Utility company takeover sets UK scheme precedent

Author: Lizzie Meager | Published: 8 Mar 2017

A High Court ruling concerning the takeover of a small regional water supplier has reinforced the legal certainty of English schemes of arrangement and how they apply to takeovers.

The February decision focuses on the practice of share splitting by shareholders in an attempt to block Severn Trent’s takeover via a scheme of local Welsh water provider Dee Valley. While the basis of the legal decision was fairly conventional, it arose from novel circumstances that were a first for the English courts.

The Dee Valley board had recommended the £84 million ($102.8 million) takeover offer from Severn Trent. But ahead of the vote a number of its employees, concerned about potential redundancies, bought shares and distributed them among people who objected to the deal.

A High Court judge ruled that the new stockholders had not acted in the best interests of the class, and sanctioned the scheme despite...