Japanese conglomerate Universal Entertainment Corp will not need to go ahead with a merger agreement with United States-listed 26 Capital Acquisition Corp regarding a deal that would involve the listing in the U.S. of the operator of the Okada Manila casino resort (pictured in a file photo), located in the Philippine capital. That is according to a ruling by a U.S. court in Delaware.
The judge, vice chancellor Travis Laster, ruled on Thursday that the Universal Entertainment group did not have to complete the merger. He said “multiple factors lead to that result”, according to the court ruling document, seen by GGRAsia.
The judge stated that 26 Capital – a special purpose acquisition company (SPAC) listed on the Nasdaq stock market in the U.S. – was still entitled to seek damages. He added he would address that matter at a later date, according to the document.
He said: “If the SPAC proves breach, and if the defendants fail to establish their affirmative defences, and if the SPAC properly supports a sum of causally related damages, then the SPAC may be able to recover [damages].”
It was announced in February that 26 Capital was suing Tiger Resort, Leisure and Entertainment Inc – the promoter of the Okada Manila casino resort in the Philippine Capital – and other Universal Entertainment subsidiaries, urging the prompt consummation of a previously-announced merger between the two sides.
Universal Entertainment later said, in July this year, it had eventually decided to end the deal on June 30.
The Japanese side had argued there had been “various material breaches of the merger agreement” by 26 Capital, and alleged “fraudulent conduct” by 26 Capital. The latter firm had reputedly said that such allegations were in its view “meritless”.
The court case hearing before the judge began in Delaware on July 10.
Vice chancellor Laster said that his Thursday decision not to order the merger completion was in part because 26 Capital “engaged in conduct that should not be rewarded”.
The judge noted that it had never been disclosed to the Universal Entertainment group that their deal adviser, Zama Capital hedge fund founder Alex Eiseman, also owned more than 60 percent of a 26 Capital affiliate. “That meant the hedge fund would profit if the SPAC got a better deal” from Universal Entertainment, according to the court ruling. Vice chancellor Laster described Eiseman’s work with 26 Capital as “a conspiracy to mislead Universal.”
The ruling added: “Not knowing that its contractual advisor was playing for the other team, the [Entertainment Universal side] entered into the merger agreement. After signing, the target hired the hedge fund to assist with a series of deal-related tasks. When pursuing those tasks, the hedge fund continued to work as the SPAC’s partner and against its client. It was not until this litigation that the target learned the truth.”
In his ruling, vice chancellor Laster also pointed out that, even if the court ordered the merger to move ahead, it had no means to oversee and enforce its order.
He said: “To the extent there is a need to back up [an order for merger cmpletion] with coercive sanctions, all roads lead to Manila. When parties are domiciled or have significant assets in the United States, this court can pick from a menu of sanctions. No one has identified any sanction that could be deployed effectively in the Philippines.”
When the merger deal agreement was first announced in October 2021, the transaction implied an enterprise value for Okada Manila of US$2.6 billion.
The merger and subsequent listing operation was initially due to be completed by the end of June 2022. Completion was delayed several times, against the backdrop of what Universal Entertainment described as an “illegal” occupation between May 31 to September 2, 2022 of Okada Manila, when people acting on behalf of the resort’s ousted founder, Kazuo Okada, first occupied and then ran the property.
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