cross-border transactions presented by robert spatt, co-moderator partner, simpson thacher &...

Cross-Border TransactionsPresented by

Robert Spatt, Co-ModeratorPartner, Simpson Thacher & BartlettGeorge R. Bason, Jr., Co-ModeratorPartner, Davis Polk & WardwellMichael CarrManaging Director and Head of M&A, Americas, Goldman SachsMatthew F. HermanPartner, Freshfields Bruckhaus DeringerPeter ThomasPartner, Simpson Thacher & BartlettRobert TownsendPartner, Morrison & Foerster

March 27, 2014

26TH ANNUAL TULANE CORPORATE LAW INSTITUTE

Copyright 2014. All rights reserved.

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Panel Introduction

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Cross-Border TransactionsDISCUSSION OVERVIEW

Banker Overview of Cross-Border Activity

Inbound Transactions CFIUS: Navigating Inbound Investments Through National Security Reviews

Enforceability Issues in Public Cross-Border Sales

Cross-Border Lessons from Softbank/Sprint/Clearwire

The Inbound/Outbound Bridge

Outbound Transactions “Regular Way”

To Other Parts of the World

Inversions

Foreign Corrupt Practices Act / UK Bribery Act

Where Is It Best to Be a Seller?

Twenty-Sixth Annual Corporate Law Conference

Cross-Border Transactions

Michael Carr

Goldman, Sachs & Co.

March 27, 2014

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http://www.law.tulane.edu/index.aspx

$29bn

$57bn

$112bn

$19bn

$18bn$13bn

$0bn

$10bn

$38bn

$56bn

North America

Latin America

Asia (includingJapan)1

EMEA1

$5bn

$76bn

2013-2014 YTD

To From NetNorth America $174 ($118) $56Latin America $41 ($24) $18EMEA $151 ($168) ($17)Asia (including Japan) $56 ($124) ($68)

2009 through 2014 YTDTo From Net

Latin America $250 ($70) $180North America $689 ($608) $81EMEA $709 ($673) $36Asia (including Japan) $276 ($573) ($297)

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Banker OverviewINTRA-REGIONAL M&A VOLUME: 2013 THROUGH 2014 YTD

Source: Thomson Reuters (as of March 18, 2014)Note: Global M&A volume includes transactions greater than $250m;excludes intra-region activity, spinoffs and leveraged buyoutsEMEA includes Europe, Middle East and Africa; Asia includes India, Japan and Australia

Year Acquiror Target IndustryAcquiror Region

Target Region Transaction Type Amt ($bn)

2014 Actavis PLC Forest Laboratories Inc Pharma EMEA North

America Cash / Stock $23.3

2013 SoftBank Corp Sprint Nextel Corp Telecom Asia North America Cash / Stock 21.6

2013 Publicis Groupe SA Omnicom Group Inc Media EMEA North America Merger of Equals 19.3

2013 Anheuser-Busch Inbev Grupo Modelo SAB de CV

Consumer / Beverage EMEA Latin

America Cash Acquisition 18.0

2013 CNOOC Nexen Inc Oil & Gas Asia North America Cash Acquisition 17.7

2014 Suntory Holdings Ltd Beam Inc Consumer / Beverage Asia North


2013 Oi SA Portugal Telecom SGPS SA Telecom Latin

America EMEA Stock 15.3

2013 Applied Materials Inc Tokyo Electron Ltd Technology North America Asia Merger of Equals 7.0

2013 Shuanghui Intl Holding Smithfield Foods Inc Consumer / Food Asia North


2013 McKesson Corp Celesio AG Healthcare North America EMEA Cash Acquisition 7.0

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Banker Overview (cont.)ANNOUNCED OR COMPLETED 2013 THROUGH 2014 YTD


EMEA

Asia

North America

Latin America

To From

$59

$167

$118

$171

$114

$61

($93) ($92)

($144) ($161)

($108)

($10)

($200)

($150)

($100)

($50)

$0

$50

$100

$150

$200

2009 2010 2011 2012 2013 2014 YTD

$24

$75 $52 $57

$37 $4

($4) ($16) ($8) ($17) ($22) ($2)

($200)

($150)

($100)

($50)

$0

$50

$100

$150

$200

2009 2010 2011 2012 2013 2014 YTD

$91 $112

$173 $182

$140

$11

($75)

