(Reuters) - The fate of British inhaled treatments maker Vectura is set to be decided by a rare head-to-head auction https://www.reuters.com/world/uk/britains-takeover-regulator-intervenes-battle-drugmaker-vectura-2021-08-09 where private equity firm Carlyle and tobacco giant Philip Morris (NYSE:PM) will battle it out with new bids.
The UK's Takeover Panel stepped in to break the impasse a day after Philip Morris raised its offer for Vectura to 165 pence per share, valuing the company at 1 billion pounds ($1.4 billion).
Carlyle and Vectura had previously agreed to a sweetened, 155 pence per share proposal last week.
Here is a breakdown of the process and the handful of auctions in the past decade.
HOW DOES THE AUCTION WORK?
The takeover regulator has the power to instigate a formal auction process if two competing bids that have not been declared final remain on the table for the company at the end of the offer period.
If neither Philip Morris nor Carlyle declare their bids final on or before 1600 GMT (1700 BST) on Tuesday, the auction will start on Wednesday, Aug. 11, and run for a period of up to five consecutive business days.
As long as one or both parties submit revised bids, the battle will go on. However, the auction can end earlier than the fifth day if there is a round that draws no new offers.
Parties can either use a default auction procedure or a custom style auction agreed by all parties, such as the rare blind auction that took place in 2018 for pay-television group Sky when Comcast (NASDAQ:CMCSA) emerged as the winner.
In Vectura's case, its U.S.-based suitors and the British company have agreed on a bespoke auction.
TIE-BREAKER
The biggest difference between Vectura's potential auction and the standard one is the odd/even rule set for the fifth day.
If bidding reaches round five, the party with the lowest offer at that point can only make bids that end in an 'odd,' whole number of pence, while the higher bidder must make an 'even' offer. Fractions are not allowed.
All bids must be higher than the rival's previous proposal. As things stand https://www.reuters.com/world/uk/philip-morris-lifts-bid-uks-vectura-165-pence-per-share-2021-08-08, Carlyle has to bid at 166 pence per Vectura share or more, according to this rule.
This is to ensure that there is no draw and a winner will emerge.
Philip Morris and Carlyle can both submit revised offers on any auction day.
But they can also, with the permission of the panel, decide to publicly announce their bid only if the other party has also submitted a revised offer on that day.
PRECEDENTS
In 2007, the 6.2 billion-pound ($8.1 billion) sale of Anglo-Dutch steelmaker Corus https://www.reuters.com/article/us-corus-tata-idUSSP6946520070201 to India's Tata Steel was settled through a nine-round auction. Tata outbid Brazil's CSN.
Since the Corus sale, the panel tweaked its rules to run a five-round process.
In September 2018, Comcast outbid Rupert Murdoch's Fox with a 30.6 billion pounds winning offer for Sky https://www.reuters.com/article/us-sky-m-a-auction-idUSKCN1M20U2 after a single-day, three-round auction.
In July of 2019, Macquarie-backed MEIF 6 Fibre bought British telecoms company KCOM https://www.reuters.com/article/us-kcom-group-m-a-macquarie-idUSKCN1U7282 in a deal worth 627 million pounds, ending a bidding war with a UK pension fund in a standard auction.
In February this year, G4S (CSE:G4S) suitor GardaWorld backed out on day one of default auctioning, making its offer final. Allied won the British security firm's backing https://www.reuters.com/article/us-g4s-m-a-gardaworld-idUSKBN2AM0J3 as its offer was the higher one outside of the auction.
SOURCE: Reuters reporting, company releases, Takeover Panel
($1 = 0.7216 pounds)