Negotiating and Closing on a Cross-Border
M&A Transaction
Doing Business Globally: A Practical Workshop on
Risks, Best Practices and Strategies for Success
2011 Western Hemisphere Meeting
March 9, 2011
Dallas
Valerie Diamond, Matthew Gemello, Gerry McGrath, Jonathan Newton and
Claudia Prado
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology
used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm.
Similarly, reference to an “office” means an office of any such law firm.
Negotiating and Closing on a Cross-Border M&A Transaction
Planning for the Transaction
• Where is the transaction?
• What is the scope of the proposed transaction?
• Entire entity?
• Business operation?
• Specific assets?
• How will the sale be conducted?
• Privately negotiated?
• Auction?
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Negotiating and Closing on a Cross-Border M&A Transaction
Planning for the Transaction (cont.)
• How will the purchase price be funded?
• Internal funds?
• Stock?
• Borrowing from third parties?
• Mix?
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Negotiating and Closing on a Cross-Border M&A Transaction
Planning for the Transaction (cont.)
• Who will work on the transaction?
• Internal
• External
• Accountants (including forensic)
• Attorneys
• Investment bankers
• Third party investigators or similar resources
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Negotiating and Closing on a Cross-Border M&A Transaction
Planning for the Transaction (cont.)
• Consider confidentiality considerations
• Internal
• External
• Compliance
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Negotiating and Closing on a Cross-Border M&A Transaction
Planning for the Transaction (cont.)
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Schedule an organizational meeting of the team
Establish roles and responsibilities for the team members
Consider the costs of doing the deal
Learn about the seller
Consider how the acquired company will be integrated
Agree due diligence approach
Structure / tax
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Negotiating and Closing on a Cross-Border M&A Transaction
Timing of the Transaction
• How long will it take to:
• Plan and agree upon the team members, the scope of
their work and the responsibility timelines for the team?
• Conduct diligence of target?
• Respond to diligence requests by financing source, if
any?
• Satisfy regulatory requirements?
• Obtain required third party consents?
• Negotiate?
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Negotiating and Closing on a Cross-Border M&A Transaction
Letter of Intent / Term Sheet
• Why use a preliminary agreement?
• How will a preliminary agreement impact timing?
• Should the preliminary agreement be binding or nonbinding?
• What is the effect of local law on “non-binding” provisions?
• Consider express and implied duties
• Consider non-competition / non-solicitation obligations and
restrictions
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Negotiating and Closing on a Cross-Border M&A Transaction
Letter of Intent / Term Sheet (cont.)
• Should you ask for / obtain exclusivity and no-shop
protection?
• Why you should ask for breakup fees?
• How do you respond to requests for reverse breakup fees?
• What are the public disclosure obligations?
• Will any regulatory filings be required?
• Remember to address confidentiality provisions if there is
not a separate confidentiality agreement
• Precise or “feels good”?
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Negotiating and Closing on a Cross-Border M&A Transaction
Structure of the Transaction
• What is the appropriate acquisition vehicle?
• US or local?
• Should there be a holding or intermediate company for
liability, tax or other reasons?
• Consider limitations on liability of equity owners in the
possible jurisdictions
• What is the appropriate capitalization?
• How does this impact post-acquisition integration?
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Negotiating and Closing on a Cross-Border M&A Transaction
Structure of the Transaction (cont.)
• Will the source of funding impact the structure?
• Will internal or borrowed funds be used?
• Consider the timing constraints of relying on a third party
• Consider currency and exchange rates
• Will local laws require registration or disclosure of source
of funds?
• Consider stock related issues such as registration rights,
listing, etc.
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Negotiating and Closing on a Cross-Border M&A Transaction
Structure of the Transaction (cont.)
• Consider the tax and accounting issues regarding
• Choice of funding
• Acquisition vehicle
• Resulting ownership structure
• Common tax and accounting issues include
• Resulting basis in assets
• Interest deductions and withholdings
• Allocation of purchase price
• Transfer taxes
• VAT taxes
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Negotiating and Closing on a Cross-Border M&A Transaction
Structure of the Transaction (cont.)
• How will the acquisition be structured?
• Equity interests
• Asset acquisition
• Merger, if available under applicable law
• Consider the liabilities that may attach to the purchase
• Consider US and local law requirements for the actual
transfer of the equity interests or assets
• Do you need local transfer agents?
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Negotiating and Closing on a Cross-Border M&A Transaction
Structure of the Transaction (cont.)
• How will the acquisition be documented?
