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ANNOUNCEMENT BY THE BOARD OF DIRECTORS OF
PARMALAT S.P.A.
pursuant to Article 103, Section 3, of Legislative Decree No. 58 of February 24, 1998, as amended and integrated, and Article 9 of the Consob Regulation adopted by
Resolution No. 11971 of May 14, 1999, and amended and integrated, regarding the
VOLUNTARY ALL-SHARE TENDER OFFER
PROMOTED BY SOFIL S.A.S.
pursuant to Article 102 and following articles of Legislative Decree No. 58 of February 24, 1998, as amended and integrated
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Contents
FOREWORD ........................................................................................................................................... 6
1. Description of the meeting of the Board of Directors of February 7, 2017 ........................... 7
1.1 Participants at the meeting of the Board of Directors ......................................................... 7
1.2 Specification of interest concerning the TO either directly or on behalf of a
third-party ............................................................................................................................ 7
1.3 Documents reviewed ........................................................................................................... 8
1.4 Outcome of the meeting of the Board of Directors .............................................................. 9
2. Considerations of the Board of Directors concerning the TO and the fairness of
the Tender Offer Price ................................................................................................................ 9
2.1 Considerations of an industrial and corporate nature ......................................................... 9
2.2 Assessment of the fairness of the Tender Offer Price ...................................................... 19
3. Opinion of the Independent Directors and Lazard’s fairness opinion ................................ 22
3.1 Lazard’s fairness opinion ................................................................................................. 23
3.2 Assessments of the Independent Directors ...................................................................... 24
4. Disclosure about the involvement of members of the Board of Directors in the negotiations for defining the transaction ........................................................................ 26
5. Updating of the information available to the public and disclosure of significant
events pursuant to Article 39 of the Issuers’ Regulation ..................................................... 26
5.1 Information about significant events occurring after the approval of the
latest financial statements or the publication of the latest periodic interim
financial statements........................................................................................................... 26
5.2 Information about the Issuer’s recent performance and business Outlook,
if not included in the Offer Memorandum .......................................................................... 27
6. Conclusions of the Board of Directors ................................................................................... 28
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DEFINITIONS Announcement Date December 27, 2016, which is the date when the Offer
was announced to the public by means of an announcement prepared pursuant to Article 102, Section 1, of the TUF and Article 37 of the Issuers’ Regulation.
Date of the Offer Memorandum
February 1, 2017, which is the publication date of the Offer Memorandum, in accordance with Article 38 of the Issuers’ Regulations.
Deadline Extension An extension of the Offer Acceptance Period pursuant to Article 40-bis, Section 1, Letter a), of the Issuers’ Regulation, for five stock market trading days, counting from the stock make trading day that follows the date when the Price will be paid, i.e., from March 20 to March 24, 2017, unless extended.
Issuer or Parmalat Parmalat S.p.A., a company under Italian law, with registered office at 9 Guglielmo Silva, in Milan, listed in the Milan Company Register under No. 04030970968, R.E.A. No. 1790186, whose shares are traded on the MTA.
Issuer’s Announcement This announcement prepared in accordance with Article 103, Section 3, of the TUF and Article 39 of the Issuers’ Regulation, approved by the Board of Director on February 7, 2017.
Offer Acceptance Period The time period, as stipulated with Borsa Italiana, during which the offer may be accepted, which runs from 8:30 AM on February 9, 2017 until 5:30 PM on March 10, 2017, both starting and closing day included.
Offer Memorandum The offer memorandum prepared by Sofil pursuant to Article 102 of the TUF and the implementation provisions detailed in the Issuers’ Regulation.
Offeror or Sofil Société pour le Financement de l’Industrie Laitiere 3
S.a.s., a company under French law, with registered office at 33 avenue du Maine – Tour Maine-Montparnasse, (75015) Paris (France), listed in the Register of Commerce and Companies of Paris (France), identification number 388 913 519 R.C.S. Paris.
Opinion of the Independent Directors
The reasoned opinion setting forth assessments of the Tender Offer and the fairness of the Tender Offer Price, approved on February 7, 2017, prepared, in accordance with the provisions of Article 39-bis of the Issuers’ Regulation, by the Issuer’s independent Directors pursuant to Article 147-ter, Section 4, of the TUF and Article 3 of the Corporate Governance Code.
Parmalat Group The group of companies comprised of Parmalat and the companies under its direct or indirect control pursuant to Article 2359 of the Italian Civil Code and Article 93 of the TUF.
Proposal of Composition with Creditors
The Proposal of Composition with Creditors in accordance with Article 4-bis of Decree Law No. 347 of December 23, 2003, converted with amendments into Law No. 39 of February 18, 2004, as amended, concerning the 16 companies of the Parmalat Group under Extraordinary Administration, authorized by a Decree of the Minister of Production Activities, in concert with the Minister of Agricultural and Forestry Policies, dated March 1, 2005 and endorsed by the Court of Parma with Decision No. 22 of October 1, 2005. On December 2, 2015, the Clerk of the Court for the First Section of the Court of Cassation certified that the abovementioned decision endorsing the Composition with Creditors had become final. On December 14, 2015, the Court of Parma, upon a motion by the Extraordinary Commissioner, having been informed that the decision endorsing the Composition with Creditors had become final, ruled that the extraordinary administration proceedings applied for the companies subject of the Composition with Creditors were closed.
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Shares Reserved for Exercise of Warrants
The up to 7,034,865 Shares that may be issued during the Offer Acceptance Period or during a possible Deadline Extension, as part of the b.3 tranche of the Parmalat capital increase approved by the Issuer’s Extraordinary Shareholders’ Meeting on March 1, 2005, reserved for the exercise of the 2020 Warrants outstanding on the Date of the Offer Memorandum and those that may be allotted to challenging, conditional and late-filing creditors of the companies included in the Composition with Creditors and exercised by said creditors during the Offer Acceptance Period or during a possible Deadline Extension.
Shares Subject of the Offer
The 227,419,208 Parmalat common shares traded on the MTA that are the subject of the Tender Offer, equal to 12.26% of the Issuer’s subscribed share capital as of the Date of the Offer Memorandum, i.e., all of the Shares issued and subscribed as of the same date, less a total of 1,627,713,708 Shares currently owned by Sofil, equal to 87.74% of the Issuer’s subscribed share capital as of the Date of the Offer Memorandum.
Tender Offer Announcement
The announcement published by Sofil on December 27, 2016, pursuant to Article 102, Section 1, of the TUF and Article 37, Section 1, of the Issuers’ Regulation.
Tender Offer Price The price per share offered by Sofil for the Tender Offer, amounting to 2.80 euros for each Parmalat share tendered in acceptance of the Offer and purchased by the Offeror.
2020 Warrants The warrants called “2016-2020 Parmalat S.p.A. common share warrants,” whose terms and exercise modalities are defined in the Warrant Regulation, which was approved by the Issuer’s Board of Directors on November 10, 2015 and is available on Parmalat’s website (www.parmalat.com) “Investor Relations/Azioni Parmalat/Warrant” page.
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FOREWORD
On December 27, 2016, by means of the Tender Offer Announcement, Sofil communicated to the Consob and the market, pursuant to and for the purposes of Article 102, Section 1, of the TUF and Article 37, Section 1, of the Issuers’ Regulation, its decision to promote a voluntary tender offer, pursuant to and for the purposes of Article 102 and Article 106, Section 4, of the TUF (the “Tender Offer” or “TO”), for all of Parmalat’s common shares (the “Shares”).
On January 9, 2017, Sofil filed with the Consob the Offer Memorandum pursuant to Article 102, Section 3, of the TUF and Article 37-ter of the Issuers’ Regulation.
On January 30, 2017, the Consob approved the Offer Memorandum pursuant to Article 102, Section 4, of the TUF and Sofil published the Offer Memorandum on February 1, 2017.
As stated in the Offer Memorandum:
- the TO is for up to 287,306,001 Parmalat Shares, including 227,419,208 Parmalat Shares, equal to 12.26% of Parmalat’s subscribed share capital as of the publication date of the Offer Memorandum, i.e., all of the Parmalat Shares issued and subscribed as of the same date, less a total of 1,627,713,708 Parmalat Shares (equal to 87.74% of the subscribed share capital as of the Date of the Offer Memorandum) currently owned by Sofil, plus up to 52,851,928 Parmalat Shares reserved for the creditors of the companies included in the Composition with Creditors and up to 7,034,865 Shares Reserved for Exercise of Warrants;
- The Tender Offer does not apply to the 650 2020 Warrants issued as of the Date of the Offer Memorandum.
* * * * *
On February 7, 2017, a meeting of the Board of Directors was convened to approve the Issuer’s Announcement, which, pursuant to and for the purposes of Article 103, Section 3, of the TUF and Article 39 of the Issuers’ Regulation, contains all the information necessary for the TO's assessment.
For a complete and comprehensive knowledge of the assumptions, terms and conditions of the TO, please refer exclusively to the Offer Memorandum. Therefore, this Issuer’s Announcement is not intended in any way as a substitute for the Offer Memorandum and does not constitute in any way, nor can it be construed as such, a recommendation to accept or not accept the TO and does not replace the judgment of each shareholder with regard to the TO.
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1. Description of the meeting of the Board of Directors of February 7, 2017
1.1. Participants to the meeting of the Board of Directors
All of the Company’s Directors, the majority of whom are independent, attended the meeting of the Board of Directors of February 7, 2017 during which the Board reviewed the TO and approved the Issuer’s Announcement pursuant to Article 103, Section 3, of the TUF and Article 39 of the Issuers’ Regulation.
Gabriella Chersicla Chairperson
Yvon Guérin Chief Executive Officer
Patrice Gassenbach Director
Michel Peslier Director
Elena Vasco Independent Director
Angela Gamba Independent Director
Pier Giuseppe Biandrino Independent Director
Nicolò Dubini Independent Director
Umberto Mosetti Independent Director
The attendees representing the Board of Statutory Auditors included Chairman Marco Pedretti and the Statutory Auditors Giorgio Loli and Alessandra Stabilini.
1.2 Specification of interest concerning the TO either directly or on behalf of a third-party
Pursuant to Article 2391 of the Italian Civil Code, Directors Peslier and Guérin made the following statements:
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- Director Peslier stated that he is a manager of the Lactalis Group, of which the Offeror is a member, in the context of which he serves in the capacity as General Manager for internal control, auditing and legal affairs, and specified that, in any case, he did not participate in any activity concerning the TO and, therefore, believed that he could participate in the Board’s deliberations concerning the Issuer’s Announcement;
- Director Guérin stated that he worked at Lactalis for 20 years before joining Parmalat and specified that he did not participate in any activity concerning the TO and, therefore, believed that he could participate in the Board’s deliberations concerning the Issuer’s Announcement.
1.3 Documents reviewed
the Board of Directors, as part of its assessment of the TO an of the corresponding Price and for the purpose of approving the Issuer’s Announcement, reviewed the following documents:
- the TO Announcement by which Sofil announced its decision to promote the TO pursuant to Articles 102 and 106 of the TUF;
- the Offer Memorandum;
- the fairness opinion rendered on February 7, 2017 by Lazard S.r.l., in its capacity as independent expert for the Independent Directors pursuant to Article 39-bis, Section 2, of the Issuers’ Regulation (“Lazard”);
- the Opinion of the Independent Directors provided on February 7, 2017 pursuant to Article 39-bis of the Issuers’ Regulations;
- the fairness opinion rendered on February 7, 2017 by Leonardo & Co. S.p.A., in its capacity as independent expert for the Board of Directors pursuant to Article 39, Section 1, Letter d), of the Issuers’ Regulation (“Leonardo”);
- the Issuer’s preliminary data at December 31, 2016, reviewed by the Board of Directors and communicate to the market in a press release dated January 25, 2017;
- the 2017-2019 industrial plan, reviewed by Parmalat’s Board of Directors on January 18, 2017 (the “Industrial Plan”);
- the guidance for the 2017 reporting year, approved by the Board of Directors and communicated to the market in the press release dated February 6, 2017;
- the opinion rendered by Chiomenti on February 7, 2017;
- the opinion rendered by Professor Maffei Alberti on February 22, 2015 and its subsequent update of February 6, 2017.
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1.4. Outcome of the meeting of the Board of Directors
On February 7, 2017, the Board of Directors adopted a motion approving this Issuer’s Announcement by a majority vote, with Director Umberto Mosetti voting against the motion.
2. Considerations by the Board of Directors concerning the TO and the fairness of the Tender Offer Price
2.1. Considerations of an industrial and corporate nature
The Board of Directors was informed about the rationale for the TO and of Sofil’s future plans, as described in Section G.2 of the Offer Memorandum. In this regard, the Board of Directors believes that it should bring to the attention of Parmalat’s shareholders the following issues:
(i) Historical dividend flows
The Offeror has undertaken, until full implementation of the Composition with Creditors and, in any case, not beyond the timeframe specified in the Issuer’s Bylaws in accordance with the provisions of the Composition with Creditors (i.e., the first 15 annual financial statements beginning in 2005), not to amend Article 26 of Parmalat’s Bylaws in effect on the Date of the Offer Memorandum—pursuant to which the Issuer is required to distribute to the shareholders an amount equal to 50% of distributable earnings shown in each one of the first 15 annual financial statements—even if the shares were to be delisted from the MTA due to the Tender Offer or, as the case may be, due to the Purchase Obligation pursuant to Article 108, section 2, of the TUF or due to the Purchase Obligation pursuant to Article 108, Section 1, of the TUF, and the Right to Purchase.
In this regard, please note that, as may be gleaned from the individual annual financial statements, the dividend flows from which Parmalat’s shareholders benefited during the past 10 years were derived to some extent (for up to 77.8% of the total dividends distributed during the 2005-2015 period) from nonrecurring income generated by settlements of litigation activated within the framework of the Composition with Creditors. Therefore, with regard to future years and irrespective of any future settlements, dividends generated exclusively from operating activity cannot reasonably be expected to be in line with those of earlier years.
