Acquisition and preparing for
indicative agreements
Business Contract Drafting
Arief Surowidjojo
October 9, 2012
Purposes and objective of acquisition
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Market entrance or expansion
Increase production capacity
Exploring market for new products
Cost reduction on production process, marketing, human resources, and
access resources
Strengthening financial positions
Increasing bargaining positions in facing lenders, regulators, suppliers,
distributors, and other stakeholders
Shorten the geographical distance to important resources
Acquiring products
Combine products or technology
Obtaining most tax efficient operations
Securing resources
Acquiring management and human capitals
Business diversification
Acquisition and corporate reorganization
How it is done
• Vertical integration
• Horizontal integration
• Conglomeration
Legal forms of corporate reorganization
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Acquisition
Merger
Consolidation
Spin-off
Other forms of acquisition: technology, management, market share,
distribution control, human capital, others
Acquisition drafting process
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Gathering internal general interests
Facts finding process, selection of targets, desk studies, field research,
feasibility studies, business planning, form of cooperation, determination of
roles in the cooperation, recommendation to proceed
Exchange of interests with the targets
Prepare non-disclosure agreement
Prepare and negotiate MOU on indicative agreements between the parties
Due diligence process starts
Due diligence reports submitted
Legal, financial, business position are determined, list of issues prepared
Negotiation technique and strategy are determined
Negotiation of Conditional Sale and Purchase of Shares Agreement commences
Drafting process of the CSPSA
acquisition drafting process
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Issues in drafting MOU
– Names do not matter: MOU, terms sheet, letter of intent, joint statement, etc, the
purpose is more important – expressing interests to negotiate a business deal on a set of
basic principles
– Binding or not binding
– Exclusive or not exclusive
– Time limit or fulfillment of certain conditions
– Sufficiency of facts and assumptions used to a closer commitment
– Due diligence level
– Cost distribution
– Clear ideas on the form of cooperation or business relationship
– Exit clause
– Good faith as equally informed parties
– Confidentiality
– Enforcement level
– Indemnity
acquisition drafting process
• Structure and content of MOU
– Parties involved
– Conditions precedent: due diligence, studies, research, corporate and
regulatory approvals, etc
– Expression to be binding or not
– Exclusivity
– Term and termination
– Basic reference for negotiation: subject, object, pricing, time frame etc
– Cost sharing
– Indemnity
– Confidentiality
– Dispute settlement
– Governing law
MOU drafting exercise
Sullivan Mining Company (SMC) , a coal mining company based in the
UK decided to expand its operations in Asia Pacific. One of the purposes
is to supply coals to Indian power companies with medium-high-ranked
calorie coals. SMC has a long history of operation in India. SMC wishes
to take over a couple of mining assets in Indonesia for implementing
such business plan. SMC is negotiating with PT Kutai Energy (KE), a
coal trading brokerage company that has access to several mining
companies in Kalimantan area, including PT Intan Resources with 50
million tons of reserve with the average of 5.900 calorie coals, PT Bara
Kalteng with 80 million tons of reserve with 6.200 calorie coals, and PT
Daya Mitra with 25 million tons of reserve with average of 5.500 calorie
coals. KE has a mandate to negotiate from Mr. Safiuddin, the majority
legal owner of the 3 companies. Mr. Safiuddin, however, is holding the
shares in the 3 companies under a nominee arrangement with beneficial
owners of the 3 companies, one of them is Mr. Achmad Bahar, the regent
of West Kutai, a regency where the mines are located. KE insists that
SMC shall acquire the existing shares of the 3 companies, and Mr
Saifuddin will remain holding at least 30% of equity in each company.
(a) as SMC’s counsel, please help them in identifying issues or problems if
SMC decides to acquire the interests in the 3 companies, (b) please draft
MOU between SMC and the owner of the target companies.