($180)

($116)($134)

($115)

($53)

($200)

($150)

($100)

($50)

$0

$50

$100

$150

$200

2009 2010 2011 2012 2013 2014 YTD

$39 $60 $66

$43 $50 $17

($41)

($126)($141) ($141)

($96)

($28)

($200)

($150)

($100)

($50)

$0

$50

$100

$150

$200

2009 2010 2011 2012 2013 2014 YTD

Net $16 ($68) $57 $48 $24 ($42)

Net ($1) ($66) ($75) ($98) ($45) ($11)

Net ($34) $76 ($27) $10 $5 $51

Net $19 $59 $44 $40 $16 $2

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Banker Overview (cont.)REGIONAL INFLOWS AND OUTFLOWS


$107 $55

$33 $26 $19 $7 $3

($19) ($7) ($23) ($13) ($8) $0 ($0)

NR CRG TMT IND FIG HC RE

$164 $153 $119 $104

$73 $64 $31

($173)

($109) ($117) ($143)($81)

($38) ($12)

NR TMT IND CRG HC FIG RE

$220

$152 $111

$83 $80 $30 $13

($108) ($121)($73)

($114)($98)

($60)($34)

NR HC TMT IND CRG FIG RE

EMEA

Asia

North America

Latin America

To From

$87 $54 $39 $35 $23 $22 $16

($279)

($82)($72) ($54)

($38) ($31) ($17)

NR CRG TMT IND FIG HC RE

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Banker Overview (cont.)ACTIVITY BY INDUSTRY | 2009-2014 YTD


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http://www.cotswold-fayre.co.uk/specialitybites/wp-content/uploads/cadbury_purple_logo11.jpg

http://www.allianceboots.com/

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=URtBv-StKm_fZM&tbnid=p4aUj7iawxNJgM:&ved=0CAYQjRw&url=http://mimsdistributing.com/&ei=ePAoU9-RHcTO2AXJkYGwCg&bvm=bv.62922401,d.aWc&psig=AFQjCNFEoIvAiy-ecMfkOX1D7l6zX5yK6A&ust=1395278290993748

http://www.wkrb13.com/logos/oi-sa-logo.jpg

2009 – 2014 YTD 2013 – 2014 YTD

Technology, Media & Telecom

22%

Natural Resources21%

Industrial15%

Consumer Retail12%

Healthcare12%

Financial Institutions

9%

Real Estate8%

Natural Resources32%

Technology, Media & Telecom

17% Industrial14%

Consumer Retail13%

Financial Institutions10%

Healthcare9%

Real Estate5%

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Banker Overview (cont.)M&A VOLUME BY INDUSTRY SECTOR

Source: Thomson Reuters (as of March 18, 2014)Note: Global M&A volume includes transactions greater than $250m;excludes spinoffs and leveraged buyouts

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Inbound Transactions

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Inbound TransactionsCFIUS: NAVIGATING INBOUND INVESTMENTS THROUGH NATIONAL SECURITY REVIEWS

CFIUS Statistics

114 covered transactions were notified to CFIUS in 2012, divided among the following industries: 45 (39%) Manufacturing (primarily Computer and Electronics);

38 (33%) Finance, Information, and Services;

23 (20%) Mining, Utilities, and Construction (primarily Utilities);

8 (7%) Wholesale, Retail, and Transportation.

Investigations have steadily increased over the last five years.

8 transactions notified in 2012 resulted in mitigations measures.

YearNumber of

Notices

Notices Withdrawn

During Review

Number of Investigations

Notices Withdrawn After Commencement of Investigation

Presidential Decisions

2008 155 18 23 5 02009 65 5 25 2 02010 93 6 35 6 02011 111 1 40 5 02012 114 2 45 20 1

Total 538 32 168 38 1

Covered Transactions, Withdrawals, and Presidential Decisions 2008-2012

Source: 2012 CFIUS Annual Report to Congress

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Inbound Transactions (cont.)CFIUS: NAVIGATING INBOUND INVESTMENTS THROUGH NATIONAL SECURITY REVIEWS

CFIUS Statistics

CFIUS notifications involved buyers from 21 countries in 2012. The largest number of notifications by country were: China: 23 transactions;

UK: 17 transactions;

Canada: 13 transactions;

Japan: 9 transactions;

France: 8 transactions.