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(ii) 2017-2019 Industrial Plan
The Industrial Plan, on the basis of which the Issuer published its 2017 guidance and Leonardo performed its valuation of Parmalat using the DCF method, calls, inter alia, for a significant improvement in performance in the various countries in which the Group operates, with a high implementation risk related both to specific macroeconomic difficulties and problems in the dairy sector in the various countries (e.g., availability of raw milk, competitive situation, distribution structure, etc.).
(III) Litigation in which Parmalat is a defendant
A. As noted in the financial report at the June 30, 2016, Parmalat is appealing to the Court of Cassation a decision handed down on July 18, 2014 by the Bologna Court of Appeals declaring “enforceable in the Republic of Italy the decision handed down by the Superior Court of New Jersey … on October 27, 2008 …” by which it awarded to Citigroup the sum of US$431,318,828.84 (US$364,228,023 in principal and US$ 67,090,801.84 in interest).
Pursuant to the Composition with Creditors, should Citigroup’s claims be definitively verified or allowed by virtue of a settlement agreement, Parmalat will be required to pay the awarded amounts through the allotment of newly issued Shares in accordance with the recovery percentages set forth in the Composition with Creditors.
With regard to the number of shares that could be allotted to Citigroup in the event of a definitive verification of its right to receive, pursuant to the provisions of the Composition with Creditors, shares by virtue of the title consisting of the decision by the SCNJ, as enforceable in Italy, please note the following:
- the corresponding amount in euros of Citigroup’s claim of US$431,318,828.84 verified by the decision of the SCNJ, assuming the use of the EUR/USD exchange rate on the date Parmalat S.p.A. was admitted to the extraordinary administration proceedings (December 24, 2003), amounts to 347,641,512.73 euros;
- it is possible to consider a plurality of scenarios, in view of the possibility that Citigroup’s claim could be included as a verified claim in the list of liabilities of one or more of the companies against whom, considering also Citigroup’s projections, the claim could be enforceable. Specifically, the Bologna Court of Appeals ruled that the decision was enforceable in the Republic of Italy against 10 companies included in the Parmalat Composition with Creditors. In this regard, please note that (x) in the initial filing by which the Extraordinary Commissioner Enrico Bondi sued Citigroup before the Superior Court of New Jersey the only companies mentioned by name were Parmalat S.p.A. in A.S. and Parmalat Finanziaria S.p.A. in A.S., and (y) the only Parmalat Group companies with which Citigroup
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executed the financial transactions subject of the lawsuit before the Superior Court of New Jersey are Parmalat S.p.A. in A.S. and Geslat S.r.l. in A.S.;
- assuming—as stated in the projections of the opposing party, which the Issuer rejects completely—the full satisfaction of Citigroup’s claim by applying the highest of the applicable recovery ratios (or of the different applicable recovery ratios, up to full satisfaction), Parmalat could be asked to allot to Citigroup 347,641,513 shares.
B. In addition, Citigroup has put forth additional claims under the Composition with Creditors with a total face value of 285.4 million euros, claimed through a proceeding challenging the list of liabilities of Parmalat S.p.A. in A.S. and three late-filing proceedings for inclusion in the list of liabilities of Parmalat Finanziaria S.p.A. in A.S. These proceedings are currently pending at the appellate level or before the Court of Cassation. If all of Citigroup’s claims were definitively verified, Citigroup—in implementation of the applicable recovery ratios—would be entitled to receive a total of 16,794,270 shares. In this regard, please note that Parmalat S.p.A. in A.S. and Parmalat Finanziaria S.p.A. in A.S. already obtained, in some of the pending proceedings, favorable decisions by the Court of Parma and the Bologna Court of Appeals.
C. Net of the proceedings concerning the definition of claims by companies belonging to the Citigroup Group, an additional 12 proceedings are currently pending (four challenging the list of liabilities and eight by late-filing creditors) filed by various creditors against the companies in extraordinary administration included within the scope of Parmalat’s Composition with Creditors. Assuming that all of the abovementioned claims were verified in full, Parmalat— based on the applicable recovery ratios—would have to allot to these creditors up to 1,256,662 shares.
D. Taking into account the risk of an unsuccessful outcome of the abovementioned proceedings, the Issuer recognized reserves earmarked for possible capital increases reserved for challenging and late filing creditors, should their claims be definitively verified.
As the stated in the financial report at June 30, 2016, if the established reserves were to be insufficient, “Parmalat would be required to ask its Shareholders’ Meeting to increase the amount of Other reserves and retained earnings restricted for that purpose.”
E. Therefore, at this point, there is a potential risk on dilution for Parmalat’s shareholders related to the outcome of the disputes listed under letters A, B and C above. In any event, in view of the current status of the disputes in question, the Board of Directors does not see as foreseeable either a definitive verification of some claims nor, consequently, the issuance of new shares to satisfy these
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claims prior to the conclusion of the Offer. Therefore, any dilution resulting from the issuance of new Shares would affect exclusively the position of those who would continue to be Parmalat shareholders subsequent to the conclusion of the Offer (i.e., only Sofil and the shareholders who declined to accept the Offer).
(iv) Litigation in which Parmalat is a plaintiff
As noted in the Offer Memorandum (Section A.16) and stated most recently in the financial report at the June 30, 2016, Parmalat S.p.A. filed a lawsuit before the Court of Milan against executives and employees of Citigroup Group companies (formerly defendants charged with bankruptcy related activities in the criminal proceedings before the Court of Parma) and against some companies of the Citigroup Group (which in the same criminal proceedings had the status of parties civilly liable for the activities carried out by their employees) following the conclusion of the abovementioned criminal proceedings through a plea-bargaining agreed to by the parties, in which it is asking that the defendants be ordered to compensate the companies of the Parmalat Group and their creditors for the damages they suffered; the amount of the claim is 1.8 billion euros.
With regard to the status of this dispute, please note that the first hearing was held on April 19, 2016, at which point the judge gave the parties a deadline for filing the initial briefs.
At a hearing held on December 6, 2016, the judge scheduled the hearing for closing arguments for May 30, 2016 and announced his intention to submit the lawsuit to a panel asking for a decision about the prejudicial settled-issue exception raised by the opposing parties based on the decision handed down in the U.S. trial, before proceeding with the start of the lengthy and complex discovery activity.
At this point there is thus a potential source of prior-period income, of uncertain amount (and subject to taxation), originating from a possible favorable conclusion, in court or through a settlement, of the abovementioned dispute. In any event, no assessment can be made as to the timing and probable outcome of the dispute, taking also into account all of the disputes outstanding with the Citigroup Group.
In this regard, please note, merely for the sake of information, that all of the other 16 actions for damages filed by the Extraordinary Commissioner in past years ended with a settlement with the counterparties. However, it must be said that each dispute has its own specificity and that, therefore, the information provided has only historical value and cannot be in any way and under any profile interpreted as an indication by the Issuer regarding the outcome of the dispute in question.
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(v) Existence of negotiations with Citigroup aimed at settling the existing disputes
Also in response to a request by the Consob, it is hereby specified that on the date of this Issuer’s Announcement there were no negotiations in progress regarding the various disputes with the Citigroup Group aimed at defining a settlement. Please note that at the abovementioned hearing of December 6, 2016, held as part of the action for damages pending before the Court of Milan, the judge queried the parties about their willingness to reach an amicable settlement of the dispute. Parmalat, which was directly represented at the hearing, confirmed its overall willingness; Citigroup, which was not directly represented at the hearing, could provide no response whatsoever nor did it later communicate to Parmalat is position in this regard.
(vi) Compatibility of the delisting with the obligations arising from the Composition with Creditors and the Put Option
The Consob, by a communication dated February 3, 2017, further to a review of the reply provided by Parmalat on January 30, 2017 to the questions asked by the Authority on January 24, 2017, asked the Issuer, pursuant to Article 114, Section 5, of the TUF, to include its assessment in the Issuer’s Announcement:
- “taking into account the opinion provided by Professor Maffei Alberti to the company on July 22, 2015—regarding the compatibility of the possible delisting of the Parmalat Shares, due to the effect of the offer, with a) the provisions of the Proposal of Composition with Creditors—filed in accordance with Article 4-bis of Legislative Decree No. 347/2003 and approved by the Court of Parma with Decision No. 22/2005—concerning the listing of the securities issued by the “Assumptor,” b) the regular fulfillment of the obligations undertaken by Parmalat towards his creditors—including “late-filing creditors”— in accordance with the abovementioned Proposal of Composition with Creditors,” and
- regarding “whether or not the “Irrevocable Put Option” mentioned in Notice A.17 and Paragraph G.2.3 of the Offer Memorandum is suitable for the purpose of avoiding, in the event of delisting, any injury to the rights granted to late-filing creditors under the Composition with Creditors.”
An assessment about the first of these issues is also being requested of the Board of Statutory Auditors.
A. Assessment by the Board of Directors
The Board of Directors acknowledges that in this regard it asked (i) the Chiomenti law firm, in its capacity as legal consultants of the Issuer regarding compliance requirements related to the Tender Offer, to render its legal opinion regarding the request of the Consob and (ii) Professor Maffei Alberti to update the opinion it
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rendered on July 22, 2015 regarding the potential implications deriving from the launch of the process to delist the Parmalat Shares in light of the Composition with Creditors.
On February 7, 2017, the Chiomenti law firm rendered its legal opinion, the content of which is summarized below:
- “the considerations set forth in this opinion should be viewed in a context within which, after the court decision that approved the Composition with Creditors became final in 2015, the extraordinary administration proceedings of the 16 companies included in the Composition with Creditors ended pursuant to Article 4-bis, Section 11, of Decree Law No. 347 of December 23, 2003, converted with amendments into Law No. 39 of February 18, 2004 (the Marzano Law), resulting in the dissolution of said companies through their deletion from the Company Register ordered by the Court of Parma;”
- “under the Proposal of Composition with Creditors, subject of a decision that became final, as shown in the certificate issued by the Court of Cassation on December 2, 2015, the only requirement incumbent upon the Company, in its capacity as Assumptor is the requirement set forth in Article 11.1 to prepare “within the necessary technical timeframe the documents required by the applicable laws regarding solicitations to invest and the requirement that must be met for listing its shares and warrants on the Borsa Italiana exchange,” without any obligation to secure a listing and maintain it until all pending disputes with creditors have ended. In other words, the Company was the subject of a requirement regarding means, not results, and it could not have been otherwise, as obtaining (and maintaining) the listing of the Parmalat Shares is predicated on the fulfillment of certain objective conditions that are not under the control of the Issuer and the satisfaction of which, in Parmalat’s case, is left to the determinations of the Consob and Borsa Italiana.”
- “Governance related obligations, while established “in view of the Assumptor’s future listing” (Article 4.2), pursuant to express provision of the Proposal of Composition with Creditors, must be complied with for a period of five years from the date when the court decision approving the Composition with Creditors was filed (Article 4.8), which ended in 2010.”
- “The Proposal of Composition with Creditors does not establish any obligation for the Company to award to creditors listed shares and warrants and the Warrant Regulation does not entail any obligation to award listed shares.
Consequently, the possible delisting of the shares (which affects exclusively how they are traded in a regulated market but does not affect the Company as a legal entity) would not have any effect on the accurate fulfillment, by the Company, of its obligations to award to challenging and late-filing creditors newly issued shares
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issued as part of an already approved capital increase, in accordance with the definitively verified recovery ratios.”
- “From a different standpoint, it is worth noting that: […] if upon the completion of the Tender Offer the necessary conditions are met, the delisting would occur automatically in accordance with the requirements of the relevant authorities (Article 2.5.1, Section 6, of the Regulations of Borsa Italiana), without the need for any resolution by the Company’s governance bodies.”
- “The absence of an obligation to maintain the listing of the shares thus makes it possible to conclude that the possible delisting resulting from the Tender Offer would not be harmful for creditors who receive shares after the delisting. These creditors could incur exclusively a fact related damage, due to the fact that further to the delisting they would lose the possibility of benefiting from the opportunity to sell the shares awarded to them on a regulated market.”
In light of these considerations, the Chiomenti law firm reached the following conclusions:
“- there are no compatibility issues between the possible delisting resulting from the Tender Offer and the fulfillment of the obligations required by the Proposal of Composition with Creditors, because the Proposal of Composition with Creditors did not place upon the Company any obligation to obtain or maintain the listing of its shares; in any event, the delisting would automatically follow a series of events— an initiative by the Offeror, decision by the shareholders to accept the offer for a number of shares equal at least to the minimum threshold and applicability of the provisions of the Regulations of Borsa Italiana—in which the Company is not involved;
- as it appears that there is no obligation incumbent upon the Company to maintain the listing of the shares that could be invoked by the creditors and considering that, for the reasons stated above, subsequent to the possible delisting of the Company’s shares creditors receiving shares subsequently would incur exclusively a fact-related harm, the Company has no standing to provide an assessment as to the suitability of the Put Option to avoid such fact-related harm.”
In his opinion rendered on July 22, 2015, Professor Maffei Alberti pointed out, inter alia, that:
in the “hypothesis […] that the delisting is caused by the launch of one or more tender offers (TO) by the majority shareholder that reduce the share float and create the conditions for the delisting of the shares […] This behavior […] not being attributable to Parmalat or any other signatory of the Proposal of Composition with Creditors could not be configured as a failure to perform the Composition with Creditors.
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Nevertheless, it is also necessary to consider that:
(i) in the course of the tender offer procedure outlined by the TUF, Parmalat would be required to do everything in its power to retain its status as a listed company, at least citing the provisions of Article 11.1 of the Composition with Creditors in the announcement that the Issuer’s Board of Directors is required to publish pursuant to Article 103, Sections 3 and 3 bis, of the TUF;
(ii) also for this reason, a Lactalis TO could be opposed by claiming that it is illegitimate and, specifically, hypothesizing the existence of a prohibition for this company to cause the delisting; all of this, inter alia, by leveraging the public low-profile of the Composition with Creditors, as validated, and diminishing the differences between Parmalat and Lactalis (which, one could say, if it is unable to vote at a shareholders meeting in favor of the delisting, pursuant to Article 133 of the TUF, must also abstain from any other conduct that while not entailing a charge for Parmalat of intentionally seeking the delisting, would produce the same result; one could then conclude, albeit significantly stretching the evidence, that the launch of a TO for the Parmalat Shares would be lawful if implemented by a third party, but illegitimate if carried out by a shareholder, and even more so by the majority shareholder).
