Codemasters Group Holdings Plc, Re

The court exercised its discretion to sanction a scheme of arrangement under section 899 of the Companies Act 2006 to effect the acquisition of Codemasters by Codex Games Limited. The judge applied the established four-part approach (as summarised in Re TDG Plc): (i) compliance with statutory requirements, (ii) fair representation of the class and absence of coercion, (iii) whether the scheme is one which a member of the class could reasonably approve (fairness), and (iv) absence of any "blot" rendering the scheme unlawful or inoperative.

On the facts the court found the statutory procedures had been followed (including a convening order and dispatch of the scheme document), the shareholders were properly classed and fairly represented at the meeting, the directors (advised by Jefferies) had properly and unanimously recommended the scheme, and the approval vote comfortably exceeded the statutory threshold. Correspondence from two former minority shareholders of Slightly Mad Studios raising earn-out concerns was considered but did not show the scheme would impair contractual rights or render the arrangement unfair. The judge therefore sanctioned the scheme.

This was an application for sanction of a scheme of arrangement under section 899 of the Companies Act 2006 by Codemasters Group Holdings Plc to implement the sale of the entire issued and to be issued share capital to Codex Games Limited (an Electronic Arts Inc. subsidiary) for 604 pence per share.

Background and parties: Codemasters is a listed holding company and developer of racing games. The proposed purchaser, Codex, was formed for the acquisition. The directors withdrew a prior recommendation of a Take-Two proposal and unanimously recommended the Codex cash offer, advised by Jefferies International Limited.

Procedural posture and evidence: ICC Judge Burton granted an order permitting convening of a single shareholders meeting (5 January 2021). The scheme meeting was held virtually on 3 February 2021. Evidence included witness statements from the chief executive (in support of convening), the company registrar, the printers, and the non-executive chairman. No shareholder attended to oppose the scheme at the sanction hearing.

Relief sought: sanction of the scheme under s.899 Companies Act 2006 to effect the acquisition.

Issues framed by the court: (i) whether statutory requirements had been complied with; (ii) whether the class was fairly represented and there was coercion of the minority; (iii) whether the scheme was fair such that a class member could reasonably approve it; and (iv) whether there was any "blot" making the scheme unlawful or inoperative. The court also considered correspondence from two former Slightly Mad Studios shareholders about potential impact on earn-out arrangements.

Decision and reasoning: The court found that convening and notice requirements had been met in accordance with the convening order, that a single class of shareholders was appropriate because all shareholders were offered the same terms, and that the explanatory materials disclosed directors' interests. The shareholders approved the scheme by the required majorities (63 of 76 participating; 82.89% by number and 98.61% by value), with a turnout of 23.68% by number and 45.88% by value. The judge concluded there was no evidence of coercion, the directors had properly recommended the scheme backed by financial advice, and no legal defect or "blot" was evident.

The court addressed the earn-out concern raised by two former Slightly Mad Studios shareholders and accepted the company’s explanation that the scheme did not alter contractual rights; the practical effect was that further consideration payable under the earn-out would be converted to a cash equivalent at the scheme price, which the court considered to be a significant premium and not unfair. On that basis the court exercised its discretion to sanction the scheme.

The court sanctioned the scheme of arrangement under section 899 of the Companies Act 2006. The judge concluded that statutory requirements had been complied with, the shareholder class was fairly represented with no coercion, the scheme was one that an individual member could reasonably approve, and there was no blot or defect. Correspondence raising earn-out concerns did not defeat sanction as contractual rights were not overridden and the cash conversion did not render the scheme unfair.

Permission to convene a single shareholders meeting was granted by ICC Judge Burton on 5 January 2021 (convening order). The shareholders' meeting to approve the scheme took place on 3 February 2021 and the scheme resolution was passed; the present sanction application was heard in the High Court on 16 February 2021.