The number of notified transactions involving Chinese buyers has increased from just 6 in 2010 to 23 in 2012.

Source: 2012 CFIUS Annual Report to Congress

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CFIUS — Statutory and Regulatory Background

Pursuant to Section 721 of the Defense Production Act of 1950, as amended, the U.S. President is authorized to investigate the impact on U.S. national security of mergers, acquisitions and takeovers by or with foreign persons that could result in foreign control over persons engaged in interstate commerce in the United States.

The President is authorized to take a number of measures to protect national security, including: Suspending or prohibiting a transaction;

Ordering a completed transaction to be unwound; or

Ordering divestiture of assets or entities.

The President’s investigative authority is delegated to CFIUS.

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The Committee on Foreign Investment in the United States (“CFIUS”) is a multi-agency committee chaired and staffed by the Department of Treasury.

Its members are the heads of the Departments of Treasury, Justice, Homeland Security, Commerce, Defense, State, Energy and the Offices of the U.S. Trade Representative and Science and Technology Policy.

The Director of National Intelligence and the Secretary of Labor are non-voting, ex-officio members of CFIUS, and other executive offices observe and participate as appropriate.

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CFIUS’s duties and powers are defined by regulations, which set out the requirements for a CFIUS notification and define key terms like “U.S. business,” “foreign person,” and “control.”

CFIUS notifications are technically voluntary, and unlike most antitrust/merger control regimes, a CFIUS filing is not suspensory. However, CFIUS can initiate its own investigation of a covered transaction, and the President

can unwind a transaction post-closing.

Most parties will defer closing until CFIUS approval.

The entire CFIUS review process is confidential, including the CFIUS notification, additional information provided by the parties to CFIUS, and the results of CFIUS’s review and investigation. The parties themselves, however, may choose to disclose information regarding the CFIUS

process to the public.

Public companies involved in large scale transactions will typically disclose material developments in process.

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CFIUS — Review Process

Prepare Joint Notification In addition to providing the particulars of the transaction and parties, the notification

responds to a detailed questionnaire about the U.S. business being acquired and foreign persons party to the transaction.

Information required for the U.S. business includes: Disclosure of classified and priority rated U.S. government contracts and contracts with

national security-related agencies;

Information on all products and services provided to the U.S. government (either directly or indirectly); and

Details on possession and trading of export-controlled items, certain Agents and Toxins, and items with military applications.

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Information required for foreign persons party to the transaction includes: Disclosure of equity or voting interests held, directly or indirectly, by foreign

governments;

Analysis of whether any foreign government controls the foreign person party to the transaction;

Future plans for the U.S. business being acquired, including with respect to eliminating R&D, shutting down facilities in the U.S., modifying or terminating contracts with the U.S. Government, or eliminating domestic supply; and

Personal Identifier Information (“PII”) of board members, officers, and ultimate beneficial owners of the foreign person and its intermediate and ultimate parents.

Gathering PII is often time-consuming and burdensome, especially if sovereign wealth funds or state owned enterprises are in the foreign person’s ownership chain.

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Submit Notification CFIUS strongly encourages that parties submit a draft notification 5-10 business days prior to

submitting a “final” notification; this allows CFIUS to review the draft and provide any comments.

30-Day Review Period (“Phase 1”) Once CFIUS determines that the notification is “complete,” it will initiate the 30-day review

period.

Parties can expect to receive requests for additional information during this time, and are required to respond within 3 business days to avoid stopping the clock.

45-Day Investigation Period (“Phase 2”) CFIUS will initiate a 45-day investigation if a CFIUS member agency advises the CFIUS Staff

Chair that it believes the transaction could threaten national security or if the agency (or one of several agencies) tasked with taking the lead on the 30-day review recommends that an investigation should be undertaken.

Additional information requests are usually made by CFIUS, again with a 3 business day deadline.

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Recommendation to the President: CFIUS may terminate a 45-day investigation at its own initiative without referring the

matter to the President for action.

CFIUS will refer the matter to the President only if it decides the transaction should be suspended, blocked, or unwound, cannot decide on a recommendation, or requests that the President make the determination.

The President then has 15 days to make a decision, which is final and cannot be appealed.

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CFIUS — Practice Points

There is a presumption in favor of a 45-day investigation when the acquiring foreign person represents or is controlled by a foreign government or when the transaction involves “critical infrastructure.”

