the end of August. He sought confirmation that Archer would not exercise the option in its own right and suggested putting a stand-still obligation in the share sale agreement under which Archer would not exercise the option. Mr Gray’s comment at 11.38 am to Messrs Allen, Heckes and Story was: “this is not the case and not the deal agreed to in good faith. Tim Longstaff is being mischievous and misleading and deceptive. I would like to brief litigators asap.” Mr Gray explained that the pejorative reference to Mr Longstaff was a joke which harked back to his threats on Monday. Having said that, Mr Gray said he believed that the BankLink option had never been referred to as part of the MYOB business nor had been represented to Sage that it would be sold as part of the MYOB sale.

206    By email of 3.26 pm, Mr May suggested to Mr Epstein and others that Sage should definitely get Archer’s BankLink option novated to MYOB and Mr Berruyer agreed.

“Continuing Debt”

207    At 11.05 am, Mr Story sent an email to Messrs Longstaff and Reede (among others) in relation to the Deutsche loan for the “Continuing Debt”. Under Norton Rose’s structure document, Sage had been going to undertake to Deutsche that it would procure repayment of the three day loan for $175 million to which the existing MYOB board would need to sign up. Mr Story said: “We have now been told by A&O this morning that this undertaking is no longer being given. So I can’t see how the existing board can approve a 3 day $175m loan without knowing how the company can repay. Can I ask [Deutsche] and Sage come back with a proposal to resolve this issue asap.”

208    At 1.36 pm, Mr Reede proposed a package of steps to solve the issue. Mr Story indicated at 1.48 pm that he thought it likely to work, subject to advice from MYOB counsel, and suggested that Mr Reede amend the share sale agreement accordingly.

209    At 9.10 pm, Mr Reede sent to Mr Story and others a form of letter for Sage to give comfort to the MYOB directors concerning the form of the “Continuing Debt”. The letter provided:

The Sage Group plc (Sage) is providing this letter to you to confirm how very pleased Sage is to have been appointed as the preferred bidder in relation to the Acquisition.

Sage and its existing wholly owned subsidiaries have syndicated financing facilities in place with Sage’s global financiers. It is the policy of Sage to ensure these facilities are available for use for the needs of Sage and its wholly owned subsidiaries as necessary.

If the Acquisition completes, and MYOB Cayman Holdings Limited (Cayman) becomes a wholly owned subsidiary of Sage, Sage will ensure that the benefit of these existing financing facilities are made available to Cayman if necessary. As a result, Sage agrees that if required by Cayman following the Acquisition it will procure that, not later than 2 Business Days after request by Cayman, Cayman, or a wholly owned subsidiary of Cayman, will accede as a borrower under Sage’s existing syndicated financing facilities and, in that capacity, will have access to facilities for not less than A$175,000,000 on the terms of these syndicated facilities.

We look forward to the completion of the Acquisition.

Exit notices, powers of attorney and facilitation agreement

210    At 12.28 pm, Ms Lee circulated a revised draft of the share sale agreement into which execution pages had been inserted.

211    At 5.21 pm, Mr Heckes sent documents to Messrs Alex Rogers and Kelvin Yap of Harbourvest (for the fourth to sixth applicants) under cover of an email which said (email addresses replaced, emphasis in the original):

As discussed, please find attached the following documents which we will need you to review and (where required) execute as soon as possible:

•    An advanced draft of the Share Sale Agreement for your consideration. This is close to being finalised and we will keep you updated on progress. Please direct any questions you might have on its form in the first instance to Allens (legal advisers - [Mr Story’s email]) or Ernst & Young (tax advisers - [Mr Scott’s email]).

•    An exit notice, which is a notice sent pursuant to clause 22.1 of the shareholders’ deed.

•    A power of attorney, which is referred to in the exit notice. We understand that the three HarbourVest shareholders will be executing the Share Sale Agreement in their own capacity. However this is a formality under the shareholders deed and a power of attorney is being sent to all other shareholders for execution. Please organise execution by the three HarbourVest shareholders and return as set out in the Exit Notice.

•    A share sale facilitation agreement, which sets out the terms on which HarbourVest has engaged Archer to arrange and facilitate the sale of shares in [MYOB] and which includes a 2% transaction fee. Could you please countersign these and return to me.

I am also attaching a simple draft spreadsheet outlining the proceeds calculation (noting that some of these items are estimates – we will only know exact expenses and swap close out costs, etc at closing). I hope you’ll agree it is a great result!

212    Mr Heckes sent similar documents to the seventh to ninth applicants (excluding the draft share sale agreement).

213    The draft facilitation agreement relevantly provided (footnote omitted):

[Name and address]

SHARE SALE FACILITATION AGREEMENT

This agreement sets out the terms on which you have engaged Archer Capital Pty Ltd (“Archer”) to arrange and facilitate the sale of shares in MYOB Cayman Holdings Limited (“MYOB”).

Role

The purpose of this engagement is for Archer to arrange and facilitate the sale of shares held by [name of company] in MYOB Cayman Holdings Limited.

Archer enters into this Engagement and will perform the services required under it in its capacity as principal, and not as your agent or representative of any other person. Archer (in its capacity as principal, and not as agent or representative of any other person) may engage third parties to provide services in relation to Archer’s arranging of the Equity Investment, including providers of accounting, legal, financial, tax and other specialist due diligence and transactional services.

Nothing in this agreement makes either party the agent, representative, partner or fiduciary of the other.

Obligations & liability

Archer must use reasonable care and skill in providing the services required under this Engagement.

Despite the foregoing, to the fullest extent permitted by law, you indemnify Archer against all and any costs, charges, expenses, outgoings, claims, losses or damages, howsoever arising, which it may suffer, incur or otherwise become liable for under or in connection with this Engagement or the services contemplated by this agreement.

Fees

The fees payable to Archer for arranging and facilitating the Equity Investment will be your share of 2% of Transaction Enterprise Value plus directly incurred costs. GST will also be payable where applicable.

Archer will invoice you for the fees upon successful completion of the sale of shares in MYOB Cayman Holdings Limited. In the event that the sale is not completed, no fees will be payable. Archer reserves the right to issue further invoices after completion.

Confidentiality

...

General

This agreement is governed by the laws of New South Wales.

...

This agreement constitutes the entire agreement between the parties in respect of its subject matter, and replaces and supersedes any earlier communications or conduct of the parties in relation to that subject matter.

Acceptance

Please confirm your acceptance of this agreement by signing and returning a copy of this letter.

Yours sincerely,

[Signed]            

David Bull

Archer Capital Pty Ltd

Agreed and accepted by [name of company]

Name:

Date:

214    At about 5.32 pm, Mr Martin sent an email to MYOB management staff advising them (emphasis added):

Proposed sale of MYOB

As Tim commented on the M&L call this morning in relation to the recent press we have received, there is the potential that we will be sold at some point. It is in fact possible that this point is a little closer than we had foreshadowed.