E. Depending on which thesis one accepts regarding whether or not a TO by Lactalis aimed at causing the delisting of the Parmalat Shares is lawful, the additional questions that have been posed must also be answered.
If the conduct is indeed lawful, any opposition measures activated by the affected parties (see below) with neither prevents the implementation of the transaction in real terms nor could they succeed in forcing Lactalis (or at least Parma) to pay compensation in obligatory terms.
On the other hand, if the conduct described above is thought to be illegitimate, several scenarios that could be implemented alternatively or cumulatively can be hypothesized […]
F. In light of the remarks provided above, it would not be incorrect to say that an analysis of the provisions of the Proposal of Composition with Creditors (and of the principles presented above) would not identify an explicit prohibition to proceed with the delisting of the company, implemented by means of an independent initiative by the majority shareholder.”
In the update to his abovementioned opinion, rendered on February 6, 2017, Professor Maffei Alberti provided the following remarks:
“(i) With regard to the court decision approving the Composition with Creditors having become final, […] that decision also marked the end of the dispute
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concerning the legitimacy of the Composition with Creditors, which must now be considered, for all purposes and in a definitive way, fully lawful.
However, it shall be understood that, regarding, inter alia, the late filing creditors to whom the Consob’s requests for clarifications refers, the Composition with Creditors must still be implemented in accordance with the provisions set forth therein.
(ii) With regard to the approval, by the Consob of the Offer Memorandum prepared in accordance with Article 102, Section 3, of the TUF, the approval entails a favorable opinion by the oversight authority regarding the suitability of the Tender Offer “to enable the recipients to develop a valid opinion with regard to the Tender Offer” (see Article 102, Section 4, of the TUF); doubts still remain about the compatibility of the delisting with the provisions of the Composition with Creditors, with regard to which the Consob asked Parmalat’s Board of Directors to take a position.
(iii) The Irrevocable Put Option referred to in Section G.2.3 of the Offer Memorandum would indeed enable the creditors referred to in paragraph (2) (see the Offer Memorandum, page 143) to sell their shares on the terms specified in the Option; however this is clearly a form of protection different from that provided by the listing of the Parmalat Shares, which would make it possible (at least theoretically) to sell the securities at any time.
(iv) Lastly, the November 2015 decision by Borsa Italiana is an indication of the limited share float, but cannot negate the fact that under the Composition with Creditors the shares that were to be allotted to the creditors were supposed to be listed shares.”
In the opinion of Professor Maffei Alberti, the circumstances described above “’are not sufficient to completely dispel the doubts stated” in the opinion rendered on July 22, 2015.
B. Remarks by the Board of Statutory Auditors
At the Consob’s request, the Board of Statutory Auditors provided the following remarks:
“The Board of Statutory Auditors wishes to point out that the issue of whether Parmalat’s delisting is compatible with the obligations it undertook (in his capacity as Assumptor) in light of the provisions of the Composition with Creditors and, as
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also emphasized in the legal opinions obtained by the Board of Directors, is a question that is not only judicially complex, but also new and, therefore, any conclusion regarding it is necessarily characterize by a high level of uncertainty. The Board of Statutory Auditors believes that the shareholders should take this uncertainty into account.
This being said in general, the Board of Statutory Auditors wishes to point out that, as also noted by the Board of Directors based on the legal opinions it received, the Composition with Creditors does not entail Parmalat’s obligation to maintain the listing nor its obligation to pay the creditors with listed shares. Consequently, the delisting would not constitute a violation of the Composition with Creditors. Nevertheless, the Board of Statutory Auditors believes that one could say that a reading in good faith of the relevant clauses of the Composition with Creditors would lead to the conclusion that the rationale for the obligation then undertaken by the governance bodies of the entity under extraordinary administration to seek the listing of Parmalat’s shares on a regulated market was to provide the creditors with shares conveying the degree and type of liquidity typical of shares listed in regulated markets.
In the opinion of the Board of Statutory Auditors, the main question within the framework of the Tender Offer appears to be whether the Irrevocable Put Option granted by the Offeror to the creditors provides them with a tool that could be deemed to be equivalent to the one offered by the listing of the shares. With regard to this issue, the Board of Statutory Auditors wishes to emphasize that it is extremely hard to formulate an opinion characterized by certainty an believes that it would be useful to ask the interested parties to carefully consider the different elements already pointed out above by the Board of Directors.
In principle, the Irrevocable Put Option enables the creditors to sell their investment at any time, albeit within a relatively limited timeframe for exercising this right, and at a preset price corresponding to the Tender Offer Price (a price that thus incorporates a premium compared to the price at which the Parmalat Shares were traded prior to the Tender Offer Announcement, as described more in detail in the Offer Memorandum).
It must also be taken into consideration, on the one hand, that the purchase obligation thus undertaken by the Offeror is not secured by any guarantee of exact performance and, on the other hand, that, by definition, a put option exercisable at a preset price is not exactly equivalent to the salability of a listed share and does not incorporate the risks and opportunities inherent in the fluctuation of market prices.
Lastly, please keep in mind the fact, clarified by the Offeror, that the Irrevocable Put Option is only provided to creditors who received an allotment of Parmalat Shares after the end of the Offer Acceptance Period and any Deadline Extension.
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Moreover, for the other creditors (who were allotted Parmalat Shares before the end of the Offer Acceptance Period and any Deadline Extension) acceptance of the Tender Offer constitutes the tool and the Offer Acceptance Period (and any Deadline Extension) delimits the timeframe for the assured sale of their shares at a preset price. Subsequently, assuming that the Parmalat Shares are delisted, there is no certainty that the abovementioned creditors will be able to sell their investment nor is there any certainty about the price at which the shares could be sold.”
2.2 Assessment of the fairness of the Tender Offer Price
2.2.1 Key information about the Tender Offer Price contained in the Offer Memorandum
The Board of Directors acknowledges that the Tender Offer Price, as the stated in Section E of the offer memorandum, amounts to 2.80 euros for each Parmalat share.
As stated in the Offer Memorandum (Paragraph E.1, Section E):
(i) the Tender Offer Price was determined based on Sofil’s own valuation regarding Parmalat’s economic and financial position, as well as on its financial statements and growth expectations over the medium/long-term period for the Parmalat Group, as derived from recent research reports published by financial analysts. In determining the Tender Offer Price, Sofil did not use (nor did it obtain) appraisals provided by independent experts for the purpose of assessing the fairness of the Tender Offer Price;
(ii) in determining the Tender Offer price, Sofil:
a) compared the multipliers of certain relevant economic data of Parmalat with valuation parameters generally applied in international valuation practices, taking mainly into considerations the market multiple method applied to listed companies deemed comparable to Parmalat;
b) considered, for control purposes, the target prices recently published by financial analysts for Parmalat, in addition to the implied premiums paid in previous voluntary all-share tender offers;
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c) determined the Tender Offer Price taking also into account the implied premium that will be paid to the parties accepting the Tender Offer compared with the official price reported for Parmalat Shares over different time frames;
(iii) the Tender Offer Price incorporates:
a) an implied premium of about 8.5% compared with the price on the stock market trading day before the Announcement Date, which is the date when the highest official price for the 12 months prior to the Announcement Date was reached;
b) a premium of about 11.2% compared with the weighted average of the official prices of the Parmalat Shares during the last month before the stock market trading day preceding the Announcement Date, as well as a premium of about 14.8% compared with the weighted average of the official prices of the Parmalat Shares during the last three months prior to the Announcement Date;
c) a premium of about 17.3% compared with the weighted average of the official prices of the Parmalat Shares during the last six months before the stock market trading day preceding the Announcement Date, as well as a premium of about 17.8% compared with the weighted average of the official prices of the Parmalat Shares during the last 12 months prior to the Announcement Date.
For additional information about the criteria applied by Sofil to determine the Tender Offer Price, please see Paragraphs from E.1 to E.6, Section E, of the offer memorandum.
2.2.2 Leonardo’s fairness opinion
on January 13, 2017, the Board of Directors hired Leonardo as an independent expert pursuant to Article 39, Section 1, Letter d), of the Issuers’ Regulation for the purpose of issuing a fairness opinion regarding the fairness, from a financial standpoint, of the Tender Offer Price.
This appointment by the Board of Directors was announced after the review of a plurality of offers, some received further to interviews activated with potential candidates by organizations part of the Issuer and other requested subsequently based on specific instructions provided by Directors. At a meeting held on January 11, 2007, the Board of Directors reviewed the offers then available and narrowed the field of potential candidates, resolving to proceed with meetings with each one of them. Taking into account the results of the interviews, the economic terms of the offers and the ability to meet the independence requirements, the Board of Directors decided to appoint Leonardo.
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Specifically with regard to the independence requirements, Leonardo stated that: (i) it had no concrete economic or financial relationships with Parmalat, Sofil and the respective related parties; (ii) no partner, director or associates of Leonardo serves in an administrative or control capacity on the corporate governance bodies of Parmalat, Sofil and the respective related parties; (iii) there are no situations that (aa) would impair Leonardo’s independence pursuant to the provisions governing related-party transactions referred to in Consob Regulation No. 17221 of March 12, 2010, or (bb) otherwise give rise to conflict of interest situations with regard to the activity that Leonardo will perform within the framework of the Tender Offer.
Leonardo rendered its fairness opinion on February 7, 2017.
In order to render an opinion about the fairness of the Tender Offer Price, from a financial standpoint, Leonardo used valuation methods and criteria generally used in national and international practice for similar transactions, assigning to each one of them different degrees of significance and performed its valuations with a standalone approach and assuming that that the going concern principle would be applicable to Parmalat.
In view of the Issuer’s peculiar characteristics, in order to render an opinion about the fairness of the Tender Offer Price, from a financial standpoint, Leonardo adopted the following methods commonly used in national and international practice for similar transactions, to each one of which different degrees of significance were assigned:
A. discounted cash flow analysis, used based on the 2017-2019 projected financial company data listed in the Industrial Plan;
B. valuation using market multiples based on a sample of companies with shares listed on regulated markets that can be deemed comparable to the Issuer because they operate in the dairy industry and have characteristics similar to Parmalat in terms of size and/or geographic footprint;
C. analysis of the premiums offered for previous tender offers deemed comparable to the Tender Offer;
D. analysis of the market prices of the shares over different time intervals, used because the prices set for the shares by the market are deemed to be an objective and factual reference, albeit adversely affected by the reduced liquidity of the security observed in recent years;
E. analysis of the target prices assigned by financial analysts, based on estimates of the Share price by the financial community available before the Tender Offer Announcement.
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The table below shows the prices per share—based on the shares outstanding on the date of delivery of the fairness opinion—obtained by applying the various valuation methods described above, and includes the degree of significance assigned to each one.
METHODS VALUE PER SHARE (€) METHOD’S DEGREE
OF SIGNIFICANCE MINIMUM MAXIMUM
A. DCF 2.55 3.22 High
B. Market multiples 2.70 2.99 High
C. TO premiums 2.92 3.04 Average
D. Stock market prices 2.38 2.58 Average
E. Target prices 2.35 2.42 Average
In Leonardo’s opinion:
- The “Tender Offer price—i.e., 2.80 euros per Company share—falls within the range of the high significance valuation methods described above”;
- “Based and conditional on the considerations provided above, Leonardo believes that, on the date this opinion was issued, the Price was fair from a financial standpoint for the Company’s shareholders.”
For additional information please see the fairness opinion issued by Leonardo (annexed to this Announcement as Annex “A”).
3. Opinion of the Independent Directors and Lazard’s fairness opinion
Prior to the approval of the Issuer’s Announcement, the Independent Directors, meeting on February 7, 2017, rendered a reasoned opinion concerning assessments of the TO and about the fairness of the Tender Offer Price.
At an earlier meeting held on January 11, 2017, the Independent Directors agreed to carry out a “beauty contest” and, pursuant to Article 39-bis of the issuers’ Regulation,
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selected potential financial advisors who would be asked to provide an offer and, the same time, agree to be interviewed, which occurred at a subsequent meeting held on January 13, 2017; subsequent to these interviews, taking into account the content of the presentations, the economic terms and the independence requirements, the Directors selected Lazard.
Lazard issued its fairness opinion on February 7, 2017, the content of which is summarized below.
3.1 Lazard’s fairness opinion
In preparing its fairness opinion (annexed to the Opinion of the Independent Directors) Lazard reviewed the economic terms of the TO set forth in the Offer Memorandum and used as a basis public information, i.e., information provided by the Issuer’s management, which was not independently verified by Lazard.
In addition, Lazard specified that in order to develop its fairness opinion, taking into account Parmalat’s peculiar characteristics, it selected two different valuation methods, pointing out that the abovementioned methods and analyses should not be considered individually but only as integral parts of the overall valuation process.
The outcome of the abovementioned analyses carried out in accordance with each one of the methods used by Lazard is detailed below:
- Comparable Companies Analysis (reference method): with regard to this valuation method Lazard identified a price range for each Parmalat share ranging between 2.67 euros and 3.01 euros;
- Discounted Cash Flow Analysis (control method): with regard to this valuation method Lazard identified a price range for each Parmalat share ranging between 2.68 euros and 3.20 euros.
Lazard also pointed out that Parmalat’s is a party to numerous still pending disputes, both as a plaintiff and as a defendant, and that the financial projections provided by management for the preparation of the fairness opinion did not include the potential impact of these disputes (which is uncertain by its very nature). Since it is not possible to quantify said impact, which could have a significant effect on the final results of the analyses, the potential impact of pending disputes was not taken into account for analysis purposes.