As a practical matter, CFIUS prefers not to elevate matters to the President, and parties will usually withdraw a notice and abandon the transaction when CFIUS signals its intent to oppose the deal.

CFIUS will also enter into mitigation agreements with the parties to alleviate national security concerns, rather than recommend that the President take action. Mitigation agreements can include, for example: Restricted information access or control rights for certain individuals;

Assurances that the U.S. business will continue supplying certain products and services to the U.S. Government; or

Ensuring that U.S. government agencies will have continued access to certain information in the possession of the target or certain of the target’s systems.

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CFIUS — Hot Button Issues

Proximity to Sensitive Facilities/Restricted Airspace In December 2009, the Chinese firm Northwest Nonferrous International Investment

Corp., a subsidiary of China’s largest aluminum producer, attempted to acquire U.S.-based Firstgold. The transaction was withdrawn due to CFIUS’s concerns about the proximity of Firstgold assets to sensitive military bases.

In 2012, CFIUS contacted Ralls Corp., which is owned by Chinese nationals, and requested a notification of Ralls’ investment in wind farm assets. After reviewing the acquisition, CFIUS recommended that Ralls stop operations until a complete investigation could be conducted as a result of objections by the U.S. Navy over wind turbines located near or within restricted Naval Weapons Systems Training Facility airspace. President Obama ordered Ralls to divest itself of the wind farm project.

Proximity analysis can be challenging because the parties cannot know in many cases whether a particular U.S. Government facility is sensitive.

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CFIUS — Hot Button Issues

Perceived Scrutiny of Chinese Acquirers There is a perception that some within CFIUS or its constituent agencies are

suspicious of Chinese investment in the U.S.; these concerns may be exacerbated when parties notify CFIUS only after being contacted by CFIUS post-transaction.

Huawei elected not to notify CFIUS before consummating a $2 million acquisition of technology and employees from 3Leaf Systems, a small server technology firm located in Santa Clara, California.

CFIUS reviewed the transaction and informed Huawei that it would have to divest the 3Leaf assets and employees. After initially indicating it would reject CFIUS’s findings and press its case with President Obama, Huawei ultimately agreed to divestment.

Public and high profile transactions involving Chinese acquirers can also draw scrutiny from China Hawk members of Congress, the media, or third-parties, which can in turn exert pressure on CFIUS

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Case Study — Smithfield Foods

In May 2013, Shuanghui International, the controlling shareholder of China’s largest meat processor, announced the signing of an agreement to purchase U.S.-based pork producer Smithfield Foods in a transaction valued at $7.1 billion, inclusive of debt.

The parties filed a notification with CFIUS, and CFIUS undertook an investigation of the transaction.

Ultimately, CFIUS concluded its investigation without recommending that the President take any action.

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During the course of the review and investigation, members of Congress the press, and third-parties raised a number of issues, some arguably more meritorious than others. The U.S. Senate Committee of Agriculture, Nutrition and Forestry, held publicly televised hearings regarding the transaction addressing many of these issues.

Issues Raised: Proximity: Smithfield owns dozens of processing and distribution facilities, and hundreds of

hog farms, throughout the U.S. Many properties are located in areas with a significant military presence, including the Hampton Roads area of Virginia, eastern North Carolina, and the Western U.S.

U.S. Government Contracts: As a major supplier of pork products, Smithfield Foods is a significant supplier of food products to the U.S. Government, including to the U.S. military.

Supply of By-Products: Certain hog by-products are used in the production of Heparin and other drugs, and some expressed concern that Shuanghui would control a significant and

important pharmaceutical source material that could be subject to shortage.

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Issues Raised (cont.): Food Safety: Concerns were raised over the safety record of Shuanghui and other

Chinese companies, though in reality the business thesis of the transaction was entirely to export pork from the U.S. to China, not import pork from China, and in any event the USDA would continue to ensure that Smithfield products met applicable food safety standards post-transaction.

Tax-Payer Funded Research: Some complained that U.S. tax-payer funds used to research breeding and pork processing technology would now be benefiting China and contributing to China’s competitive advantage.

Reciprocity: Certain members of Congress complained about the fairness of allowing an inbound Chinese investment of this magnitude, while a reciprocal investment by a U.S. company in a Chinese company would not be allowed by the Chinese government.