We are in close discussions with Sage as to a potential sale of MYOB. As part of the process, we need to get prepared. One of the points in the process is for Archer to issue an Exit Notice to us as Management Shareholders. This letter, together with a power of attorney, will be forwarded to you shortly by our lawyers, Arthur Allen Robinson [sic] (AAR).

Please take the time to read the notice when it arrives. I will get Julie to set up a conference call for late tomorrow afternoon for us to explain where we are at in the process, what you need to do and take questions. AAR will be on that call as well.

Can I please stress two things – a) the utmost confidentiality of the potential for this transaction and b) the fact that this is no certainty that in fact this transaction will occur right now. There is plenty that can happen in a short space of time as you will all have seen in markets in recent days. So please, do not discuss this with anyone outside this group.

Tim and I will endeavour to keep you and the wider team appraised of what is happening as we can. In the meantime, if you have any questions that can’t wait until tomorrow afternoon, please do call me on the mobile number below.

215    Archer issued notices to MYOB shareholders in the late afternoon and evening. The covering email from Mr Bell of Allens to Mr Adam Ferguson (a MYOB staff member, cc Messrs Reed, Story and Martin) at 5.21 pm said (emphasis added):

Attached is an Exit Notice issued in accordance with clause 22 of the MYOB Cayman Holdings Limited Shareholders’ Deed (dated on or about 11 May 2009) in connection with the proposed sale of MYOB Cayman Holdings Limited to The Sage Group plc. The Exit Notice must be issued to trigger the management ratchet provisions in schedule 4 of the Shareholders’ Deed for the purposes of the sale.

It is anticipated that the share sale agreement will be signed in the next 24 hours with completion expected to occur in mid-September 2011, at which time you will receive your sale proceeds.

216    The Exit Notice given to Mr Ferguson advised that:

1.    This is a notice issued pursuant to clause 22.1 of the Shareholders’ Deed and constitutes an Exit Notice. Capitalised terms not defined in this notice have the same meaning as in the Shareholders’ Deed.

2.    Archer Capital Pty Limited, on behalf of the Archer Investors, hereby gives notice that the Archer Investors intend to effect a Share Sale to a party other than an Investor Shareholder, such an arrangement constituting an Exit Proposal pursuant to the Shareholders’ Deed.

3.    As contemplated under clause 22.2(a) of the Shareholders’ Deed, attached as the Annexure is a form of power of attorney in favour of the Archer Directors (the Power of Attorney). Please sign the Power of Attorney and: [Return it to designated officers of MYOB]

4.    If the Power of Attorney is not signed and returned as required under paragraph 3 of this Exit Notice, the Company and the following directors of the Company may severally act as your attorney to complete and execute such instruments for and on your behalf as the attorney thinks necessary or desirable to give effect to the Exit Proposal, as authorised under clauses 22.2(a) and 23.4(a) of the Shareholders’ Deed: [being Messrs Reed, Martin, Gray, Wiggs, Wood and Rogers]

5.    All fees and costs of financial, legal and other advisers appointed in connection with the Exit Proposal and incurred by Archer Capital or the Company in connection with the Exit Proposal will be deducted from the proceeds payable to, or otherwise borne by, the Shareholders in their relevant proportions (as set out in the share sale agreement to be entered into in respect of the Exit Proposal). For the avoidance of doubt, an exit fee will not be charged to any Management Shareholder by Archer Capital.

217    The power of attorney provided:

a.    That “Proposed Transaction means the sale by the Shareholders of all of the Shares in the capital of the Company” and “Sale Agreement means an agreement to be entered into on or around the date of this Deed in relation to the Proposed Transaction”;

b.    That the several attorneys would be Messrs Gray, Wiggs and Wood;

c.    That the attorney was authorised to do the acts and things referred to in the Schedule being:

Part A

1.    Do any act or thing in connection with:

(a)    effecting the Share Sale, Proposed Transaction or Exit Proposal;

(b)    any transaction contemplated by the Sale Agreement including the sale of all the Shares held by the Principal in the Company;

(c)    the exercise of all powers and rights that the Principal has as the registered holder of its respective Shares, including, without limitation:

(i)    attending any meeting of the Company, and exercise the voting rights pertaining to the Shares held by the Principal, proposing or seconding any motion, and demanding a poll for any vote at, such meeting;

(ii)    requisitioning the convening of any general meeting of the Company and convening a general meeting pursuant to such requisition; and

(iii)    signing any form, notice, instrument, certificate or other document (including any proxy appointment) relating to the Principal’s Shares; and

(iv)    to vote the Shares on any matter and resolution related to these issues which should properly come before such meeting as the Attorney sees fit;

(d)    the effective exercise of any power under this Deed,

including to:

(e)    settle the terms of and sign to bind the Principal to any document referred to in Part B; and

(f)    sign to bind the Principal to such other documents and to take such other action (including to amend or cancel any document) as may, in his or her judgment, be necessary or desirable to give effect to the matters referred to in items (a), (b), (c) and (d).

Part B

1.    Sale Agreement and any documents or instruments referred to therein.

2.    Share transfer forms in respect of the transfer of all of the Shares held by the Principal in the Company.

3.    The disclosure letter provided in connection with the Proposed Transaction.

d.    The Principal agreed “to ratify and confirm whatever an Attorney does under this deed”.

e.    The attorney was authorised to act even though he may be “in any way” “interested in that act or thing” or “interested in or connected with any person who is a party to or in any way connected with or otherwise interested in that act or thing”.

218    Mr Gray understood that the issue of these notices triggered a management “ratchet” whereby management’s interest in MYOB increased from 6.13% to 11.55%, an increase in value from $53 million to $100 million at the Sage offer price. His evidence was that given the irreversible impact of triggering the ratchet arrangements, he wanted to ensure that any sale transaction was risk free before doing so. Mr Gray said that by this time he was satisfied that a final agreement would be reached on management terms.

219    At 11.30 pm, Mr Yap told Mr Heckes (and others) by email that HarbourVest was agreeable to the transaction fee in the facilitation agreement but had “several comments” on the terms of the facilitation agreement, which he attached in marked-up version. He wrote: “This is a great result indeed. Hope to hear news of the signing soon.” He indicated he was getting the powers of attorney signed. Earlier, Squadron had returned two powers of attorney.

220    The Archer Investors authorised MaplesFS Limited as their attorney to execute and deliver a share sale agreement between them, the other shareholders and “a purchaser” of 100% of the shares in MYOB.

Late evening

221    By the evening of 17 August 2011, Sage had completed its final due diligence reports and sent them to the warranty and indemnity insurer and Mr Berruyer had indicated to Mr Epstein that he had accepted MYOB’s management proposal. The issues outstanding were some wording concerning tax indemnities for management and how the BankLink option would be dealt with.

222    At 9.04 pm, Mr Reede circulated to Mr Story a marked-up draft share sale agreement which he said “should now be very close to final”, and it contained matters around BankLink and the tax indemnity in relation to management earn-out rights. Soon after he sent out a draft comfort letter from Sage to the MYOB directors in relation to undertaking the $175 million loan associated with the “Continuing Debt”. At 11.54 pm, minor amendments were being suggested by A&O to the share sale agreement to reflect loan documentation. At 12.16 am on 18 August, Mr Story sent an email to Mr Mann and others indicating that comments on the management term sheet and the proposed indemnity clause that had been included in the share sale agreement relating to management terms would be “subject to further review and comment by E&Y and management”.