Based on the analyses performed and taking into account the limitations and the assumptions stated in the fairness opinion, Lazard concluded that, on the date its fairness opinion was issued, the Tender Offered Price was fair from a financial
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standpoint for the Issuer’s shareholders, other than the Offeror and the parties acting in concert with the Offeror.
3.2 Assessments of the Independent Directors
The assessments provided in the Opinion of the Independent Directors are detailed below:
A. Fairness of the Tender Offer Price
The independent directors:
1. having reviewed the content of the Offer Memorandum and other related documents, including Lazard’s fairness opinion;
2. considering that the Opinion of the Independent Directors is being rendered pursuant to and for the purposes of Article 39-bis of the Issuers’ Regulation and, therefore, for the purpose of the issuance by the Issuer’s Board of Directors of the next Issuer’s Announcement required by Article 103, Section 3, of the TUF and Article 39 of the Issuers’ Regulation;
found to that the Tender Offer Price was fair, but noted that it fell in the bottom part of the range of prices listed in Lazard’s fairness opinion.
B. Notices about the potential effects of the Citigroup dispute
With regard to the overall dispute outstanding with Citigroup, described in Section 5 of the Opinion of the Independent Directors, the Independent Directors thought it necessary to emphasize that at this point, absent objective evidence regarding a future and uncertain event, such as the outcome of these proceedings, there is inevitably an uncertainty factor (beyond the Issuer’s control) that makes it impossible to translate into numerically accurate data for fairness opinion purposes, not even on a range basis, on the one hand, the potential prior-period income and, on the other hand, the potential dilutive effect deriving from these disputes.
Considering that, insofar as the amount claimed in the action for damages described in Section 5.2 of the Opinion of the Independent Directors is concerned, any proceeds (the potential collection timing of which cannot be in any way predicted) deriving from Parmalat’s claim should be treated as a gross amount subject to income taxes at the tax rate in effect, and that any prior-period income will be subject to the provisions of Article 26 of the Issuer’s Bylaws, the Independent Directors noted that using for valuation purposes the amounts claimed in the actions pending with Citigroup, both as plaintiff and defendant, would be an exercise devoid of any real significance, given the fact that, with regard to the opposing claims in the proceedings, no judgment based on objective elements can be given about the degree of probability of the events in specific terms (meaning by this not only the probability of a favorable or unfavorable outcome of the
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dispute, but also an estimate of the related potential prior-period income and possible dilutive effect).
In addition, the Opinion of the Independent Directors also points out that, differently from other similar market transactions in which mechanisms were used (also in the form of financial instruments) to integrate the price or rebalance the exchange ratios in the event of occurrence of potentially significant events from an economic standpoint the future occurrence of which was uncertain and could not be estimated in advance from a quantitative standpoint based on objectively measurable elements, the TO does not provide any tool that would enable a party who accepted the TO to share in the collection of any subsequent proceeds that could derive from the abovementioned dispute with Citigroup. The Independent Directors believe that shareholders should take into account these considerations with regard to any determinations that they will be making concerning the TO.
C. Notices about scenarios resulting from the TO
The Independent Directors also thought it useful to call to the attention of the shareholders the potential scenarios resulting from the TO:
1. The Shares tendered in acceptance of the TO represent 90% or more of the Shares Subject of the Tender Offer
In this scenario, the interest held by the Offeror in the Issuer would necessarily be higher than the threshold of 95% of the Issuer’s share capital, with the consequence that, as specified in the Offer Memorandum, all of the shares outstanding would be automatically acquired by the Offeror at a price equal to the Tender Offer Price.
2. The Shares tendered in acceptance of the TO represent less than 90% of the Shares Subject of the Tender Offer, but the Offeror would still own an interest in the Issuer’s share capital greater than 90%
In this second hypothesis, the Issuer’s shares would be delisted and the remaining shareholders would retain their right to sell their shares to the Offeror at a price determined by the Consob pursuant to Article 108, Section 4, of the TUF. In addition, in this scenario, if the interest held by the Offeror at the end of the TO is greater than 95% of the Issuer’s share capital, the Offeror, in accordance with the conditions stated in the Offer Memorandum, would exercise the Right to Purchase, at a price determined by the Consob in accordance with the abovementioned provisions.
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3. Upon conclusion of the TO, the Offeror owns an interest in the Issuer’s share capital of less than 90%
In this case, the Issuer’s shares would continue to be listed and the shareholders could thus continue to trade their shares on the MTA; however, given that in any case no valuation can be given regarding the formation of future prices for the shares, in the opinion of the Independent Directors, consideration should be given to the fact that, in this scenario contemplated in this Item 3, given the limited remaining share float, which could constrain trading in the securities, the price of Parmalat Shares after the TO could not necessary be consistent with a range of values determinable with commonly used methods.
D. Voting
One of the Independent Directors cast a dissenting vote with regard to the fairness opinion and the content of the Opinion of the Independent Directors based on his disagreement with certain qualifying points in the Opinion.
For additional information please see the Opinion of the Independent Directors (annexed to this announcement as Annex “B”).
4. Disclosure about the involvement of members of the Board of Directors in the negotiations for defining the transaction
No member of the Board of Directors was involved in any capacity in the negotiations for defining the transaction within the context in which the TO was promoted.
5. Updating of the information available to the public and disclosure of significant events pursuant to Article 39 of the Issuers’ Regulation
5.1. Information about significant events occurring after the approval of the latest financial statements or the publication of the latest periodic interim financial statements
On November 10, 2016, the Board of Directors approved the interim Management Statement at September 30, 2016, which is available to the public at the Company’s registered office and on the Parmalat website.
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As disclosed by the issuer in a press release dated December 22, 2016, Parmalat reached an agreement aimed at concluding with a settlement an action to void in bankruptcy filed in 2005 against Tetra Pak International S.A. (“Tetra PAK”) by Parmalat Finance Corporation B.V. in A.S. and Parmalat S.p.A. in A.S., with the subsequent intervention of Parmalat. Pursuant to this agreement, Tetra Pak paid Parmalat the total amount of 16 million euros.
On February 6, 2017, the Board of Statutory Auditors of Parmalat S.p.A. made available to the public its concluding report pursuant to Article 2408, Section 2, of the Italian Civil Code.
5.2 Information about the Issuer’s recent performance and business Outlook, if not included in the Offer Memorandum
On January 25, 2017, the Board of Directors reviewed the preliminary results of the Parmalat Group at December 31, 2016, which are summarized in the table below:
See the Issuer’s press release of January 25, 2017 for additional information.
On February 6, 2017, Parmalat’s Board of Directors approved the 2017 guidance, which is transcribed below:
“2017 Guidance
For the 2017 reporting year, at constant exchange rates and excluding the Venezuelan subsidiary—given that country’s critical situation caused by high inflation and massive devaluation of the local currency—Parmalat expects that, compared with the previous year, both net revenue and EBITDA will show growth of about 4%.
**********
(amounts in millions of euros)
Region Net Revenue EBITDA EBITDA % Net Revenue EBITDA EBITDA % Net Revenue EBITDA
Europe 1,073.4 108.7 10.1 1,093.5 111.2 10.2 -1.8% -2.3%
North America 2,489.6 249.4 10.0 2,448.5 217.8 8.9 +1.7% +14.5%
Latin America 1,388.1 52.2 3.8 1,338.4 85.5 6.4 +3.7% -39.0%
Africa 397.2 33.0 8.3 418.2 35.4 8.5 -5.0% -6.9%
Oceania 1,058.4 61.9 5.8 1,000.0 64.7 6.5 +5.8% -4.4%
Other1 (17.9) (15.0) n.s. (17.8) (16.7) n.s. n.s. n.s.
Group excl. hyperinflation 6,388.8 490.1 7.7 6,280.8 498.0 7.9 +1.7% -1.6%
Hyperinflation in Venezuela 103.7 (30.9) n.s. 135.3 (53.5) n.s. n.s. n.s.
Group 6,492.5 459.2 7.1 6,416.1 444.5 6.9 +1.2% +3.3%
Regions represent the consolidated countries.1. Includes other non-core companies, eliminations between regions and Group's Parent Company costs.
Year 2016 - Preliminary data Year 2015 Delta %
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Consistent with past practice, the guidance takes into account additional conservative factors, compared with the industrial plan, without which estimated growth would amount to about 9% for net revenue and about 6% for EBITDA, compared with the previous year.
Lastly, Parmalat, within the context of its industrial plan, projects for 2018 increases of 3.5% for net revenue and 7% for EBITDA, compared with the previous year.”
6. Conclusions of the Board of Directors
The Board of Directors, by majority vote,
- having reviewed (i) the content of the Offer Memorandum and the additional documents related to the TO; (ii) Lazard’s fairness opinion; (iii) the Opinion of the Independent Directors; and (iv) Leonardo’s fairness opinion;
- taking into account (i) the conclusions of Lazard’s fairness opinion, according to which the Tender Offer Price is deemed to be fair from a financial standpoint; (ii) the conclusions of the Opinion of the Independent Directors, who found that “the Tender Offer Price was fair, but noted that it fell in the bottom part of the range of prices listed in Lazard’s fairness opinion,” and (iii) the conclusions of Leonardo’s fairness opinion according to which the Tender Offer Price offered by Sofil for each Parmalat share (amounting to 2.80 euros) was deemed to be fair from a financial standpoint;
- recalling the remarks developed in connection with (i) the dividend distributed during the 2005-2015 period; (ii) the risks inherent in the implementation of the Industrial Plan; (iii) the risk of dilution for Parmalat’s shareholders in connection with the disputes in which Parmalat is a defendant, as mentioned in Section 2.1 (iii), Letters A, B and C.; (iv) the possible prior-period income, the amount of which is uncertain and subject to taxation, deriving from a possibly favorable outcome, judicially or amicably, of the dispute with Citigroup; and (v) the considerations developed with regard to legal opinions concerning the compatibility of the possible delisting of the Shares with the obligations arising from the Proposal of Composition with Creditors and the Put Option,
believes that the Tender Offer Price is fair, as stated in the Opinion of the Independent Directors, while noting that it fell in the bottom part of the range of prices listed in Lazard’s fairness opinion.
Director Umberto Mosetti motivated his dissent as follows: “Director Umberto Mosetti cast a dissenting vote with regard to the content of the document and stated that he did not believe the tender offer price to be fair because (i) the Company’s valuation was based on excessively conservative estimates that are not consistent with the Company’s actual performance; (ii) the valuations of the advisors hired by the Board of Directors and independent directors for the purpose of determining Parmalat’s value
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were based on methods that are not acceptable (particularly with regard to the prospective performance data used), which resulted in the expression of a significantly underestimated value for the Company; and (iii) no allowance whatsoever was made for the effects of the dispute existing between Parmalat and Citigroup, the impact of which on the Company’s value is potentially very significant. In pointing out that it was the duty of the Board of Directors to assess the fairness of the Tender Offer Price, while being allowed to rely on the support of an independent expert, Director Mosetti also disagreed with a decision of the Board of Directors not to take into any account an additional valuation of the Company requested from an independent expert by group of minority shareholders and submitted to Parmalat’s Board of Directors and the Consob, which shows a share value higher than the Tender Offer Price, refusing to provide evidence of the content of this assessment in the Issuer’s Announcement, which should contain all data useful for assessing the offer).”
* * * * *
In any event, the Board of Directors wishes to point out that the determination as to whether or not accepting the TO is economically beneficial should be left to the individual’s shareholders upon tendering the shares for acceptance, taking into account all of the considerations provided above, the performance of the Parmalat Shares, the statements provided by Sofil and the information contained in the Offer Memorandum.
* * * * *
This Issuer’s announcement, together with its annexes, has been published on the Issuer’s website at the address: www.parmalat.com (page: InvestorRelations/miscellanea/OPALactalis2016/comunicatodell’Emittente).
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Annexes
A. Fairness opinion issued by Leonardo on February 7, 2017;
B. Opinion of the Independent Directors of February 7, 2017 (to which the fairness opinion issued by Lazard of February 7, 2017 is annexed).
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COURTESY TRANSLATION FROM ITALIAN
IN CASE OF ANY DISCREPANCY WITH THE ORIGINAL TEXT PLEASE REFER TO THE ITALIAN VERSION
To:
The Board of Directors
Parmalat S.p.A.
Via Guglielmo Silva, 9
20149 Milan
Milan, 7 February 2017
Re: Opinion on the fairness from a financial standpoint of the price offered for the ordinary
shares of Parmalat S.p.A. in the totalitarian Voluntary Public Tender Offer (the “Offer”)
launched by Sofil S.a.s. (the “Offeror”) in accordance with art. 102 of legislative decree
no. 58 of 24 February 1998, as subsequently amended and supplemented (the Italian
Consolidated Finance Act, Testo Unico Finanziario or “TUF”), and art. 37 of the
regulation passed by Consob through resolution no. 11971 of 14 May 1999, as
subsequently amended and supplemented (the “Issuers Regulation”)
Under the mandate granted by the Board of Directors (the “Board of Directors”) of Parmalat S.p.A.
(“Parmalat” or the “Company”) to Leonardo & Co. S.p.A. (“Leonardo” or the “Advisor”), we have been
asked to provide an opinion (the “Opinion”) on the fairness, from a financial standpoint, of the price
offered in the context of the Offer (the “Consideration”) – of Euro 2.80 per ordinary share of Parmalat
(the “Share”) – for the benefit of the Board of Directors, who will be under an obligation to draft and
publish a notice setting forth all information useful for purposes of evaluating the Offer, as well as its own
assessment of the same.