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CFIUS — Review of Minority Investments

A key issue in considering whether to notify a transaction involving a minority investment by a foreign investor in a U.S. business is whether the deal involves acquisition of control over the U.S. business.

CFIUS regulations include a safe harbor for “purely passive” investments of 10% or less. An investment would not be passive, and thus not meet the safe harbor, if the

foreign acquirer negotiated rights to determine, direct, decide, take, reach, or cause decisions regarding important matters affecting the U.S. business.

Also, an investment is not “purely passive” if it entitles the investor to hold or control even one board seat.

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Nevertheless, even outside the safe harbor, parties can get comfortable with not filing if they are confident that CFIUS would agree that there is no control. The CFIUS regulations include a list of customary negative consent rights that do

not constitute control such as:

The power to prevent the sale or pledge of all or substantially all of the assets of an entity or a voluntary filing for bankruptcy or liquidation;

The power to enter contracts with or guarantee obligations of majority investors and their affiliates;

The power to purchase a pro rata interest to prevent dilution;

The power to prevent changes to the rights of a class of stock;

The power to prevent the alteration of corporate organizational documents in relation to the above permissible negative consent rights.

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However, other special governance rights and negative control rights can, alone or in tandem with each other, convey control. These include: Board representation by the foreign acquirer;

The right to veto the hiring or firing of corporate officers;

The right to veto acquisitions or divestitures of assets by the U.S. business (unless limited to transactions above a truly extraordinary amount);

The right to veto the entry or renewal of contracts, or to control whether contracts are performed.

The greater the investment is above 10%, the more likely that CFIUS will consider one or more of these rights to convey control.

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Inbound Transactions (cont.)ENFORCEABILITY ISSUES IN PUBLIC CROSS-BORDER SALES

Utilizing the Smithfield Foods Reverse-Breakup Fee/Escrow Paradigm for Public Deals to Potentially Manage Cross-Border Enforcement and Regulatory Risk

Issue: How to provide in a public deal sufficient enforceability comfort with foreign buyer with no meaningful U.S. assets and significant U.S. and foreign regulatory approvals and inherent financing risk (albeit no “financing out”)?

Solution: Strong covenant on required efforts to obtain regulatory approvals, etc. (everything short of a

“MAC”)

Limit deal conditions (no financing condition, only selected foreign regulatory approvals are conditions to deal, etc.)

Significant reverse-breakup fee ($275 million (≈6% of equity value)) paid by buyer if the deal fails due to:

willful breach by buyer (non-exclusive remedy)

failure of regulatory approvals (other than CFIUS)

failure of financing sources

Reverse-breakup fee put in escrow in New York

More tailored than the “deposit” structure seen in occasional private deals in certain regions/sectors

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Inbound Transactions (cont.)SOFTBANK/SPRINT/CLEARWIRE – Introduction

SoftBank is entrepreneurial, aggressive and global – not a typical Japanese (or foreign) buyer

Founded in 1981 by Masayoshi Son, invests in telecom and internet businesses around the world. TSE listed. Market cap: ~$90 billion

Mr. Son is the Chairman and CEO – has a “300-year plan” for developing SoftBank’s business

SoftBank has a diverse portfolio of cross-border investments dating back over 15 years, including: Early investor in Yahoo! and E-Trade

Single largest shareholder in Alibaba, with an investment dating from 2000

And of course its control stake (currently 80%) in Sprint – largest US acquisition by an Asian buyer, and largest Japanese acquisition of a foreign company

SoftBank’s acquisition of Sprint and indirectly Clearwire

October 15, 2012: SoftBank announces acquisition of control of Sprint, including $3.1B investment at signing

December 17, 2012: Sprint announces acquisition of ~50% of Clearwire it did not already own

January 8, 2013: DISH announces unsolicited offer for Clearwire spectrum and shares

April 15, 2013: DISH launches unsolicited bid for Sprint

July 9, 2013: Sprint closes Clearwire take-private, valuing Clearwire at $14B

July 10, 2013: SoftBank closes acquisition of 78% of Sprint for $21.6B total investment

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Inbound Transactions (cont.)SOFTBANK/SPRINT/CLEARWIRE – Some Observations

Larger foreign buyers have been more willing than US buyers to leave in place a public minority

Deals for <100% of US public companies are very rare; ~20 in the past 15 years, a majority with foreign buyers

Perhaps because foreign buyers come from less litigious environments and instead focus on the upside of a public stub

Interestingly, our two transactions involved the contemporaneous creation of a public minority at Sprint and the elimination of a public minority at Clearwire

Foreign buyers give rise to additional regulatory complications, particularly in regulated industries

CFIUS required a National Security Agreement addressing certain national security concerns, including: appointment of National Security Director on Sprint Board as liaison with USG agencies on security issues;

USG one-time right to require Sprint to remove and decommission certain equipment deployed in the Clearwire network; and

USG right to review and approve certain network equipment vendors and managed services providers of Sprint.