223    Between 10 and 10.30 pm, email exchanges between Messrs Gray, Minton, Wiggs and Heckes and copied to Messrs Allen and Joyce occurred under the subject heading “Abacus: Draft SSA” (as written):

Wiggs:    Does this mean we are giving away any right to a fee for delivering Bank Link? Where are we with the management deal?

Gray:    We need Minton to deliver management and I will get our fees for BankLink diligence and we will call done.

Heckes:    And they need to sign tonight and hand to our lawyers. If they want us to hold off signing until Thurs night for press purposes then fine to have a gentlemens agreement but its at our option and we can countersign whenever we like if markets start moving. Having their lawyers hold their signed doc is equivalent to them not signing …

Minton:    I completely agree with Frank. In escrow with our lawyers with no ability to rescind is important. There is no out, just time to pass.

Thursday and Friday, 18-19 August 2011

224    At 12.16 am, Mr Story sent comments on the management terms sheet and the proposed tax indemnity clause for management to be included in the draft share sale agreement to Mr Mann at A&O.

225    At 12.07 am, Mr Epstein wrote to Messrs Berruyer, Harrison and Robinson concerning the BankLink option:

... I thought it important we consider this decision jointly. As you experienced I was pretty emotive about it, well I guess the opportunism just didn’t go down well with me. I had a follow up discussion with Tim Longstaff ... He said to leave the issue with him, he hears us and will work out something. I was emphatic that the Purchase price in final was submitted with the knowledge of the option being part of the overall transacting. When I said to Tim L, should they want to change the terms we would be happy to adjust the price. He got nervous and said he has some ideas he needs to think about ... . and then told me to leave it.

As I was writing this mail Tim L called me – he says Andrew Gray is insistent if we don’t pay then we exclude the option! I think it’s a concern because in the unlikely event they do purchase it, we could potentially be embarrassed.

... Paul H and Guy I suggest we talk. it’s now midnight in Sydney and Tim L is waiting for an answer.

226    In the early morning, Mr Gray agreed with Mr Epstein that Archer would transfer the BankLink option to Sage/MYOB on the basis that it was included in the purchase price of MYOB and without reimbursement for costs to date and “any costs incurred going fwd. with E&Y will be for Sage”. Mr Gray told Mr Minton that “BankLink” had been “sorted” with Mr Epstein and Mr Minton later (6.31 am) told Mr Gray that management “are done bar a bit of advice from Ian and Tom”.

227    At about 1.33 am, Mr Longstaff made a status report to Sage senior executives and Deutsche executives (among others). Among other things, it said:

* SSA

- Near final form

- Should be signed tonight by Sage and held at A&O’s offices

…

Small points outstanding

…

(Hopefully) closing call tomorrow morning Australia

* Black box due diligence

- Complete

- No material issues arising

- DD reports now finalised and sent to London (for banks) and warranty insurers

* Management agreement

- Some wobbles (all hopefully resolved) … management being very cautious re tax and risk generally

… Solution is to seek to insure this risk.

…

- Back and forth on term sheet drafting, but nothing major bar above

…

* Class 1: check with Drew, but I’m advised we’re fine

* Communications: Swinging into gear, but much to do

* Archer disposition

- Very tense and agitated

- Nervous about market risk snatching the deal at the last minute

- But still playing hard ball and very focussed on small value issues

228    At 2.41 am Ms Lee sent a further draft of the share sale agreement to Mr Reede to be discussed at a teleconference at 8.30 am.

229    The parties’ chronology indicates that the time difference between Sydney and London in August 2011 was 9 hours. Given the content, which deals with trading in Sage shares, I do not accept the suggestion in the parties’ chronology that certain emails from those parties were in the afternoon of 17 August Sydney time. On that basis, an email time stamped as sent at 17.54 on 17 August 2011 between parties in the UK, would have been sent at around 2.54 am on 18 August 2011 in Australia.

230    At 2.54 am, Mr Mark Hankinson (Deutsche) advised Messrs Berruyer, Harrison, Griffith and Price (among others) that Sage’s share price was weaker, down 1.6% to 245 p, “underperforming a weak market (FTSE 100 -1.0%) although not far behind the Software & Computer Services index (-1.5%)”, but volumes were muted with only 150,000 shares traded on the LSE. The email concluded: “We’ve seen no material reaction to yesterday’s announcement in the share price.”

231    By an email stamped as sent at 20.58 on 17 August 2011, which I take to have been sent at 5.58 am on 18 August Sydney time, Mr Price advised Messrs Berruyer, Harrison, Griffith and Longstaff (among others) that an employee at Aviva, a significant shareholder in Sage, had expressed concerns about the proposed transaction based on public information and views they held about the Australian environment (including its dollar) and the prices private equity bidders were willing to pay (“so why is Sage coming out the top of the pack”). Comments included “[h]e thought it looked like it would require shareholder approval”. Mr Price noted the difficulty of not being able to bring out the highlights of the transaction or correct his misunderstandings. Mr Price’s assessment was: “I don’t believe any of these concerns are new, and we are preparing to respond proactively and provide evidence to backup assertions which will be key.”

232    By an email stamped as sent at 22.53 pm on 17 August 2011 (7.53 am Sydney time), Mr Griffith reported on a conversation he had had with an employee of Blackrock who indicated that based on publicly available (and acknowledged unreliable) information, Blackrock would be disposed to vote against the transaction. Similar concerns were expressed by those at Aviva. Mr Griffith said: “He implies that he feels it would be Class 1, so we will need to be armed as to why this is not Class 1 given we are on the margin. I will make sure this is in the Q&A and we have the answer from Deutsche, to cover off the risk that shareholders feel they should have had a vote.”

233    At 7.51 am, A&O issued a further draft of the “Continuing Debt” facility agreement. They said that they needed to resolve the agreement during the morning and requested comments as soon as possible including advice as to satisfaction of the lender’s conditions precedent.

234    Between 7:59 am and 8.21 am, Mr Rogers of HarbourVest and Mr Heckes exchanged emails. Earlier in the morning HarbourVest had advised that powers of attorney had been executed on behalf of three funds:

Rogers:    ... Any deal breakers left? Should we be thinking Thursday, or should we be thinking Friday?

Heckes:    Should go smoothly from here. Still need to finalise some elements of the management package roll over and elements of an Archer non-compete. Sage have talked about not wanting to sign until close of business Thursday in the UK as they want to announce Friday morning but we are pushing back on that - should have more clarity in a couple of hours’ time.

235    At 9.04 am, Mr Story advised Messrs Reede, Robinson and Longstaff (among others) that the comfort letter would hopefully be very helpful in getting the MYOB board comfortable but the MYOB board meeting in relation to the “Continuing Debt” loan could not be held until after the share sale agreement was signed.