• Equity interests
• Asset acquisition
• Merger
• Consider “standard” conveyance documents
• Consider “standard” ancillary documents
• One v. multiple buyers
• Acquisition documents
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Negotiating and Closing on a Cross-Border M&A Transaction
Structure of the Transaction (cont.)
• How will the documents address?
• Risk allocation
• Representations and warranties
• Purchase price installment payments and holdbacks
• Working capital / debt adjustments
• Indemnification
• Escrows
• Funding of purchase price
• Covenants pending and conditions to close
• How do I hold target to the deal but give myself a way out?
• Governing law
• Dispute resolution
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Negotiating and Closing on a Cross-Border M&A Transaction
Due Diligence
• Discuss and establish the scope with target
• Legal
• Operations
• Financial
• Benefits
• Regulatory
• Litigation
• Real estate
• Environmental
• Consider materiality thresholds
• Agree upon place for, or mode of, production or delivery
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Negotiating and Closing on a Cross-Border M&A Transaction
Due Diligence (cont.)
• Continue to refine the budget for costs as you go
• Continue to refine the scope of the requests and consider
need for supplemental requests
• Who is keeping track?
• Establish with the target the timeline(s) for
• Delivery of the requests
• Delivery of the responses
• Managing local teams
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Negotiating and Closing on a Cross-Border M&A Transaction
Due Diligence (cont.)
• Define the final product to be generated by the results of the
diligence
• Responsibilities for preparation
• Interim reports
• Form of final report
• Use by third parties
• Consider public sources
• Refine the diligence requests prior to submission to target
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Negotiating and Closing on a Cross-Border M&A Transaction
Due Diligence (cont.)
• Be prepared to negotiate
• Scope of target responses
• Timing of responses
• Distribution of responses
• Consider inevitable objections from target
• Privilege
• Burden
• Cost
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Negotiating and Closing on a Cross-Border M&A Transaction
FCPA and Related Considerations
• US Foreign Corrupt Practices Act
• Expansive scope
• Geographic reach
• Expensive and well publicized consequences
• Other comparable laws
• UK bribery law
• There are significant differences between UK and US
laws
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Negotiating and Closing on a Cross-Border M&A Transaction
FCPA and Related Considerations (cont.)
• Diligence is crucial
• Consider scope / responsibilities outside of “standard”
diligence
• What is “market”?
• When and how much?
• Timing will be affected
• Actual costs may not have been fully anticipated
• Consider the substantive impact on proposed transaction
and the acquiring company after the acquisition
• Forensic accounting, interviews, agent background
checks
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Negotiating and Closing on a Cross-Border M&A Transaction
Global Equity Issues
• Identify all plans and other arrangements
• Identify employee locations
• Consider US and local
• Benefit laws
• Securities laws
• Tax considerations (for acquiror, target and employees)
• Consider eligibility of employees
• Consider impact if stock-for-stock deal
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Negotiating and Closing on a Cross-Border M&A Transaction
Choice of Law
• Consider impact on documents
• Risk allocation
• Good faith
• Enforceability
• Will the choice be enforceable?
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Negotiating and Closing on a Cross-Border M&A Transaction
Consider Use of Arbitration to Settle Disputes
• Are the local courts fair and efficient?
• What can you do to find out?
• What arbitration forums are available?
• How do you conduct diligence on the available forums?
• Is mediation an alternative?
• Will your choices of dispute resolution mechanism, forum
and procedure be enforceable?
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Negotiating and Closing on a Cross-Border M&A Transaction
For additional information, please contact:
– Valerie H. Diamond
Baker & McKenzie LLP
Two Embarcadero Center, 11th Floor
San Francisco, CA 94111
415 576 3086
valeriediamond@bakermckenzie.com
– Jonathan B. Newton
Baker & McKenzie LLP
711 Louisiana, Suite 3400
Houston, TX 77002
713 427 5018
jonathan.newton@bakermckenzie.com
– Matthew R. Gemello
Baker & McKenzie LLP
660 Hansen Way
Palo Alto, CA 94304
650 856 5541
matthew.gemello@bakermckenzie.com
– Claudia F. Prado
Trench, Rossi e Watanabe Advogados
Av. Dr. Chucri Zaidan, 920 - 8º andar
São Paulo, SP 04583-904 Brazil
+55 (11) 3048 6840
claudia.prado@bakermckenzie.com
– Albert G. McGrath, Jr.
Baker & McKenzie LLP
2001 Ross Avenue, Suite 2300
Dallas, TX 75201
214 978 3028
albert.mcgrath@bakermckenzie.com
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