The Court of Appeal ordered private equity investor Rangatira pay a $920,000 ‘top up’ fee following its divestment of Tuatara Breweries four years after buying in 2013. Failure to set a ‘sunset date’ when buying Tuatara left Rangatira exposed to demands from Tuatara’s founding shareholders for a share of Rangatira’s profit.
Hard-nosed negotiations between Rangatira and Tuatara’s founders, Sean Murrie and Carl Vasta, saw a formula devised in 2013 to accommodate their differing views over Tuatara’s value. Shareholders valued their business at $16.6 million; Rangatira said it was worth no more than $12 million. Rangatira agreed to compensate shareholders with a ‘top up’ fee if subsequent events proved Tuatara was worth more than $12 million. A top up was payable on the occurrence of any one of two defined ‘exit events’. One event was a subsequent sale for more than $12 million. Claims for a ‘top up’ were made after Tuatara was sold to DB Breweries in 2017 for an undisclosed price, but a figure well in excess of $12 million.
Rangatira refused to pay. It said this exit event was time-limited to two years from its Tuatara purchase; the same time limit their contract specified for another exit event, the need to achieve a specified earnings level. Reaching a value of $12 million in two years is a very different return on investment from reaching a value of $12 million in ten or fifteen years, Rangatira said.
The plain meaning of the 2013 contract had a two year exit event time limit applying only to achievement of a specified earnings target, the court ruled. It did not apply to the alternative exit event triggered by a subsequent sale to DB Breweries.
Malthouse Ltd v. Rangatira Ltd – Court of Appeal (20.12.18)
19.030