236    At 9.10 am, Mr Damon Angus (Allens) wrote to A&O in relation to satisfying conditions precedent to the “Continuing Debt” loan:

The focus today is on signing the SSA so both sides are a bit pre-occupied with that (a “bit pre-occupied” is an understatement). The closing logistics are:

1.    sign SSA (Sydney afternoon/open London)

2.    sign a few other sale documents which are pre-conditions to the next steps happening

3.    board resolution of [MYOB] to approve the loan (only after the previous 2 steps). Timing is uncertain and our [sic] of seller side control given the 2 earlier steps and director availability

4.    sign loan, deliver as many CPS as feasible

237    By an email sent at 1.26 am on 18 August (10.26 am Sydney time) Mr Paul Morland, a technology analyst at Peel Hunt, sent a copy of his morning note to Messrs Harrison and Griffith. He said: “My initial analysis makes me very sceptical of this deal as you can see. However, as I told you yesterday, I have limited access to recent accounts and without hearing your side of the story, it is very difficult to be positive on the face of it.” The note’s major headlines were: “Unlikely to be well received by investors”; “Not helping the growth story”; and “The price looks too high”.

238    By an email sent at 1.41 am on 18 August (10.41 am Sydney time), Mr Price circulated to Mr Griffith and others at Sage and Deutsche (including Mr Longstaff) suggested wording for Sage’s announcement which would “also form the answer to the Class 1 question and answer”. Mr Price recommended that the wording include:

The Sage Group has agreed to acquire MYOB from Archer Capital for an initial cash consideration of A$1.161m (“Cash Consideration”). Sage will also assume A$175m of debt in MYOB. The acquisition is expected to complete in October subject to regulatory approvals.

In addition to the Cash Consideration, Sage will pay AU$8m to AU$42m in deferred consideration, payable to senior executives based on the future [MYOB] financial performance.

239    At 10.51 am, Mr Price sent through the Q&A response to Mr Griffith in relation to the class test:

For the purposes of class tests, there are two which relate to the consideration (cash consideration vs market cap and an enterprise value vs enterprise value). We fall under 25% on both tests (23.6% and 23.7% respectively) and therefore no vote required.

Note the gross assets and profits tests are 13.5% and 16.8% respectively

240    Mr Mann sent a revised management terms sheet to Mr Story at 11.45 am.

241    Between 12.02 pm and 12.16 pm, Mr Mann had an email exchange with Mr Robinson (copied to Messrs Price and Longstaff, among others):

Mann:    … we have just for the sake of avoiding niggling doubt analysed what would happen if the $18m exposure under the new tax liability cap was included for our calculations. I doubt this would be included however.

Thankfully ... given last night’s share close and the current fx rate, you are still within boundaries with 4% share price headroom even if in the worst case it is included.

Robinson:    ... where would the share price have to be for there to be an issue .

Mann:    on my calculations 2.35 (4.2% below where it closed last night UK)

242    At 12.53 pm, Mr Mann indicated to Mr Story that “[o]ur client” confirmed acceptance of a minor amendment to the management terms sheet. This was in response to an email from Mr Story at 12.30 pm proposing the minor amendment and noting that the tax indemnity to management continued to be discussed by E&Y and A&O “which also need[ed] to be resolved from management’s perspective”.

243    At 1.41 pm, Mr Reede wrote to Mr Story and others at Deutsche, A&O and Messrs Epstein and Harrison attaching comments on the draft share sale agreement, asking if a call can be held to “settle any final wording directly (other than clause 7.4, which if it raises commercial issues should be settled in a call between Andrew and Ivan)”. He also said that the removal from a condition precedent of the requirement for insurance of the earn-out indemnity should be discussed with Mr Harrison at around 4 pm Sydney time. Mr Minton’s evidence was that following discussions with the indemnity insurer, he became satisfied that the risk of that condition precedent not being satisfied was negligible.

244    By around 2 pm, Mr Minton reviewed the outstanding issues in the draft share sale agreement and thought that there were a few things remaining to be finalised, none of which were material from an Archer perspective. He was aware that Sage did not want to announce the transaction to the market until Friday morning (London time) but he did not think that should stop them from signing. He was willing for “Archer” to hold off from signing the agreement if that would assist Sage in managing its announcement obligations.

245    At around 4.10 pm, a conference call was held between Messrs Reede, Story and others in relation to the share sale agreement.

246    Mr Story said that some time on or around Thursday 18 August, Mr Reede and he had a conversation to the following effect:

Story:    In terms of signing the share sale agreement, Archer want it signed up as soon as possible. Can Sage sign the agreement and we will then hold it in escrow until you are ready to announce the deal to the market?

Reede:    We don’t want to sign until we are ready to announce this to the market. There are a lot of things that Sage need to do internally before they will be ready to announce this deal.

Story:    Can Sage sign and have Allen & Overy hold it in escrow?

Reede:    No, we’ll need to announce as soon as we sign, and we’re not going to be ready until Friday morning in the UK.

247    At 4.12 pm (7.12 am London time), Mr Hankinson sent Mr Harrison a class 1 test spreadsheet which indicated that the class 1 trigger was 232p assuming stable foreign exchange prices.

248    At 4.13 pm, Mr Allen provided another of his suggested scripts to Mr Gray in preparation for a conversation with Mr Epstein:

* Tim is concerned about timing, and we are keen to get “off-risk” which Tim Longstaff had indicated to Archer would be on Wednesday (see email)

- a lot of inbound enquiry from customers …

- (Banklink) are getting extremely nervous and testy adding risk to Banklink

* Only a couple of outstandings with respect to contract, so nothing stopping us signing tonight and announcing so that Tim R can get on with communications?

* Fallback position in relation to off risk would be to finalise and send the agreements to Archer in escrow until Friday morning at which time we can sign

- the current proposal of having documents with A&O feels a little sketchy

* Key outstandings from our side are as follows:

- Banklink provisions in the SSA (see below)

- Confirmation that the management tax indemnity insurance position is acceptable and the cap increased to $18m from $13m

* provided to keep management whole in the unlikely event (A&O/PWC advice) of an adverse event

* brokers have indicated they will insure

249    At 4.25 pm, Mr Minton wrote to Mr Longstaff in response to the email copied to him set out at [72] of the Background:

I know you are speaking to Paul [Harrison] now. As per the agreement below and the basis upon which we agreed to go forward with you, I want Archer off-risk by 6 pm tonight. Please confirm you will achieve this.

250    At 4.45 pm, Mr Longstaff wrote to Mr Reede (among others) that Sage was prepared to grant the management indemnity requested and noted that Mr Harrison “[had] requested that we take such steps as we can to minimise [the quantum of the indemnity], even from $18m to $13m. ... at the moment gaining Class 1 headroom is the primary priority.”

251    At 5 pm, Mr Longstaff wrote to Messrs Berruyer, Harrison, Epstein, Robinson and copied to Mr Reede and others at Deutsche:

Gents

We have a very substantial issue growing here that I think will need your calming influence today Guy and Paul.