A. The Offer
The Offer concerns: i) 227,419,208 Shares issued by the Company as of the date of issuance of this
Opinion (the “Current Shares”), fully subscribed; ii) up to a maximum of 52,851,928 Shares, to be
possibly issued and assigned within the period for the acceptance of the Offer or during a possible
extended period for the acceptance of the Offer, in favour of opposing, conditional and late-filing
creditors of the Parmalat creditors’ composition agreement approved in 2005 (the “Creditors”); and iii) up
to a maximum of 7,034,865 Shares, to be possibly issued and assigned within the period for the
acceptance of the Offer or during a possible extended period for the acceptance of the Offer, to service the
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exercise of the warrants to be assigned to the Creditors (the “Warrants”). The Shares included in the Offer
therefore amount to a maximum total of 287,306,001 (the “Diluted Shares”). Considering solely the
Current Shares, the Offer concerns 12.26% of Parmalat’s share capital or, in other words, all of the Shares
issued and subscribed, after deducting the 1,627,713,708 Shares owned by the Offeror. The Company’s
Shares are listed on the Mercato Telematico Azionario (“MTA”) organized and managed by Borsa
Italiana S.p.A..
The Offeror – for each Share tendered to the Offer and purchased – will pay the Consideration to each
party accepting the Offer, in cash, on the fifth trading day after the expiry of the acceptance period. The
maximum value of the Offer, in the event of full acceptance and delivery of all of the Diluted Shares,
totals Euro 804,456,802.80. Funding for the Offer is guaranteed through intragroup resources of the
Offeror, which are in turn covered by a revolving facility in the maximum amount of Euro 2,000,000,000.
The Offer was announced to the market through a press release published in accordance with arts. 102 of
the TUF and 37 of the Issuers Regulation on 27 December 2016, following the Offeror’s decision to
launch the Offer.
The Offer is subject to the following conditions:
i. as of the date of expiry of the period for the acceptance of the Offer, the Offeror shall hold a
shareholding representing at least 90% of Parmalat’s share capital;
ii. by the second trading day prior to payment of the Consideration, no events shall have occurred at
the national or international level causing serious changes to the market situation that have
material adverse effects on the Offer and/or the Company and/or its subsidiaries; and
iii. by the second trading day prior to the date of payment of the Consideration, no competent
institutions, entities or authorities shall have adopted/published, legislative, administrative or
judicial acts, rulings or measures which prevent or hinder the Offer and/or its objectives, or which
impose duties/charges and/or conditions.
The Offeror may waive or amend the terms of each of the conditions indicated, at any time and in its
absolute discretion, in whole or in part, where possible in accordance with applicable law and subject to
the limits and procedures provided under art. 43 of the Issuers Regulation.
The Offer constitutes the instrument enabling the Offeror to implement its plan aimed at acquiring the
Company’s entire share capital and achieving the delisting of the Company’s Shares from the MTA.
If, following the Offer, the Offeror ends up holding a shareholding in the Company’s share capital that is
i. equal to or greater than 90% but lower than 95%, the Offeror does not intend to restore the free
float capital sufficient to ensure the regular continuation of trading of the Shares on the MTA.
Instead, the Offeror will purchase the remaining Shares from each shareholder who should so
request at the Consideration, or at such other price as may be determined by Consob, and will
proceed with the delisting of the Parmalat Shares from the MTA;
ii. equal to or greater than 95%, the Offeror will launch a so-called “squeeze-out” and will proceed
with the delisting of the Parmalat Shares from the MTA.
If, following the Offer, the Parmalat Shares are effectively delisted from the MTA, the Offeror undertakes
to purchase from the Creditors any new Shares assigned to them following the Offer period, at a purchase
price equal to the Consideration.
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B. Company subject to valuation for purposes of the Opinion
Parmalat is a company organized under Italian law, having share capital totalling Euro 1,855,132,916.00,
fully subscribed and paid in, comprised of 1,855,132,916 ordinary Shares having a value of Euro 1.00
each. As of the date of issuance of this Opinion, Parmalat holds 2,049,096 treasury Shares, representing
0.11% of its share capital.
As of the date of issuance of this Opinion, there are 650 Warrants outstanding which, upon the payment
of Euro 1.00 per Warrant, would entitle the holders to the issuance of 650 new Shares. In addition, if in
the future a receivable were awarded on a definitive basis to the Creditors, the Creditors would be entitled
to receive new Shares and Warrants (the latter subject to a maximum limit of 650 per Creditor). In
consideration of the potential issuance of Shares and Warrants to the Creditors, as of the date of issuance
of this Opinion the Company has set aside:
i. reserve for creditor challenges and claims of late-filing creditors convertible into share capita in
the amount of Euro 52,902,506;
ii. other reserve in the amount of Euro 24,809,713; and
iii. maximum number of Shares to service the exercise of the Warrants in the amount of 7,034,865.
The Company has not issued other classes of shares or bonds convertible into shares.
The Company is subject to guidance and coordination on the part of B.S.A. S.A., the company that
indirectly controls the Offeror.
Parmalat is a leader in the dairy sector in Europe, North America, South America, Africa and Australia.
The Company produces and distributes products falling within the following main categories: milk,
cheeses and other fresh products and fruit juices.
C. Documentation reviewed
This Opinion and the assessments, valuations and considerations set forth herein are based solely upon
the documentation and information provided by Parmalat and publicly available documentation, as
described below:
1. the notice referred to Art. 102 TUF, related to the totalitarian public tender Offer launched on all
of Parmalat’s Shares dated 27 December 2016;
2. the offer document published on 1 February 2016 (the “Offer Document”);
3. the Company’s certified financial statements for financial years ended 31 December 2013, 2014
and 2015 in accordance with IFRS accounting standards;
4. the Company’s half-year financial statements for the periods ended 30 June 2015 and 2016 in
accordance with IFRS accounting standards;
5. the Company’s financial statements for the periods ended 30 September 2015 and 2016 in
accordance with IFRS accounting standards;
6. 2016 pre-closing results (including revenues, EBITDA and net financial position) per country;
7. market information (market prices, trading volumes, etc.) gathered through Capital IQ,
Bloomberg and other public sources;
8. other public information concerning the Company;
9. sector analyses and reports prepared by independent financial analysts on the Company;
10. the budget for 2016 and the 2017-2019 business plan (the “BP”);
11. long-term assumptions on the main economic and financial indicators of the Company prepared
by the management;
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12. 2015 impairment test document prepared by PWC;
13. main assumptions of the 2016 impairment test;
14. documents certifying the value of the Company’s surplus assets (i.e. offers, appraisals and cash
flow estimates concerning the surplus assets);
15. information concerning (i) the bridge-to-equity, (ii) the Company’s financial debt by country
(including details on interest rates) and (iii) 2007-2015 historic trends on the revenues and cash
flows generated by Parmalat;
16. legal descriptions concerning active and passive pending lawsuits (including tables summarizing
the pending lawsuits);
17. letter sent by Consob to Parmalat – dated 24 January 2017 – requesting additional information
concerning the Offer and answer sent by Parmalat to Consob on 30 January 2017;
18. public and market information on companies considered comparable to the Company or to the
business in which the Company operates;
19. additional information falling within the public domain deemed useful for purposes of this
Opinion; and
20. any other analyses, research papers or studies considered useful by Leonardo.
In addition, Leonardo has held interviews with a number of members of Parmalat’s management
concerning the Company’s business, transactions, current and forward-looking financial situation, as well
as on the Offer and related matters.
D. Working assumptions
The Advisor has relied upon, without conducting any independent verification, the accuracy and
completeness of all data, materials and other information provided or made available to it, or available to
the public, has assumed such accuracy and completeness, and shall have no responsibility or liability
whatsoever in connection with such data, materials and other information. Moreover, the Company’s
management has represented to the Advisor that the financial forecasts examined were prepared in a
reasonable manner and in good faith and reflect the best estimates currently available concerning the
Company’s future financial conditions and results. The Advisor has relied upon and assumed that no
change whatsoever has occurred in the Company’s business operations, assets, liabilities, financial
conditions, results of operations, cash flows or prospects from the respective dates of the most recent
financial statements and of the additional information that may be relevant for purposes of the analyses of
this Opinion, and that no information or facts exist which could render the information examined, in
whole or in part, incomplete or misleading.
The Advisor has relied upon the fact that, and assumed that (i) the Offer will be perfected in accordance
with procedures complying in all respects with all applicable provisions of law, rules and regulations,
whether Italian or foreign, and (ii) all government, administrative or other authorizations or approvals that
may be necessary for purposes of perfecting the Offer will be obtained and that no limitation, condition or
restriction will be imposed and that no modification or waiver will be made which could have an effect on
the Offer or on the Company that could be material for purposes of the analyses of this Opinion.
In relation to this Opinion the Advisor has not been requested to carry out any physical inspection or
appraisal or independent valuation on any movable or real estate asset or liability (whether they be asset
or liability items that are fixed, contingent, derivative, off-balance-sheet or of any other nature) of the
Company, nor has any appraisal or valuation of such a nature been provided except to the extent expressly
indicated in paragraph C above. The Advisor, in accordance with its mandate, has not carried out any
independent analysis of situations, whether existing or potential, concerning any legal or administrative
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proceedings commenced by regulatory authorities, any claims not raised, or other contingent liabilities to
which the Company is or could become party to or to which the Company is or could be subject, or
concerning any government investigations or any claims not raised or other contingent liabilities to which
the Company is or could be party to or to which the Company is or could be subject.
E. Considerations related to context, limitations and exclusions
The Advisor has not (a) commenced or taken part in any discussions or negotiations concerning the Offer,
the securities, the assets or the business of the Company or of any other party, or any alternatives to the
Offer, (b) negotiated the conditions of the Offer, or (c) provided consultancy services to the Company or
to any other party concerning alternatives to the Offer. The Advisor is therefore in a third party,
independent position with respect to the Offer. This Opinion is necessarily based upon financial,
economic, market and other conditions currently existing and on the information made available as of the
date hereof. The Advisor is not under any duty to update, amend, reconfirm or revoke this Opinion, or in
any case to comment on or assess events that may occur after the date hereof. The Advisor does not
express any opinion on any price or range of prices at which the Shares could be purchased, sold or
transferred at any time.
This Opinion is rendered for the benefit of the Board of Directors in relation to its assessment of the Offer
and no other person or other party may rely upon this Opinion, nor may this Opinion be used for any
other purpose without the Advisor’s prior written consent. This Opinion must not be construed as giving
rise to any fiduciary duty on the part of Leonardo toward any other person or party. This Opinion does not
purport to be, nor does it constitute, a recommendation to the Board of Directors, to any holder of
securities or to any other person or party concerning how to act or vote in relation to any fact or event
related to the Offer, or on whether or not it is advisable to tender Shares to the Offer, or on any other issue
whatsoever.
Leonardo or its related parties may, in the future, provide consultancy services in the area of investment
banking and/or other financial or consultancy services to the Company, the Offeror, other persons or
parties taking part in the Offer or certain of their respective related parties, for which services Leonardo or
its related parties may receive compensation.
Over the course of its ordinary business operations, Leonardo or its related parties may, in the future,
actively negotiate, on both the equity and debt markets, the Company’s securities, on its own account or
on behalf of its clients, taking long or short positions in such securities at any time.
Leonardo shall receive compensation for the issuance of this Opinion, which is not conditioned upon the
successful outcome of the Offer.
This Opinion does not express any considerations on: (i) the decision by the Board of Directors, the
Company, the respective holders of its securities or any other party to proceed with or to conclude the
Offer, (ii) the conditions of any agreements, understandings, contracts or documents related to the Offer,
or the form, structure or any other part or aspect of the Offer (with the exception of the Consideration to
the extent expressly specified in this Opinion), (iii) the fairness of any part or aspect of the Offer to the
holders of any class of securities, to the creditors or to other stakeholders of the Company, or to any other
person, except and only to the extent expressly provided in the last sentence of this Opinion, (iv) the
relevant merits of the Offer with respect to any alternative business strategies or transactions which may
be available to the Company, the Offeror, or any other party. Furthermore, no opinion, counsel or
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interpretation is intended on matters that require legal, regulatory, accounting, insurance, tax or other
similar professional advice. It is assumed that such opinions, interpretations or advice have been or will
be obtained from the appropriate professionals.
With the Board of Directors’ consent, the Advisor has relied upon the assessments made by the Board of
Directors, the Company, the Offeror and their respective advisors, on all issues of a legal, administrative,
insurance, tax or other nature related to the Company, the Offeror and the Offer.
It should be noted that, as indicated in paragraphs A.16 and B.2.6 of the Offer Document, the Company is
party to passive and active legal proceedings – with Consideration paid respectively in shares and cash -
the outcomes of which are currently not predictable. Such legal proceedings could potentially have an
impact on the value per Share up to a maximum of approximately Euro 0.5 per Share (as a negative
impact) and up to a maximum of approximately Euro 1.0 per Share (as a positive impact).
F. Valuation
In order to express an opinion on the fairness of the Consideration, from a financial standpoint, valuation
methods and criteria commonly used in national and international practice for similar transactions have
been applied.
It should be noted that various levels of meaningfulness have been assigned to the valuation methods
used, without prejudice to the consideration of all such methods, also in order to avoid relying solely upon
a single valuation method. Moreover, it should be recalled that the valuations underlying the Opinion
were carried out on a stand-alone basis, and assuming that the business continuity condition has been met
by Parmalat.
Bearing in mind the Company’s specific inherent characteristics, Leonardo decided to use the methods
described below in preparing this Opinion:
A. analysis of discounted cash flows (“discounted cash flows” or “DCF” method);
B. valuation using market multiples of companies considered to be comparables (“Market
Multiples” method);
C. analysis of premiums offered in the context of public tender offers considered comparable
(“PTO Premiums” method);
D. analysis of market prices of Parmalat Shares over various time periods (“Market Prices”
method); and
E. analysis of the target prices assigned by financial analysts (“Target Prices” method).
The DCF method was used on the basis of the Company’s forecasted financial data for 2017 – 2019 set
forth in the BP. Taking into account that the BP was prepared for each individual country in which
Parmalat operates, each division/country was assessed individually using the so-called “sum-of-the-parts”
method. The main parameters used as a reference are the following: i) the explicit forecasts that indicate a
compounded growth rate of consolidated revenues and EBITDA for the period 2016 – 2019, respectively,
of 4.9% and 7.4%; ii) an different weighted average cost of capital for each country and amounting to, on
average, 6.8%; and iii) a terminal value based upon a perpetual growth rate differing for each country and
amounting to, on average, 2.4%.
