An “astonishing effort” is how Freehills corporate partner Martin Shakinovsky described Metcash Trading Limited’s $760 million acquisition of Foodland Associated Limited’s Australian operations.

The purchase was the culmination of a $2.8 billion takeover bid launched last December. As Metcash only wanted to acquire Foodland’s Australian operations, the Freehills team, led by Shakinovsky, Braddon Jolley and Rebecca Maslen-Stannage, devised a bid structure with a built-in demerger mechanism so it could spin off the company’s New Zealand operations to shareholders.

“[The transaction] started with a placement and capital raising in the order of $400 million. We then ran concurrently two schemes of inter-conditional arrangement — one in Australia, one in South Africa,” Shakinovsky said. “Each of those was conditional on the other occurring.”

The South African scheme involved a $1.2 billion capital reorganisation under which Metcash bought back the majority stake of its major South African shareholder.

At the same time, Metcash launched its hostile bid for Foodland, but with the outcome of the schemes yet to be known, was unsure what its structure would be if the bid went ahead.

Accordingly, the bid structure had to cater for the varying outcomes that could result from the shareholder votes at the scheme meeting.

“That was a very, very complicated feature,” Shakinovsky said. “We had to cater for the alternative scenarios all the way through the documentation.”

To buy back the South African parent and to buy Foodland, Metcash raised approximately $2 billion. “Metcash did this through bank debt and through flexible convertible unsecured loan stock,” Shakinovsky said.

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“We raised about $750 million through that instrument and also raised funds through the issue of convertible undated preference shares. Because Metcash never knew whether the scheme or the bid was going to get up, we had to have flexibility and the option to redeem these instruments for cash if Metcash wanted to.”

Interestingly, market reaction following the bid persuaded the Foodland board that Foodland was ultimately more valuable when demerged into its Australian and New Zealand operations.

In the result, Metcash was able to negotiate a tripartite scheme of arrangement with Woolworths and Foodland under which it could acquire the Australian operations of Foodland, and Woolworths could acquire the NZ operations as well as approximately 19 stores in Australia.

Complications continued, however. Matters had to be structured so that when the incumbent management of Foodland walked out the door last week, Metcash and Woolworths would be in a position to run their new acquisitions.

The company’s financing arrangements, which did not distinguish between Australia and New Zealand, also had to be demarcated between the two businesses.

Gilbert + Tobin acted for Woolworths and Mallesons Stephen Jaques acted for Foodland. More than 50 lawyers from Freehills alone were involved in the transaction. “It’s been an astonishing effort, and we are very pleased with the outcome,” Shakinovsky said. “It’s an excellent result, we think, for shareholders and for the independent grocery sector in Australia.”