Archer are very concerned that market movements will “rob” them of the deal. So they are being very forceful about being “off risk” tonight (they claim 6.00pm)

This causes us two issues:

1.    if they are absolutely “off risk” then we must be absolutely “on risk”, and therefore must by definition have something to disclose. But we have been very clear all along that this cannot be until Friday morning

2.    until we know the closing Sage share price at end Thursday, we would not want to give them an absolute assurance in case (heaven forbid) the Sage price falls and triggers class 1. But we should NOT tell them this reason under any circumstances less they panic completely

They will put me/us under massive pressure, likely because they have worked out the class 1 issue too.

We have promised and will sign tonight and put the contract with A&O. But we will not be unable [sic] to unequivocally promise to deliver it due only to the passage of time as they will ask for the reasons above.

Guy, I suspect they will need a call with you to hear that Sage and you have every commercial intent to deliver etc etc.

There will be threats of “going back to private equity”, but realistically they chose us for a reason and we are almost through all the issues. Private equity will have its own risks (re-engaging financiers, maybe they’ll lower their price etc).

I will call to discuss ASAP

252    At 5.11 pm, Mr Minton followed up with a further email to Mr Longstaff:

I forgot to mention that I will be travelling from lunchtime tomorrow, so I will need to have docs completed and in escrow by then. That shouldn’t be a problem because we can do it after the market closes tonight. I have a very busy morning … so would prefer to get it done either tonight or first up in the morning. Are we able to do that? I still want the SSA signed by Sage tonight and held in escrow until tomorrow. The delays are starting to cause real frustration across everyone (especially management) and I would like to finish the deal on a positive note.

253    At 5.23 pm, Mr Heckes sent an updated facilitation agreement to Mr Yap of HarbourVest.

254    At 5.53 pm, Mr Heckes indicated to Messrs Gray and Allen that he had just spoken to Mr Story and intended to set up an “all-hands” meeting for 6.30 pm with a view to agreeing all points and a signing protocol, to be “done and dusted” by 7.30 pm at the latest, then to sign the share sale agreement into escrow. That meeting never happened.

255    At 6.26 pm, Mr Reede advised Mr Longstaff that “[o]nce tax wording settled the SSA is complete”. Appropriate wording was agreed by 7.35 pm and at 7.44 pm Mr Story indicated he would send a marked-up share sale agreement to Mr Reede.

256    At 6.29 pm, Mr Longstaff wrote to Mr Robinson (copied to Messrs Price and Reede) reporting on a conversation he had had with Mr Price indicating that:

[Mr Price] is happy with an informal binding undertaking to exchange @ 0900/2400 (Syd/UK); Formal exchange at 1530/0630 Syd and all announcements at 1600/0700.

He is comfortable that:

* with the London market closed there is no loss to investors

* better disclosure and an orderly market are enhanced by an ordinary RNS disclosure

This is a sensible way forward. Can we confirm this is OK ASAP please.

257    Mr Allen said that he spoke with Mr Longstaff at about 7 pm while Mr Allen was walking out to a dinner at Government House. They had a discussion around the contracts being agreed. Mr Allen suggested that they should be in a position to put the contracts into escrow to which Mr Longstaff responded that there had been a conversation between counsel for Sage and Archer. They had formed the view that it was impossible for Sage to put a signed share sale agreement in escrow without triggering a disclosure obligation, which would create issues given Sage’s desired disclosure timetable. Mr Longstaff suggested that this should not be a concern to Archer since they were only a day away.

258    At 7.30 pm, Ms Lee sent to Mr Reede and others some mark-ups of the disclosure letter which referred to the “Share Sale Agreement to be entered into today”.

259    At 7.35 pm, Mr Wong from A&O advised Mr Story that Mr Scott of EY had agreed appropriate wording for clause 11.4 of the share sale agreement and requested that the wording be incorporated into the share sale agreement.

260    At around 7.35 pm, Mr Story and Mr Longstaff had a conversation to the following effect:

Longstaff:    We’re done on the SSA?

Story:    Yes, all done on our side.

Longstaff:    Agree, the SSA is done. Finally.

Story:    So when are we signing? You know that Archer wants this signed up tonight, or at least first thing in the morning. Allen & Overy can hold in escrow until your press release is ready.

Longstaff:    No, that won’t work, as soon as we sign we will need to announce. That’s the legal advice from Allen & Overy and we’re not going to be ready until Friday morning UK.

Story:    Alright, escrow is not going work. I’ll talk to Archer.

261    At 7.45 pm, Mr Story asked Mr Reede for a signed form of the Sage comfort letter to MYOB directors in relation to the “Continuing Debt”. The MYOB board meeting was to be held “tomorrow morning” to consider the Deutsche loan matters related to the “Continuing Debt”.

262    At 7.49 pm, Mr Minton sent an email to Mr Longstaff: “Have we settled the signing and escrow process?” Mr Longstaff replied immediately: “It’s still with Guy. Apparently Andy [Gray] called Ivan [Epstein] and they’ve all been on a call since then. No idea what was said.”

263    At 7.59 pm, Mr Longstaff wrote to Mr Allen and said (among other things):

Seems all is agreed on the SSA. Finally.

I’ll advise precise contract exchange timing etc when I hear from Guy … he has Greg’s proposal.

It is vital to us, as discussed, that absolutely no announcements are made until the Sage announcement is released to the London market at 7.00am (=4.00pm Sydney). This includes staff announcements and the like, as much as there may be a case to do it earlier (especially for NZ).

264    At 8 pm, Mr Harrison enquired of Mr Price whether a model of the class 1 calculation indicating that the threshold was 233 p was correct.

265    At 8.22 pm, Ms Lee sent an email to Mr Reede stating: “Attached is the revised SSA, in clean and mark-up. The mark-up is against the version you circulated earlier today. We hope that this is very close (or is in fact) the final version of the SSA.” Mr Story said that he thought the share sale agreement had been agreed at this time.

266    At about the same time, Mr Story received a call from Mr Reede to the following effect:

Reede:    ... one issue subsequent to our phone call, sorry to raise something that’s new, it has just come up. In connection with the whole shareholder approval issue, someone at Deutsche Bank in London has stuffed up the calculation on the shareholder approval. So in order to ensure that we don’t need shareholder approval, we have to reduce the caps on some of the indemnities in the agreement.

Story:    I don’t understand why caps on the indemnities in the agreement relate to shareholder approval tests in the listing rules. I’m not a UK lawyer and I’m trusting you that you’re telling me the right thing when you say that that is the reason why you need to reduce those caps. If that is right then I’m happy to reduce those caps because while these are indemnities that are nice to have for us they aren’t essential. If these indemnities are causing a problem with shareholder approval, then it is what it is; you can’t have shareholder approval. So, I’m fine for you to reduce those caps if that’s what you need to do.

Reede:    I need to reduce the caps on both the indemnities at clauses 7.3 and 8.4 to $105 million.