The Market Multiplies method was used with reference to a sample of companies whose shares are listed
on regulated markets, which may be considered comparable to the Company since they operate in the
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dairy sector and have characteristics similar to those of Parmalat in terms of size and/or geography. The
sample includes the following companies: Dairy Crest, Danone, Dean Foods, Emmi, Grupo Lala and
Saputo. The multiple used is the Enterprise Value / Ebitda (EV/Ebitda) ratio for years 2016 and 2017,
with multiples equal to, on average, 11.2x and 10.4x.
The PTO Premiums method consists of an analysis of the premiums granted in the context of previous
public tender offers considered comparable to the Offer (specifically, voluntary public tender offers
exceeding €20m in which the Offeror held at least 50% of the issuer pre-offer, with payment in cash,
concluded in Italy over the period from 2007 through 2016). The size of the sample identified, totalling
11 offers, limits the meaningfulness of this method. In order to obtain the valuation range, the median
premium paid in the context of the public tender offers – with reference to the spot price and to prices at
1, 3, and 6 months prior to the transaction, amounting to, respectively, 14.9%, 20.6%, 21.9% and 22.4% –
is applied to the corresponding average price of the Parmalat Share prior to the announcement of the
Offer.
The Market Prices method was used since the prices expressed by the market for the Parmalat Shares are
considered an objective and factual reference, albeit one that is somewhat impaired by the reduced
liquidity of the security observed over the last few years (the average volume registered by the security in
the last twelve months is approximately 520,000 shares per day). In order to mitigate short-term
fluctuations that generally characterize the financial market, in line with standard practice generally
followed, in addition to covering the spot price, the analysis of the prices of the Shares was extended to
cover the average data expressed by the market at sufficiently long timelines, i.e. the average prices
weighted for share volumes at 1, 3, 6 and 12 months.
The Target Prices method is based upon estimates of the price of the Parmalat Share by the financial
community available prior to the announcement of the Offer, i.e. 4 broker reports indicating a target price
at 12 – 18 months, showing the value that, in the financial analysts’ opinion, the share may reach in the
time period considered. Such value, in line with practice, reflects the opinion of each analyst on
Parmalat’s fundamental performance, but also on contextual circumstances that may impact the forward-
looking trend in the share price.
The following table indicates the values per Share of the Company – taking into consideration the Shares
issued as of the date of issuance of this Opinion – deriving from the application of the various valuation
methods described above and with an indication of the corresponding level of meaningfulness considered
by the Advisor for purposes of the conclusions expressed in this Opinion.
Method Value per Parmalat Share (€) Level of
meaningfulness of
the method Minimum Maximum
A. DCF 2.55 3.22 High
B. Market Multiples 2.70 2.99 High
C. PTO Premiums 2.92 3.04 Medium
D. Market Prices 2.38 2.58 Medium
E. Target Prices 2.35 2.42 Medium
The Consideration offered in the Offer – i.e. Euro 2.80 per Share of the Company – falls within the range
expressed by the highly meaningful valuation methods described above.
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**********
G. Conclusions
On the basis of, and subject to the conditions indicated above, Leonardo is of the opinion that, as of the
date of issuance of this Opinion, the Consideration is fair from a financial standpoint for the Company’s
shareholders.
Cordially,
Leonardo & Co. S.p.A.
OPINION OF THE INDEPENDENT DIRECTORS OF PARMALAT S.P.A.
pursuant to Article 39-bis of the Consob Regulation adopted by Resolution No. 11971 of May 14, 1999, as subsequently amended and integrated, concerning the
voluntary all-share tender offer promoted by Société pour le Financement de l’Industrie Laitière S.A.S. or, in abbreviated form, Sofil S.A.S.
1. Foreword
1.1 Tender Offer promoted by Sofil S.A.S.
By an announcement dated December 27, 2016 (the “TO Announcement” and the “Date of the Announcement”) Sofil S.A.S. (hereinafter “Sofil” or the “Offeror”) communicated to the Consob and the market, pursuant to and for the purposes of Article 102, Section 1, of Legislative Decree No. 58 of February 24, 1998, as subsequently amended and integrated (the “TUF”), and Article 37, Section 1, of the Consob Regulation adopted by Resolution No. 11971 of May 14, 1999, as subsequently amended and integrated (the “Issuers’ Regulation”), its decision to promote a voluntary all-share tender offer pursuant to Article 102 and following articles of the TUF for 227,419,208 common shares of Parmalat S.p.A. (“Parmalat” or the “Issuer”)—a company with shares listed on the Online Stock Exchange (“MTA”) organized and operated by Borsa Italiana S.p.A. (“Borsa Italiana”)—i.e., all of the Issuer’s shares outstanding on the Date of the Announcement, less a total of 1,627,713,708 shares (equal to 87.74% of the subscribed share capital as of the abovementioned date) currently owned by the Offeror, plus up to 52,851,928 shares reserved for creditors and up to 7,034,865 Shares Reserved for Exercise of Warrants (as defined in the Offer Memorandum (the “TO”).
On January 9, 2017, by an announcement issued pursuant to Article 36 and Article 37-ter, Section 3, of the Issuer’s Regulation, Sofil announced that it filed with the Consob an offer memorandum (the “Offer Memorandum”) concerning the TO and intended for publication.
On January 30, 2017, after requesting the submission of additional information and, consequently, suspending the deadline for completing preparatory activities pursuant to Article 102, Section 4, of the TUF, the Consob approved the TO’s Offer Memorandum pursuant to Article 102, Section 4, of the TUF and Sofil published the Offer Memorandum on February 1, 2017.
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1.2 The Offeror, the Lactalis Group and the Parties Acting in Concert
Sofil is a simplified stock company under French law, with registered office at 33 avenue du Maine – Tour Maine-Montparnasse, (75015) Paris (France), listed in the Register of Commerce and Companies of Paris (France), identification number 388 913 519 R.C.S. Paris, which, as of the Date of the Announcement, held a statutory controlling interest in the Issuer, equal to 87.74% of the Issuer’s share capital. On the Date of the Announcement, the Offeror’s share capital totaled 1,529,600,000.00 euros, comprised of 95,600,000 shares, par value 16.00 euros each, held by the following shareholders:
• Groupe Lactalis S.A., owner of 33,877,703 shares, equal to 35.437% of Sofil’s share capital;
• Claudel Roustang Galac S.A. (“CRG”), owner of 61,722,293 shares, equal to 64.563% of Sofil’s share capital;
• Emmanuel Besnier, owner of 1 share; • Jean-Michel Besnier, owner of 1 share • Undivided property of the heirs of Michel Besnier for 2 shares.
Groupe Lactalis and CRG are companies controlled by BSA S.A. (“BSA”), which, in turn, is controlled by JEMA I S.C. (“JEMA”), whose share capital is owned by Emmanuel Besnier for 50.31%, with the remaining 49.29% owned by Emmanuel Besnier, Jean-Michel Besnier and Marie Besnier jointly for 26.59% (through a holding company) and the undivided property of the heirs of Michel Besnier for 22.49%.
As a result of the relationships described above, Emmanuel Besnier controls the Offeror pursuant to Article 93 of the TUF indirectly through JEMA, BSA and CRG, all companies controlled pursuant to French law.
Pursuant to the Offer Memorandum and by virtue of the controlling relationships described above, Emmanuel Besnier and the companies under his control JEMA, BSA and CRG are deemed to be parties acting in concert with the Offeror, pursuant to Article 101-bis, Section 4-bis, Letter b), of the TUF (the “Parties Acting in Concert”).
* * *
Pursuant to Article 39-bis, Section 1, Letter a), No. 1), and Section 2, of the issuers’ Regulation, when a tender offer is promoted by a party that, directly or indirectly, holds an equity stake greater than the threshold required under Article 106, Section 1, of the TUF (i.e., 30% of the share capital of an issuer) the “Independent Directors who are not related parties of the Offeror, if present, shall
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prepare a reasoned opinion setting forth their assessment of the offer and the fairness of the price offered.”
As a result of the abovementioned statutory provision and the percentage interest held by Sofil in the Issuer, the Independent Directors prepared this opinion (the “Opinion”).
2. Purpose of the Opinion
This Opinion was prepared exclusively pursuant to and for the purposes of Article 39-bis of the Issuers’ Regulation and is therefore made available to the Issuer’s Board of Directors exclusively for the purpose of enabling the Board of Directors to then issue the announcement that, pursuant to Article 103, Sections 3 and 3-bis, of the TUF and Article 39 of the Issuers’ Regulation, the Issuer’s Board of Directors is required to publish to explain all data that may be useful for assessing the TO and provide a reasoned assessment of the TO and of the fairness of the price, together with an assessment of how the possible success of the TO will affect the Company’s interest, level of employment and location of production facilities (the “Issuer’s Announcement”).
The purpose of this opinion is therefore limited to illustrating the assessment that the Directors carried out following the performance of relevant analyses, within the limits and for the effects of Article 39-bis of the Issuers’ Regulation, with the support of the Independent Expert (as defined below), in connection with the Offer.
Consequently, this Opinion, within the limits of and consistent with the purposes allowed by the abovementioned Italian regulations, does not replace the Issuer’s Announcement and does not in any way intend to provide guidance or a solicitation or recommendation in favor of any party in relation to the decision whether or not accept the TO.
3. Independent Directors
3.1 Declarations by the Independent Directors
The Issuer’s Independent Directors (pursuant to Article 147-ter, Section 4, of the TUF and Article 3 of the Corporate Governance Code) Pier Giuseppe Biandrino, Umberto Mosetti, Elena Vasco, Angela Gamba and Nicolò Dubini (the “Independent Directors”) declare that they are not in any correlation situation with the Offeror and, consequently, participated in the activities carried out to prepare and approve this Opinion.
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In this regard, please note that Gabriella Chersicla, while qualifying as “independent” pursuant to Article 147-ter of the TUF and pursuant to Article 12 of Parmalat’s Bylaws, upon being elected Chairperson of the Issuer’s Board of Directors on April 17, 2014, became a “Senior Officer” of Parmalat pursuant to the Implementation Criterion 3.C.2 of the Corporate Governance Code of Borsa Italiana (the “Corporate Governance Code”). Consequently, since she no longer met the technical requirements to qualify as an “Independent Director” pursuant to Article 3 of the Corporate Governance Code (due to the combined provisions of Implementation Criterions 3.C.1 and 3.C.2 of the abovementioned Code), Gabriella Chersicla did not participate in preparing, drafting and approving this Opinion.
3.2 Appointment of the Independent Expert
Pursuant to Article 39-bis, Section 2, of the Issuers’ Regulation, the Independent Directors, at a meeting convened on January 11, 2017, approved a resolution to retain the services of an independent expert; to that effect they selected a field of potential candidates for the performance of this assignment from among parties of high standing and of proven reliability and experience.
At a subsequent meeting held on January 13, 2017, the Independent Directors, further to the outcome of a “beauty contest,” selected by majority vote Lazard S.r.l. as independent expert pursuant to Article 39-bis, Section 2, of the Issuers’ Regulation (the “Independent Expert”).
At that meeting, a representative of the Independent Expert, upon being interviewed, specifically stated that there were no conflicts of interest regarding the Lactalis Group and, consequently, regarding the Offeror. These declarations were then reflected in Article 1 of the mandate subsequently assigned by the Independent Directors to the Independent Expert, which reads as follows: “In light of the purposes of the Engagement, Lazard expressly declares (i) to act under this Mandate as an independent advisor and (ii) that, as of the date hereof, it is not a related party to the Company or to the Offeror and there is no fact or circumstance which may reasonably affect Lazard’s ability to carry out the activities hereunder on an independent basis, within the scope and for the purposes of Article 39-bis of Consob Regulation No. 11971 of May 14, 1999 (as subsequently amended).”
The Independent Expert’s qualification as a party meeting the independence requirements pursuant to the laws and regulations currently applicable was also the subject of a specific opinion issued by the legal counsel retained by the
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Independent Directors, with regard to certain profiles submitted to the legal counsel by the Directors.
On February 7, 2017, the Independent Expert issued its fairness opinion regarding the fairness, for the current shareholders of the Issuers, other than the Offeror and the parties acting in concert with the Offeror, of the Price (as defined below) offered by Sofil (the “Fairness Opinion”).
3.3 Documents analyzed to prepare the Opinion
In order to prepare this Opinion, the Independent Directors analyzed the following documents:
• the Tender Offer Announcement of December 27, 2016; • Sofil’s announcement pursuant to Articles 36 and 37-ter of the Issuers’
Regulation of January 9, 2017, by which it announced that it had filed the Offer Memorandum with the Consob;
• Sofil’s announcement pursuant to Articles 38, Section 1, of the Issuers’ Regulation of January 21, 2017, by means of which it disclosed to the market that the Consob required the Offeror to provide additional information, consequently suspending the deadline for completing preparatory activities;
• Sofil’s announcement pursuant to Article 38, Section 1, of the Issuers’ Regulation of January 27, 2017, by means of which it announced the restart of the deadline for completing preparatory activities;
• Sofil’s announcement pursuant to Article 36 of the Issuers’ Regulation of January 27, 2017 by means of which it announced that the applicable delisting threshold was 90% of the Issuer’s share capital, as set forth in Article 108, Section 2, of the TUF;
• Sofil’s announcement pursuant to Article 36 of the Issuers’ Regulation of January 30, 2017 by means of which it announced (i) the approval by the Consob of the Offer Memorandum and (ii) the dates of the Offer Acceptance Period (as defined below);
• the Offer Memorandum, as approved by the Consob on January 30, 2017 and published by Sofil on February 1, 2017;
• the opinion rendered by Professor Maffei Alberti on July 22, 2015 regarding a number of issues related to the Composition with Creditors, including the potential implications entailed by the possible delisting of the Issuer’s shares;
• three memoranda by the legal counsel dated February 3, 2017 providing in-depth analyses of issues debated in connection with the preparation of this Opinion;
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• update to the opinion rendered by Professor Maffei Alberti dated February 6, 2017;
• the Fairness Opinion issued by the Independent Expert on February 7, 2017, the supporting valuation documents and a Declaration of Independence by the expert.