Prominence of Huawei concerns in the US prior to and unrelated to the Sprint acquisition

Issues raised (unsuccessfully) by competing bidder DISH

State regulators may favor a home state competing bidder

FCC limitations on foreign ownership affected deal structure and charter documents FCC approval process became politicized (also unsuccessfully) because of competing bidder

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Inbound Transactions (cont.)SOFTBANK/SPRINT/CLEARWIRE – Some Observations

Foreign buyer’s financing sources may have requirements that affect the deal

Close ties to “house bank” and low interest rates are a strategic advantage for Japanese buyers

But there were challenges: Long-term commitment letters are not common in Japan and unwillingness to leave outstanding for full pre-closing period led

to unusual termination rights by Sprint

Lack of familiarity of Japanese banks with US M&A processes and complexity of two simultaneous public deals

Involvement of large groups in the credit approval process – increased susceptibility to leaks

Yen-denominated borrowing for US deal created lengthy currency risk in regulated industry deal – SoftBank hedge ultimately saved $2 billion

Conflicting disclosure norms required strategic planning and scheduling

TSE requires prompt disclosure of a board’s approval of a transaction, and Japanese boards often want to approve based on final language in all respects – limiting flexibility on timing

TSE has discretion to require explanation of rumors (or not) – requiring coordination

Reversal of prior track record of market impact of US acquisitions on Japanese buyers

In the 10 largest overseas purchases by Japanese companies from 2000 through 2011, the acquirers lost an aggregate of $330B in market value within 12 months after deal announcement

In contrast, SoftBank stock increased by over 150% in the 12 months following deal announcement

Stay tuned for future developments

33

Inbound Transactions (cont.)THE INBOUND/OUTBOUND BRIDGE

A Reminder of Certain Issues With Implications to Both Directions

Non-U.S. Disclosure Obligations In addition to U.S. disclosure requirements (that often let you “no comment” in

response to leaks, rumors, etc.), be sensitive that certain foreign jurisdictions, most notably the UK for its listed companies, have disclosure obligations that are more hair-trigger and do not allow “no comment” when the U.S. might. This can result in earlier public confirmation of a deal prior to the intended announcement

if acquiring a foreign company or if, for example, a UK buyer is looking at making a U.S. purchase.

Cultural Differences Never forget to be sensitive to—and plan for—the cultural differences between the

parties and the other affected players, like employees, communities and local officials and regulators It can be the difference between a smooth and a rocky road (or even deal failure)

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Outbound Transactions

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Outbound Transactions“REGULAR WAY”

To “Traditional” Jurisdictions

US Lawyer’s Function Acting as a bridge to local counsel

Local counsel far and away taking the laboring oar

“Market Practice” and Relation to Deal Structure and Documentation Does it matter where the center of gravity is?

Governing law likely to be that of the jurisdiction in question (e.g. UK, Germany, Sweden, France and Japan)

What will be the standard for the deal?

Buyer “Anxiety” With Respect to Key Legal/Due Diligence Points Typical at a lower level, insofar as the following are concerned:

Basic business due diligence, including related to corruption (e.g. FCPA, UK Bribery Act issues)

Rule of law—predictability of outcomes, ability to realize legal outcomes on a timely basis, ability to enforce

Political risk more generally, e.g.:

Regulatory environment

Exchange control risk

Expropriation risk

36

Outbound Transactions (cont.)TO OTHER PARTS OF THE WORLD


BRICS and MINT countries

US Lawyer’s Function Role is more active

Often local counsel, however thoughtful and able, will not have depth of experience and sophistication needed to act capably and autonomously on complex M&A transactions

“Market Practice” Local practice likely to be less compelling than in “traditional” jurisdictions

Template more likely to be “international standard” (but what is it?)