Story:    Michael, fine, we can reduce those but only on the basis that the management indemnity stays at $18 million. That’s a real number as far as we’re concerned, it’s a real indemnity and we want the protection. The other two were nice to have and frankly, you know, I’m not that fussed about them.

Reede:    Fine, that’s agreed then.

267    At about 8.23 pm Mr Longstaff indicated to his colleagues at Deutsche that, in order to avoid a new issue which had arisen with the “class 1” calculation – that is, an indemnity by Sage to Deutsche in relation to the Continuing Loan – Deutsche would agree to limit the extent of the indemnity. In the course of the email correspondence, Mr Longstaff said to Mr Price and others at Deutsche (copied to Mr Reede):

This new class 1 situation is not good at all.

…

can see no alternative but for DB to waive it’s [sic] indemnity. The commercial risk for us here is miniscule. This deal will happen. The indemnity was only to cover a theoretical risk.

Let there be no illusion: the vendors will go crazy at this end and will not help us one bit. This will push them off the edge and into Bain’s hands with a massive reputational loss to [Deutsche Bank].

268    At 8.28 pm, Mr Longstaff sent Mr Berruyer’s telephone number to Mr Minton.

269    At 8.31 pm, Mr Price replied to Mr Longstaff’s 8.23 pm email:

I have already agreed with [Deutsche] lending – we have waived down to $105m, but with an undertaking to try and get a waiver from the UKLA post event to increase the size of the Loan. This is agreed with [Deutsche] lending, and Michael Reede and Richard Cranfield of A&O (both of whom I have just spoken with).

Michael Reede is discussing with Allens now.

The continuing loan will also be sized down post market close today once we know how much headroom we have to be closer to our indemnity cap (eg as the market stands currently it would be $145m rather than $175m).

At 8.31 pm, Mr Price responded to an email from Mr Charles Bryant: “It is solved (subject to A&O explaining to the other side)”. Mr Reede responded: “I have done that, it is solved”. At 8.47 pm Mr Price responded to Mr Harrison’s 8 pm email as to whether the class 1 model methodology was correct: “It is ... other than the W&I insurance deduction from the consideration - which I need to confirm the treatment of ($2m deduction from consideration in the sheet)”.

Mr Berruyer calls Mr Minton

270    At about 8.30 pm, Mr Berruyer called Mr Minton. Mr Berruyer informed Mr Minton that Sage would proceed with the acquisition only if the price was reduced by $175 million. Mr Minton’s file note of the phone call dated “18/8/11” was made the next morning. It said:

Evening (approximately 8pm)

> Guy (Sage CEO) calls. “I’ve decided I don’t want to pay $1.35bn. I could go into the reasons but I want to offer $175m less.”

Guy offered to discuss reasons.

I re-iterated that we already had an agreement at $1.35bn and that I would not sell it to him for less. Call ended.

>Called Tim Longstaff (DB) immediately after to question him on what Guy was trying to achieve. Tim was very apologetic. “I am so sorry. We have never seen that before. There is no reason or justification and we are very embarrassed by this.”

>Informed the team. Agreed we needed to engage with Bain to attempt to mitigate our loss. Unsure whether we could resurrect Bain at same price.

271    At around 8.35 pm, Mr Minton called Mr Gray (who was not in the office) to tell him of the conversation. Mr Gray called Mr Allen and got him out of the dinner he was attending at Government House. Mr Allen said he called Mr Longstaff who said that he did not know what was going on. They had a later conversation in which Mr Longstaff said that:

... he had connected with Guy, with Sage and that the share price had fallen and that as a result of the share price falling they had formed the view with some third party advice that the continuing debt be[ing] included in the transaction structure would trigger a class 1 event and they needed shareholder approval and that he had also – I think part of the feedback was that the structure was deemed or they had formed a view that the structure was dodgy and therefore on that basis ... they needed to go to shareholders and that was the substance of the call

272    Mr Gray said that, upon his return to the office, Mr Allen reported to him on the conversation with Mr Longstaff. Mr Gray’s evidence was that “[t]hat was the first I heard of the “class one” issue or the possibility that Sage might need shareholder approval in relation to the transaction”.

273    Mr Gray said that he then had a conversation with Mr Longstaff in which he asked for Mr Berruyer to call him. He said that he told Mr Longstaff that UBS had done the analysis and they did not believe it was a class 1 issue and if it was it could be addressed by leaving shareholder loans in place. He said that Mr Longstaff said that Deutsche also did not consider that shareholder approval was required.

274    In a telephone call between Mr Gray and Mr Berruyer later that night (to which Mr Allen was a witness), Mr Berruyer said that Sage would not proceed unless the price was reduced by $175 million or the deal was subject to obtaining approval by Sage’s shareholders if the price remained at $1.35 billion. Mr Gray said Archer had advice from UBS and understood that Mr Berruyer had advice from Deutsche that the transaction was not a “class 1” transaction under the UK Listing Rules so that shareholder approval was not required and it was not a risk Archer was prepared to take nor was it “part of the bargain”. However, if Mr Berruyer believed it was a class 1 transaction, Archer could leave shareholder loans in place as a way in which to reduce the consideration so as to satisfy the “class 1” test. Mr Berruyer declined the offer.

Archer re-engages with the private equity bidders

275    At around 9.30 pm on 18 August 2011, Archer initiated discussions with Bain and KKR (through their advisers). The applicants say this was an attempt to do a deal before the market became aware that the Sage transaction had failed.

End of engagement with Sage

276    At 10.47 pm on 18 August 2011, Mr Story sent an email to Messrs Berruyer and Mr Harrison attaching a letter which asserted to Sage the existence of a contract between Sage and the MYOB shareholders on the terms set out in Sage’s “Final Offer” letter. Mr Story sought confirmation that Sage would “honour its obligations and complete the transaction for the agreed price” failing which the MYOB shareholders would treat the contract as terminated and sue for damages. When Sage did not provide the required confirmation, Mr Story sent a letter to Sage at 2.22 am on 19 August 2011 (Sydney time) saying “Sage has repudiated its contract with the shareholders in MYOB. The contract is terminated.”

277    At about 1.54 am on 19 August 2011, Mr Longstaff sent an email to Messrs Berruyer, Harrison and Robinson, copied to Mr Epstein, some Deutsche executives and Mr Reede headed “Final DB Australia advice”:

Guy

I have reflected on the situation.

I don’t think either reducing the purchase price or a shareholder meeting will work.

Having taken several calls from Archer principals and thought deeply, I am convinced that to take up their offer of leaving in some RPS so as to again bring the consideration to within class 1 thresholds will work. This will have the active support of Archer. They have confirmed their willingness to support contractual changes to achieve this. I believe they would allow us to test this formally with the UKLA to make sure that it is not regarded as “sneaky”.

I think this offer is made in good faith. They are at their most constructive now in the whole deal.

I think their litigation threat is very real.

The question for you is perhaps a lesser of two evils: to convince a cautious shareholder base; or to deal with the cost, reputational damage, distraction and possible likely penalty of a litigation.

This is a great acquisition. Time will show this.