3.4 Meetings and other activities carried out for the preparation of the Opinion
The Independent Directors performed the following preliminary activities for the preparation of this Opinion:
• on January 11, 2017, the Independent Directors met to review the Tender Offer Announcement of December 27, 2016 and identified a field of potential financial advisors who could be contacted to see if they were available to submit offers for performing an assignment as independent expert on behalf of the Independent Directors aimed at assessing the TO and the fairness of the corresponding price;
• on January 13, 2017, upon the conclusion of a “beauty contest,” the Independent Directors met with an interviewed two advisors interested in performing this assignment and, after assessing the content of the presentation, the economic terms and the independence qualifications of each advisor, decided by majority vote to award the abovementioned mandate to Lazard S.r.l.;
• on the January 18, 2017, the Independent Directors met with the Independent Expert to evaluate the completeness of the documents available for the purpose of performing the assignment, the methods that will be applied to prepare the fairness opinion and the work schedule;
• on January 30, 2017, the Independent Directors met with the Independent Expert to discuss the progress made in preparing the fairness opinion;
• on February 3, February 6 and February 7, 2017, the Independent Directors met with the Independent Expert to discuss drafts of the fairness opinion circulated by the Expert and obtained clarifications about the valuation methods used.
For the sake of full disclosure, please note that on February 6, 2017, Parmalat’s Directors and Statutory Auditors (including the Independent Directors) received a valuation document prepared by an investment bank on behalf of some shareholders of the Issuer who sent the valuation document to various parties, including the Directors and Statutory Auditors.
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4. Assessment of the Tender Offer
4.1 Characteristics
As stated in the Offer Memorandum:
(i) the Tender promoted by Sofil is for 287,306,001 common shares of the Issuer (which include 227,419,208 common shares of the Issuer, i.e., all of the Issuer’s common shares outstanding on the date of the Offer Memorandum less a total of 1,627,713,708 Shares, equal to 87.74% of the subscribed share capital as of the Date of the Offer Memorandum, currently owned by the Offeror, plus up to 52,851,928 Shares reserved for the creditors and up to 7,034,865 Shares Reserved for Exercise of Warrants, as defined in the Offer Memorandum) corresponding to about 12.26% of the Issuer’s subscribed share capital on the date when the Offer Memorandum was filed (the “Shares Subject of the Offer”), which, as noted in the Offer Memorandum, on the date of this document were held by the Offeror (in this regard please see Section C, Paragraph C.1 of the Offer Memorandum);
(ii) the Tender Offer does not apply to the 650 2020 Warrants (as defined in the Offer Memorandum) issued as of the Publication Date of the Offer Memorandum, pursuant to Article 39 of the Issuers’ Regulation;
(iii) the Parmalat Shares tendered in acceptance of the Offer must be free of any liens and encumbrances of any kind or nature, be they of the real, mandatory or personal nature, and must be freely transferable to the Offeror (in this regard please see Section F, Paragraph F.1, of the Offer Memorandum);
(iv) the Tender Offer is conditional on the satisfaction of certain conditions, which Sofil reserved the right to waive, fully or partially, including the “Threshold Condition” concerning the circumstance that the acceptances are for a total number of shares sufficient to enable the Offeror, together with the Parties Acting in Concert, to achieve a total equity stake in Parmalat greater than 90% of the subscribed and paid-in capital as of the closing date of the Offer Acceptance Period (as defined in the Offer Memorandum). In addition, Sofil can amend the terms of these conditions, within the limits and in accordance with the modalities set forth in the Issuers’ Regulation. In this regard, see Section A, Paragraph A.1, of the Offer Memorandum;
(v) in addition, the Tender Offer (a) is addressed to all owners of the Issuer’s shares, indistinctly and on equal terms, and (b) it is promoted in Italy and
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was not and will not be promoted or published in the United States of America, Canada, Japan and Australia nor in any other country where the Tender Offer would not be allowed absent an authorization by the relevant authorities (in this regard, please see Section F, Paragraph F.4, of the Offer Memorandum);
(vi) the number of Shares Subject of the Offer could decrease if, before the end of the Offer Acceptance Period (as defined below) and during the Deadline Extension (as defined below), the Offeror and/or the Parties Acting in Concert were to purchase Parmalat Shares independently of the Tender Offer, provided they comply with the provisions of Article 41, Section 2, and Article 42, Section 2, of the Issuers’ Regulation.
4.2 Duration
The TO’s acceptance period (the “Offer Acceptance Period”) will run from 8:30 AM on February 9, 2017 until 5:30 PM on March 10, 2017 (both starting and closing day included), unless the deadline is extended or if a new deadline is set pursuant to Article 40-bis of the Issuers’ Regulation (the “Deadline Extension”).
Pursuant to Article 40-bis of the Issuers’ Regulation, within one stock market trading day following the Payment Date (as defined below), the Offer Acceptance Period could be extended for five stock market trading days.
The Price payment date will be the fifth stock market trading day after the closing of (i) the Offer Acceptance Period and, if applicable, (ii) any Deadline Extension (the “Payment Date”).
In this regard, please see Section F., Paragraph F.5 of the Offer Memorandum.
4.3 Purpose
As stated in the Offer Memorandum, the purpose of the TO is to acquire the Issuer’s entire share capital and achieve the delisting of the Issuer’s shares from the MTA.
4.3.1 Purchase Obligation
Consequently, if the Offeror, jointly with the Parties Acting in Concert, were to hold—due to the shares tendered in acceptance of the Offer (including any Deadline Extension) and any purchases made independently of the Offer in accordance with the regulations in effect, within the Offer Period or during the Deadline Extension—an aggregate equity interest greater than 90% but lower than 95% of the Issuer’s share capital, the Offeror, acting pursuant to Article 108,
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Section 2, of the TUF, declared that it will not reestablish a share float large enough to ensure normal trading of the shares on the MTA.
Consequently, pursuant to Article 108, Section 2, of the TUF, the Offeror shall purchase the remaining shares from any shareholder of the Issuer who requests it, at a price per share that will be equal to the price pursuant to Article 108, Section 3, of the TUF, or to the price determined by the Consob pursuant to Article 108, Section 4, of the TUF and Article 50 of the Issuers’ Regulation.
Pursuant to Article 2.5.1, Section 6, of the Securities Exchange Regulation (as defined in the Offer Memorandum), if the requirements for triggering the Purchase Obligation pursuant to Article 108, Section 2, of the TUF can be satisfied, Borsa Italiana will proceed with delisting the Shares from the MTA effective as of the first stock exchange trading day following the date of payment of the price owed under the procedure aimed at complying with the Purchase Obligation pursuant to Article 108, Section 2, of the TUF.
If the Offeror, jointly with the Parties Acting in Concert, were to hold—due to the shares tendered in acceptance of the Offer (including any Deadline Extension), to any purchases made independently of the Offer in accordance with the regulations in effect, within the Offer Period or during the Deadline Extension and/or to the fulfillment of the Purchase Obligation pursuant to Article 108, Section 2, of the TUF—an aggregate equity interest equal to or greater than 95% of the Issuer’s share capital, the Purchase Obligation pursuant to Article 108, Section 1, of the TUF will become applicable and, consequently, the Offeror has declared that it will comply with the obligation to purchase the remaining outstanding Shares from any shareholder of the Issuer who requests it, pursuant to Article 108, Section 1, of the TUF.
4.3.2 Right to Purchase
In addition, pursuant to the Offer Memorandum the Offeror declared that it intends to avail itself of the right to purchase provided under Article 111 of the TUF to acquire the remaining Shares outstanding (the “Right to Purchase”).
Consequently, the Offeror, by exercising the Right to Purchase provided under Article 111 of the TUF, will concurrently comply with its Purchase Obligation towards any requesting shareholders pursuant to Article 108, Section 1, of the TUF. The Offeror shall implement a single procedure (the “Combined Procedure”) in order to comply with the Purchase Obligation pursuant to Article 108, Section 1, of the TUF and exercise its Right to Purchase pursuant to Article 111 of the TUF. The Right to Purchase will be exercised as soon as possible after
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the conclusion of the Tender Offer or of the procedure carried out to comply with the purchase obligation pursuant to Article 108, Section 2, of the TUF. The purchase price for the remaining shares will be determined in accordance with Article 108, Sections 3 or 4, of the TUF, taking into account the reference made to this provision in Article 111 of the TUF.
Pursuant to Article 2.5.1, Section 6, of the Securities Exchange Regulation (as defined in the Offer Memorandum), upon the satisfaction of the requirements for implementing the Purchase Obligation pursuant to Article 108, Section 2, of the TUF, Borsa Italiana will proceed with the delisting of the shares from the MTA effective as of the first stock market trading day after the payment date of the price owed under the procedure aimed at complying with the Purchase Obligation, pursuant to Article 108, Section 2, of the TUF.
For information about the Purchase Obligation and the Right to Purchase, see Section A, Paragraphs A.6 and A.7, of the Offer Memorandum.
4.3.3 Alternatives for holders of the Issuer’s shares
The Issuer’s shareholders to whom the TO is addressed can, alternatively, opt to:
1. Accept the TO, including during the Deadline Extension
If the Offer is accepted and all of the Conditions of the Offer (as defined in the Offer Memorandum) are met or the Offeror waives them, the Issuer’s shareholders will receive a price of 2.80 euros for each share tendered in acceptance of the Tender Offer.
2. Not accept the TO, including during the Deadline Extension
If the Offer is not accepted, including during the Deadline Extension, and the Offeror, together with the Parties Acting in Concert, holds an aggregate interest in the Issuer’s share capital:
(i) greater than 90% but lower than 95% and if the requirement for the Purchase Obligation are met, the Issuer’s shareholders who did not accept the TO shall have the right to demand that the Offeror buy their shares, pursuant to Article 108, Section 2, of the TUF at a price per share that will be equal to the Price pursuant to Article 108, Section 3, of the TUF or at a price determined by the Consob pursuant to Article 108, Section 4, of the TUF and Article 50 of the Issuers’ Regulation;
(ii) equal to or greater than 95% and the Offeror exercises its Right to Purchase pursuant to Article 111 of the TUF, thereby concurrently complying with the Purchase Obligation pursuant to Article 108, Section 1,
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of the TUF, the Issuer’s shareholders will receive a price per share equal to the Price pursuant to Article 108, Section 3, of the TUF or a price determined by the Consob pursuant to Article 108, Section 4, of the TUF and Article 50 of the Issuers’ Regulation;
(iii) equal to or lower than 90% and the Offeror waives the “Threshold Condition” and, consequently, the requirements for triggering the Purchase Obligation pursuant to Article 108, Section 2, of the TUF and the Purchase Obligation pursuant to Article 108, Section 1, of the TUF and for exercising the Right to Purchase and the resulting delisting of the Issuer’s shares from the MTA are not met, the Offeror would still be able to purchase the shares tendered in acceptance of the TO, while the Issuer’s shareholders would did not accept the Tender Offer will continue to hold shares of the Issuer listed on the MTA.
4.3.4 Failure to fulfill any of the Offer’s Conditions (as defined in the Offer Memorandum), and failure on the part of the Offeror to exercise the option to waive them.
If any of the Offer’s Conditions are not met and the Offeror fails to exercise the option to waive them, thereby making the Tender Offer ineffective, the shares tendered in acceptance of the TO shall be returned to their respective owners by the first stock market trading day after the first announcement declaring the Offer ineffective. In this regard, please see Section F, Paragraph F.8, of the Offer Memorandum.
4.4 Price
The Offeror shall pay to any party who accepted the TO a price in cash of 2.80 euros for each share tendered in acceptance of the Offer and purchased by the Offeror (the “Price”).
As is stated in the Offer Memorandum (see Section E, Paragraph E 1, of the Offer Memorandum), the Price Incorporates a premium of about 8.5% compared with the official price of the Parmalat Shares recorded on December 23, 2016 (i.e., the stock market trading day before the market announcement of the TO), which amounted to 2.582 euros, and the following premiums compared with the weighted simple average of the official prices in the reference periods listed below:
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PERIOD PREMIUM
1 month 11.2%
3 months 14.8%
6 months 17.3%
12 months 17.8%
Also as stated in the Offer Memorandum, the Price was determined based on independent assessments made by the Offeror of the Issuer’s economic and financial position, as shown in the financial statements, and of the medium/long-term potential growth expectations for the Parmalat Group, as shown in recent research reports published by financial analysts. Please note that in determining the Price, the Offeror did not use (and did not obtain) expert reports by independent appraisers aimed at assessing the Price’s fairness or of special valuation documents.
The Offeror intends to finance the Maximum Outlay (as defined in the Offer Memorandum), amounting to 804,456,803 euros, by means of an intercompany financing facility that will be provided by B.S.A. Finances S.n.c. for an amount of up to 804,456,803 euros.
4.5 Commitments of the Offeror
Pursuant to the Offer Memorandum (see Section A., Paragraph A.17), the Offeror has undertaken certain commitments towards the Parmalat shareholders, valid even in the event that the Issuer’s shares are delisted from the MTA due to the TO or, as the case may be, as a result of the Purchase Obligation pursuant to Article 108, Section 2, of the TUF or Article 108, Section 1, of the TUF and the Right to Purchase.
4.5.1 Distribution of earnings
The Offeror has undertaken, until full implementation of the Composition with Creditors (as defined in the Offer Memorandum) and, in any case, not beyond the timeframe specified in the Issuer’s Bylaws in accordance with the provisions of the Composition with Creditors (i.e., the first 15 annual financial statements beginning in 2005), not to amend Article 26 of the Issuer’s Bylaws.