Tim

278    At 2.28 am on 19 August 2011, Mr Berruyer reported to Messrs Epstein, Harrison, Clayton and Robinson with the subject line “call with AG”:

He has confirmed Archer’s proposal to keep their rps in. I told him no. He has challenged our approach to class 1.

I have confirmed my two proposals (shareholder approval or price reduction). He stated that none were possible.

279    At 2.59 am on 19 August 2011, Mr Reede sent a letter to Mr Story advising that Sage “maintains its proposal (subject to contract) to acquire the MYOB Group from your clients and has not changed its view of its enterprise valuation of AUD1.35 billion”, however, Sage wished to comply with the letter and spirit of the UK Listing Rules. Mr Reede’s letter re-iterated the options which Mr Berruyer had given Mr Gray. It asserted: “Throughout the negotiation of this transaction we have discussed with you Sage’s requirement that either a Class 1 approval is clearly not triggered under the UK Listing Rules, or Sage proceeds to obtain Class 1 shareholder approval.” For a summary of “class 1” requirements see Schedule 2 at [27]-[28]. The letter went on:

… it became clear prior to Sage’s final non-binding proposal on Monday 15 August that there were potential Class 1 concerns. Sage initially sought to address this through the structure of the acquisition and the continuing debt in the MYOB Group and discussed this openly with you and your clients.

However, since Monday there have been a number of further important developments.

•    General market prices have continued to fall and Sage’s share price has again fallen in line with the market, including significant falls during trading in London today. As a result, as at the time of writing, even with AUD175 million of continuing debt in the MYOB Group, Class 1 approval would be triggered.

•    In addition a number of significant shareholders of Sage have indicated that it is their expectation that the proposed transaction would be put to shareholders in the ordinary course. Sage does not wish its shareholders to perceive that it has not properly engaged with them in relation to the proposed acquisition.

Dealings with Bain and KKR

280    At around 3.50 am on 19 August 2011 Bain agreed, subject to Bain’s investment committee’s approval, to buy the applicants’ MYOB shares for $1.045 billion cash, assumed liabilities of $11 million, vendor notes with a total face value of $150 million and an uplift of $35 million if Bain wished to proceed with the “Banklink” transaction. The agreement was a “handshake” deal between Mr Gray and Mr Walid Sarkis of Bain. It was agreed that Bain would have a period of 24 hours exclusivity to obtain its investment committee’s approval. Meanwhile, Mr Justin Reizes of KKR sent an email to Messrs Gray, Wiggs and Minton, copied to Mr Allen, at 4.03 pm on 19 August 2011. Mr Reizes’ email attached a draft share sale agreement (which the applicants say was incomplete) and a signed execution page. Messrs Gray and Minton gave evidence that although the KKR offer was higher than Bain’s they felt they were not able to accept the KKR offer because they had already entered into an arrangement with Bain.

281    After a short extension of the exclusivity period, a contract for sale was executed on 20 August 2011 by Bain Capital Abacus Acquisition Pty Ltd.

Schedule 3: Extracts of the Shareholders Deed and Management Agreements

Shareholders Deed

1    Relevant provisions of the Shareholders Deed are as follows:

1.1    Definitions

The following definitions apply unless the context requires otherwise:

...

Common Shares means the Ordinary Shares and the Management A Shares, as applicable, but excludes, for the avoidance of doubt, the RPS.

...

Defaulting Transferor means a Transferor who is bound to transfer Shares under this Deed and defaults in transferring them.

...

Non-Original Investor means any Shareholder that is not an Original Investor.

…

Original Investor means each of:

(a)    the Archer Investors;

(b)    HIPEP V Direct; and

(c)    2007 Direct.

...

Share Sale means a sale of at least 50% [of] all of the Common Shares on issue.

...

Trade Sale means the sale of the whole or substantially all of the Business or the sale of all or substantially all of the assets of the Group, whether by way of a sale of the assets of the Company or by a sale of assets or shares of any Subsidiary of the Company.

Transfer in relation to any property means to sell, transfer, assign, create a Security Interest over, declare oneself a trustee of or part with the benefit of or otherwise transfer or dispose of that property (or any interest in it or any part of it) including, without limitation, in relation to a Share, to enter into a transaction in relation to the Share (or any interest in the Share) (other than a transaction permitted by this Deed and the Memorandum and Articles of Association or conditional on each other Shareholder consenting to it or waiving certain of its rights under this Deed or the Memorandum and Articles of Association or as otherwise agreed by each party) which results in a person other than the registered holder of the Share:

(a)    acquiring any equitable interest in the Share, including, without limitation, an equitable interest arising under a declaration of trust, an agreement for sale and purchase or an option agreement or an agreement creating a charge or other Security Interest over the Share; or

(b)    acquiring any right to receive directly or indirectly any Dividends payable in respect of the Share or any other economic interest in respect of the Share; or

(c)    acquiring any rights of pre-emption, first refusal or other control over the disposal of the Share; or

(d)    acquiring any rights of control over the exercise of any voting rights or rights to appoint Directors attaching to the Share; or

(e)    otherwise acquiring legal or equitable rights against the registered holder of the Share which have the effect of placing the person in the same position as if the person had acquired a legal or equitable interest in the Share itself.

…

17.1    General Share Transfer Restriction

A shareholder may not (nor may it attempt to) Transfer all or any of its Shares unless:

(a)    the provisions of clause 23 are complied with; and

(b)    either:

(i)    the Shareholder has received the prior written consent of each of the Investor Shareholders (Remaining Shareholders); or

(ii)    the Transfer is expressly permitted or provided for in clauses 17, 18, 19, 20, 21 or 22 of this Deed.

…

18.    Drag Along Rights

18.1    Drag Along Option

Where one or more Transferors (in the balance of this clause 18 collectively referred to as the Permitted Sellers) wishes to Transfer all or a part of their Shares (Drag Transfer Shares) to a Third Party under an arm’s-length bona fide offer, including pursuant to an Exit Proposal, and the Drag Transfer Shares being offered comprise 50% or more of the aggregate number of Common Shares (being, for the avoidance of doubt, 50% or more of the aggregate number of Ordinary Shares and Management A Shares on issue at that time), then:

(a)    the Permitted Sellers are entitled to Transfer their Drag Transfer Shares to the Third Party;

(b)    the Permitted Sellers will have the option to require all other Shareholders to transfer to the Third Party:

(i)    all of the Shares held by each Shareholder; or

(ii)    if less than all of the Permitted Sellers’ Shares are being Transferred to the Third Party, only the Relevant Proportion of the other Shareholder’s Shares,

in accordance with the provisions of this clause 18 (Drag Along Option); and

(c)    if the Permitted Sellers do not exercise their Drag Along Option, then they must serve on each Shareholder and the Company, in accordance with clause 19.1(a), a Permitted Seller Notice to the effect that each Shareholder has the right to exercise its Tag Along Option.\

18.2    Drag Along Notice

(a)    The Permitted Sellers may exercise their Drag Along Option by serving a notice in writing (Drag Along Notice) signed by each of the Permitted Sellers on the Company and each other Shareholder specifying (to the extent known by the Permitted Sellers at the date of the Drag Along Notice):

(i)    that the Permitted Sellers are exercising their Drag Along Option;

(ii)    the sale price per Drag Transfer Share at which the Third Party Purchaser has offered to purchase the Drag Transfer Shares, provided that if the sale price is not fixed, then it will be sufficient for the Drag Along Notice to describe the sale price in a way that makes it capable of calculation or determination;

(iii)    the identity of the Third Party proposing to purchase the Drag Transfer Shares;

(iv)    any material terms and conditions attached to the offer from the Third Party purchaser; and

(v)    the date on which the sale of the Drag Transfer Shares to the Third Party is to be completed, which date must be at least ten Business Days after the date of the Drag Along Notice.