Pursuant to this provision, which incorporates the obligations set forth in Article 5.2 of the Composition with Creditors, Parmalat is required to distribute to the shareholders an amount equal to 50% of distributable earnings shown in each of
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one of the first 15 annual financial statements. If in any given year the distributable earnings for the year are less than 1% of the share capital there shall be no distribution and the earnings will be brought forward for distribution together with the earnings of subsequent years until the abovementioned percentage is reached.
4.5.2 Irrevocable Put Option
In addition, pursuant to Article 7.4 and following articles of the Composition with Creditors, creditors (as defined in the Offer Memorandum), except for creditors with preferential and pre-deduction claims that must be satisfied in cash, are entitled to receive, in accordance with the terms and conditions set forth in the Proposal of Composition with Creditors (as defined in the Offer Memorandum), an allotment of:
• Parmalat Shares in the percentage resulting from applying the recovery ratios set forth in the Proposal of Composition with Creditors; and
• Parmalat warrants (understood to be the 2020 Warrants, as defined in the Offer Memorandum) in a number equal to one warrant for each allotted share, up to the first 650 allotted shares, each valid to acquire through subscription one share.
In this regard, the Offeror shall grant exclusively to each Creditor an irrevocable put option, pursuant to and for the purposes of Articles 1331 and 1336 of the Italian Civil Code, exercisable in accordance with the terms and conditions set forth in Section G., Paragraphs G.2 and G.2.3, by virtue of which each of the abovementioned parties shall have the right to sell the abovementioned Issuer’s shares to the Offeror, who shall be obligated to buy them, at a price per share equal to the Price. According to the offeror’s intention, the purpose of this transaction is to guarantee the ability to sell Parmalat Shares allotted after the end of the Offer Acceptance Period and any Deadline Extension.
5. Dispute with Citibank N.A.
There are three different areas in the overall dispute with Citibank N.A. (“Citibank”) a description of which is summarized below.
5.1 Litigation in which Parmalat is a defendant
On October 15, 2013, Citibank filed a motion with the Bologna Court of Appeals asking it to rule on the enforceability in Italy of the decision by which the Superior Court of New Jersey ordered Parmalat, jointly with other companies of its group, to pay to Citibank the sum of US$431,318,828.84, plus interest (the “Decision”).
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By an order dated July 18, 2014 (the “Order”), the Bologna Court of Appeals ruled that the Decision was “enforceable in the Republic of Italy.”
In an appeal to the Court of Cassation notified on November 17, 2014, Parmalat—together with the other companies summoned in the proceedings before he Bologna Court of Appeals—challenged the abovementioned Order on nine different grounds (all basically involving a violation and erroneous implementation of Article 64, Letter g) of Law No. 218/1995, regarding the production of effects contrary to public order). A hearing for oral arguments has not yet been scheduled.
It is worth mentioning that if the Court of Cassation were to deny the abovementioned appeal, thereby confirming the Order allowing the Decision, Citibank’s claim may be satisfied exclusively through the allotment of shares, in accordance with the relevant provisions of the Composition with Creditors and based on the recovery ratios specified therein.
With regard to the maximum number of shares that could be allotted to Citibank due to the effect of the abovementioned recovery ratios, it is possible to consider a plurality of scenarios, in view of the possibility that Citibank’s claim could be included as a verified claim in the list of liabilities of one or more of the companies against whom, considering also Citibank’s projections, the claim could be enforceable. Specifically, the Bologna Court of Appeals ruled that the Decision was enforceable in the Republic of Italy against 10 companies included in Parmalat’s Composition with Creditors. In this regard, please note that (i) in the initial filing by which the Extraordinary Commissioner Enrico Bondi sued Citibank N.A. before the Superior Court of New Jersey the only companies mentioned by name were Parmalat S.p.A. in A.S. and Parmalat Finanziaria S.p.A. in A.S., and (ii) the only Parmalat Group companies with whom the Citibank Group executed the financial transactions subject of the lawsuit before the Superior Court of New Jersey were Parmalat S.p.A. in A.S. and Geslat S.r.l. in A.S.
Assuming—as stated in the projections of the opposing party, which the Issuer rejects completely—the full satisfaction of Citibank’s claim by applying the highest of the applicable recovery ratios (or the different applicable recovery ratios, up to full satisfaction), Parmalat could be asked to allot to Citibank 347,641,513 shares.
5.2 Litigation in which Parmalat is a plaintiff
By a summons served on June 15, 2015, Parmalat S.p.A. filed a lawsuit before the Court of Milan against executives and employees of the Citibank Group (formerly defendants charged with bankruptcy related activities in the criminal
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proceedings before the Court of Parma) and against some companies of the Citibank Group (which in the same criminal proceedings had the status of parties civilly liable for the activities carried out by their employees); the amount of the claim is 1.8 billion euros, plus inflation adjustment and interest, from the date the insolvency was declared (December 23, 2003) to the date of payment. At an evidentiary hearing scheduled for December 6, 2016, the proceedings were adjourned as the judge announced his intention to submit the lawsuit to a panel asking for a decision about the prejudicial settled-issue exception raised by the opposing parties. At the same hearing, the judge queried the parties about their willingness to reach an amicable settlement of the dispute. Parmalat, which was present directly at the hearing, confirmed its overall willingness; Citibank, which was not present directly at the hearing, could provide no response whatsoever nor did it later communicate to Parmalat its position in this regard.
5.3 Disputes concerning inclusion in the list of liabilities
In addition, Citibank has put forth additional claims under the Composition with Creditors with a total face value of 285.4 million euros, claimed through a proceeding challenging the list of liabilities of Parmalat S.p.A. in A.S. and three late-filing proceedings for inclusion in the list of liabilities of Parmalat S.p.A. in A.S. These proceedings are currently pending at the appellate level or before the Court of Cassation. If all of Citibank’s claims were definitively verified, Citibank—in implementation of the applicable recovery ratios—would be entitled to be allotted a total of 16,794,270 shares. In this regard, please note that Parmalat S.p.A. in A.S. and Parmalat Finanziaria S.p.A. in A.S. already obtained, in some of the pending proceedings, favorable decisions by the Court of Parma and the Bologna Court of Appeals.
Please also note that in addition to the proceedings concerning the definition of claims filed by companies belonging to the Citibank Group, an additional 12 proceedings are currently pending (four challenging the list of liabilities and eight by late-filing creditors) filed by various creditors against the companies in extraordinary administration included within the scope of the Composition with Creditors.
Having considered the various pending disputes in which Parmalat is a defendant, the Issuer believes that the sums recognized thus far in its financial statements as reserves earmarked for possible capital increases reserved for challenging and late filing creditors, should their claims be definitively verified, are adequate.
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However, should the current amount of the capital increase approved on March 1, 2015, as amended by a resolution dated May 31, 2012, prove to be inadequate, Parmalat would be required to ask its Shareholders’ Meeting to increase the amount of the abovementioned capital increase, restricting for that purpose a portion of “Other reserves and retained earnings.” Therefore, at this point, there is a potential risk of dilution for Parmalat’s shareholders related to the outcome of the various disputes in which Parmalat is a defendant discussed in this Section 5. If the TO is successful, any dilution resulting from the issuance of new shares would affect exclusively the position of those who would continue to be Parmalat shareholders subsequent to the conclusion of the TO.
6. Assessment of the Independent Directors
6.1 Fairness Opinion
The Independent Expert rendered its opinion on February 7, 2017.
In preparing its Fairness Opinion, the Independent Expert reviewed the economic terms of the TO set forth in the Offer Memorandum and used as the basis public information, i.e., information provided by the Issuer’s management, which was not independently verified by the Independent Expert.
In addition, the Independent Expert specified that in order to develop its fairness opinion, taking into account Parmalat’s peculiar characteristics, selected two different valuation methods, pointing out that the abovementioned methods and analyses should not be considered individually but only as integral parts of the combined valuation process.
While referring to the Fairness Opinion for a detailed description of the methods used and the analyses performed in connection with each method, the Independent Director describe below the result that the Independent Expert obtained based on the outcome of the abovementioned analyses, according to each one of the methods used:
1. Comparable Companies Analysis (reference method): with regard to this valuation method the Independent Expert identified a price range for each Parmalat share ranging between 2.67 euros and 3.01 euros;
2. Discounted Cash Flow Analysis (control method): with regard to this valuation method the Independent Expert identified a price range for each Parmalat share ranging between 2.68 euros and 3.20 euros.
The Independent Expert also pointed out that Parmalat’s is a party to numerous still pending disputes, both as a plaintiff and as a defendant, and that the financial
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projections provided by management for the preparation of the fairness opinion do not include the potential impact of these disputes (which is uncertain and unpredictable by its very nature). Since it is not possible to quantify said impact, which could have a material effect on the final results of the analyses, the potential outcome of pending disputes was not taken into account for analysis purposes. In this regard, please also see the comments provided in Section 6.3 below.
Based on the analyses performed and taking into account the limitations and the assumptions stated in the fairness opinion, the Independent Expert concluded that, on the date its fairness opinion was issued, the Tender Offered Price was fair from a financial standpoint for the current Issuer’s shareholders, other than the Offeror and the Parties Acting in Concert with the Offeror.
6.2 Fairness of the Tender Offer Price
In light of the above and notwithstanding the considerations provided in Section 6.3, the Independent Directors:
1. having reviewed the content of the Offer Memorandum and other documents referred to in Section 3.3 above, including the fairness opinion;
2. considering that the Opinion is being rendered pursuant to and for the purposes of Article 39-bis of the Issuers’ Regulation and, therefore, for the purpose of the issuance by the Issuer’s Board of Directors of the next Issuer’s Announcement required by Article 103, Sections 3 and 3-bis, of the TUF and Article 39 of the Issuers’ Regulation;
found that the Tender Offer Price was fair, but noted that it fell in the bottom part of the range of prices listed in the fairness opinion.
6.3 Notice about the potential effects of the Citigroup dispute
With regard to the overall dispute outstanding with Citibank, described in Section 5. above (where information is provided about the amount of the claim of each dispute and the related consequences, based on the outcome of the various proceedings), the Independent Directors thought it necessary to emphasize that at this point, absent objective evidence regarding a future and uncertain event, such as the outcome of these proceedings, there is inevitably an uncertainty factor (beyond the Issuer’s control) that makes it impossible to translate into numerically accurate data for fairness opinion purposes, not even on a range basis, on the one hand, the potential prior-period income and, on the other hand, the potential dilutive effect deriving from these disputes.
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Considering that, insofar as the amount claimed in the action for damages described in Section 5.2 above is concerned, any proceeds (the potential collection timing of which cannot be in any way predicted) deriving from Parmalat’s claim should be treated as a gross amount subject to income taxes at the tax rate in effect, and that any prior-period income would be subject to the provisions of Article 26 of the Issuer’s Bylaws, the Independent Directors pointed out that using for valuation purposes the amounts claimed in the actions pending with Citibank, both as plaintiff and defendant, would be an exercise devoid of any real significance, given the fact that, with regard to the opposing claims in the proceedings, no judgment based on objective elements can be given about the degree of probability of the events in specific terms (meaning by this not only the probability of a favorable or unfavorable outcome of the dispute, but also an estimate of the related potential prior-period income and possible dilutive effect).
Differently from other similar market transactions in which mechanisms were used (also in the form of financial instruments) to integrate the price or rebalance the exchange ratios in the event of the occurrence of potentially significant events from an economic standpoint the future occurrence of which was uncertain and could not be estimated in advance from a quantitative standpoint based on objectively measurable elements, the TO does not provide any tool that would enable a party who accepted the TO to share in the collection of any subsequent proceeds that could derive from the abovementioned dispute with Citibank. Consequently, the shareholders should take into account this consideration with regard to any determinations that they will be making concerning the TO.
6.4 Notices about scenarios resulting from the TO
The Independent Directors also thought it useful to call to the attention of the shareholders the potential scenarios resulting from the TO:
1. The Shares tendered in acceptance of the TO represent 90% or more of the Shares Subject of the Offer
In this scenario, the interest held by the Offeror in the Issuer would necessarily be higher than the threshold of 95% of the Issuer’s share capital, with the consequence that, as specified in the Offer Memorandum, all of the shares outstanding would be automatically acquired by the Offeror at a price equal to the Tender Offer Price.
2. The Shares tendered in acceptance of the TO represent less than 90% of the Shares Subject of the Offer, but the Offeror would still own an interest in the Issuer’s share capital greater than 90%
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In this second hypothesis, the Issuer’s shares would be delisted and the remaining shareholders would retain their right to sell their shares to the Offeror at a price determined by the Consob pursuant to Article 108, Section 4, of the TUF. In addition, in this scenario, if the interest held by the Offeror at the end of the TO is greater than 95% of the Issuer’s share capital, the Offeror, in accordance with the conditions stated in the Offer Memorandum, would exercise the Right to Purchase at a price determined by the Consob in accordance with the abovementioned provisions.
3. Upon conclusion of the TO, the Offeror owns an interest in the Issuer’s share capital of less than 90%
In this case, the Issuer’s shares would continue to be listed and the shareholders could thus continue to trade their shares on the MTA; however, given that in any case no valuation can be given regarding the formation of future prices for the shares, consideration should be given to the fact that, in the scenario contemplated in this Item 3, given the limited remaining share float, which could constrain trading in the securities, the price of Parmalat Shares after the TO could not necessary be consistent with a range of values determinable with commonly used methods.
6.5 Voting
It is hereby acknowledged that one of the independent directors cast a dissenting vote with regard to the fairness opinion and the content of this Opinion based on his disagreement with certain qualifying points in the Opinion.
Milan, February 7, 2017
The independent Directors
[signed] Pier Giuseppe Biandrino
[signed] Nicolò Dubini
[signed] Angela Gamba
[signed] Umberto Mosetti
[signed] Elena Vasco
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ANNEX
A. Fairness opinion rendered by Lazard on February 7, 2017, in its capacity as Independent Expert pursuant to Article 39-bis, Section 2, of the Issuers’ Regulations.
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