(b)    To the extent that:

(i)    the sale price per Drag Transfer Share involves the issue and/or transfer of illiquid securities as part of the consideration payable; and

(ii)    any of the Management Shareholders are not able to achieve tax rollover relief in respect of such illiquid securities issued and/or transferred as part of the consideration,

the Permitted Sellers must do all things reasonably necessary to procure that such Management Shareholders receive a sufficient cash component in consideration for their relevant Shares that are Transferred to the Third Party purchaser so as to enable such Management Shareholders to discharge any tax liability arising from receipt by them of the illiquid securities issued and/or transferred in consideration for the Transfer of their Shares.

18.3    Exercise of the Drag Along Option

(a)    A Drag Along Notice and all obligations under the Notice will lapse if, for any reason, the Third Party notifies the Permitted Sellers or any other Shareholder (who must in turn immediately notify the Company and the other Shareholders) that the Third Party does not wish to purchase all of the Shares specified in the Drag Along Notice.

(b)    Subject to clause 18.3(a), each Shareholder must sell the Relevant Proportion of its Shares to the Third Party at the price per Share set out in the Drag Along Notice and, if specified in the Notice, the holders of Shares must provide reasonable warranties to the Third Party.

(c)    Completion of the sale of each Shareholder’s Shares under clause 18.3(b) must take place on the dates specified in the Drag Along Notice or, in the case of any particular Shareholder, such other date as is agreed to by the Shareholder, the Permitted Sellers and the Third Party.

(d)    If a Shareholder defaults in its obligation to sell any of its Shares under this clause 18.3, the provision of:

(i)    clause 20.3 apply if such defaulting Shareholder is an Institutional Investor; and

(ii)    clause 21.5 apply if such defaulting Shareholder is a Management Shareholder,

with appropriate modifications.

19.    Tag Along Rights

19.1    Tag Along Option

(a)    Except in the event of an Excluded Item or a Permitted Transfer under clause 17 of this Deed), where one or more Transferors (in the balance of this clause 19 collectively referred to as the Permitted Sellers) wishes to Transfer all or a part of their Shares (Tag Transfer Shares) to one or more Third Parties under an arms-length bona fide offer, including pursuant to an Exit Proposal, and the Tag Transfer Shares being offered, together with all previous Transfers effected by such Permitted Sellers, in aggregate comprise 15% or more of the aggregate number of Common Shares (being, for the avoidance of doubt, 15% or more of the aggregate number of Ordinary Shares and Management A Shares on issue at that time) (the Tag Threshold), then:

(i)    the Permitted Shareholders must notify each of the Shareholders other than the Permitted Sellers (Tag Along Shareholders) in writing (the Permitted Seller Notice); and

(ii)    each of the Tag Along Shareholders will have the option to require the Permitted Sellers to use their reasonable endeavours to cause the Third Party to purchase the Relevant Proportion of the Tag Along Shareholder’s Shares in accordance with this clause 19 (Tag Along Option),

it being acknowledged and agreed that any and all Transfers to which any Tag Along Option previously applied shall not be taken into account for purposes of calculating whether the Tag Threshold has been triggered,

(b)    The Permitted Seller Notice must specify:

(i)    the identity of the Third Party;

(ii)    the sale price per Tag Transfer Share at which the Third Party purchaser has offered to purchase the Tag Transfer Shares, provided that if the sale price is not fixed, then it will be sufficient for the Permitted Seller Notice to describe the sale price in a way that makes it capable of calculation or determination (the Tag Price);

(iii)    the number of Tag Transfer Shares which the Third Party has offered to purchase; and

(iv)    the terms and conditions attached to the offer from the Third Party.

19.2    Exercise of Tag Along Option

(a)    A Shareholder may exercise its Tag Along Option by serving a notice in writing (Tag Along Notice) on the Company and the Permitted Sellers.

(b)    A Tag Along Notice may only be given within ten Business Days of receipt of a Permitted Seller Notice.

(c)    A Tag Along Notice is irrevocable once given.

(d)    If any Shareholder has given a Tag Along Notice, then the Permitted Sellers must not transfer any Shares to the Third Party unless the Third Party also offers to acquire, and acquires, the Relevant Proportion of each Tag Along Shareholder’s Shares in respect of which a Tag Along Notice has been given:

(i)    for the same consideration per Share as that to be paid by the Third Party to the Permitted Sellers; and

(ii)    on the terms and conditions set out in the Permitted Seller Notice.

(e)    If, despite the Permitted Sellers’ reasonable endeavours, the Third Party will only purchase less than the aggregate number of Shares specified in the Permitted Seller Notice and each Tag Along Notice, then each party seeking to Transfer its Shares to the Third Party (including the Permitted Sellers) may Transfer the total number of Shares the Third Party is willing to purchase multiplied by a fraction, the numerator of which is the total number of Shares that the Shareholder wishes to sell and the denominator of which is the aggregate number of Shares specified in the Permitted Seller Notice and the Tag Along Notices.

(f)    If the Third Party fails for any reason to buy the Shares referred to in clause 19.2(e) at the Tag Price (or at a greater price) and otherwise in accordance with this clause 19, and to complete the purchase on the same date as the date for completion of the sale of the Tag Transfer Shares (which must not be outside a period of thirty days after the procedures in this clause 19 have been completed), then the Permitted Sellers must not Transfer any of their Shares to the Third Party without again making an offer to the other Shareholders in accordance with this clause 19.

19.3    Completion of Sale of Shares

(a)    The Permitted Sellers must give each Tag Along Shareholder who has accepted a Third Party’s offer at least five Business Days’ notice before they intend to complete the sale of the Shares to the Third Party.

(b)    Completion of the sale of the Relevant Proportion of each Tag Along Shareholder’s Shares to the Third Party must take place on the date on which the Permitted Sellers complete the sale of their Shares to the Third Party as notified under clause 19.3(a) or, in relation to a particular Tag Along Shareholder, such other date as may be agreed between the Tag Along Shareholder, the Permitted Sellers and the Third Party.

20.    Compulsory Transfers (Investor Shareholders)

...

20.3    Default

If any Institutional Investor defaults in transferring its Trigger Shares, the Company may rely on the power of attorney granted by each of the Investor Shareholders under clause 23.4.