Governing law less likely to be local law More likely to be law of a neutral jurisdiction (New York or UK)

Intense focus likely on: Business due diligence, including corruption issues (both on status quo, and ability to operate

going forward)

Rule of law issues

Political risk and what, if anything, can be done about it

37

Outbound Transactions (cont.)TO OTHER PARTS OF THE WORLD


Hybrid Structures Are Popular Joint Ventures

Rationales Lower amount invested and at risk

Experience of the local parties

Actual or perceived “shield” deriving from alliance with local parties

Downsides to Joint Ventures Local parties

Inherently temporary nature

Track record of most joint ventures

38

Outbound Transactions (cont.)INVERSIONS

Inversions Some outbound transactions by US corporations may offer the opportunity to create

so called corporate inversions This allows for a redomestication of a US corporate taxpayer to a foreign law tax

jurisdiction by avoiding the rules which would otherwise generally prevent the US corporate taxpayer from redomesticating on its own

To avoid these rules, the foreign target’s shareholder must end up with > 20% of the stock of the combined company (the Obama Administration has proposed increasing the threshold to 50%)

Structure (“Double Dummy Dropdown”) Merger parties set up offshore holding company Offshore holding company sets up two acquisition subsidiaries Each of the two merger parties is acquired by the respective acquisition subsidiary Host of details lurking in the above IRS rules for redomestication away from the US are complex

39

Outbound Transactions (cont.)FOREIGN CORRUPT PRACTICES ACT / UK BRIBERY ACT

The Hot Button Topic: Due Diligence on Corruption Issues Violations of the Foreign Corrupt Practices Act (“FCPA”), the law banning corrupt payments to

foreign government officials, broadly defined, can lead to significant penalties for both firms and individuals, as well as “tag along” civil suits by shareholders

The UK Bribery Act (“UKBA”) is similarly severe and extra-territorial. It covers commercial bribery in addition to bribery of government officials, though US private bribery may be prosecuted under US legislation (e.g., Travel Act). In addition, the UKBA has the affirmative defense that the organization has “adequate procedures” in place designed to prevent bribery (no express FCPA equivalent)

There can be successor liability for FCPA violations: In other words, a company could be liable for FCPA violations by an acquired company that occurred before the acquisition, particularly if the acquiring company knew or should have known about the violations at the time of its investment

It is critical that companies perform due diligence prior to commencing an acquisition or JV partnership—Nearly 90% of recent cases involve conduct of third parties (e.g., distributors, joint venture partners and foreign-based subsidiaries)

In many circumstances, it is appropriate to obtain further protection through inclusion of provisions in the relevant purchase agreement, investment agreement, stockholders’ agreement, or other transaction documentation

40

Where Is It Best to Be a Seller? Where the center of gravity of a transaction is not pre-ordained, there is opportunity for sellers to benefit from market arbitrage

41

Where Is It Best to Be a Seller?REGIONAL PRACTICE ARBITRAGE

US Europe

Conditionality > Buyer has a bring down of reps as a condition to MAC standard and/or MAC

> Delaware law application to interpretation of a MAC results in clear judicial precedent and high threshold

> Shift towards MAC (around 1/3 of deals)

> Generally on the increase

Legal vendor due diligence

> Not common and, to the extent given, typically on a non-reliance basis

> Increasing buyer nervousness leading to ABC investigations as part of diligence

> Increasingly seen (and standard in private equity deals)

> General market shift to more buyer diligence (not just legal)

Reps and warranties

> More buyer friendly in scope, including no undisclosed liabilities rep

> Buyer expects business reps even on a private equity sale

> More seller friendly; often no business reps from private equity seller

> Significant move (primarily in UK) towards warranty insurance

Disclosure > Specific disclosure only > Disclosure of full data room more common

42

Where Is It Best to Be a Seller? (cont.)REGIONAL PRACTICE ARBITRAGE

US Europe

Financing > Reverse termination fee/limited conditionality around financing

> Certain funds increasingly under threat, especially given move towards US financing of certain European deals

Liability > Lower caps; deductibles more common (this is the exception to the buyer-friendly rule)

> Higher caps; deductibles less common (though a different overall regime, as fewer items are generally indemnified)

Pricing > Locked box less common > Locked box more common, and spreading to asset sales and carve-outs

Anti-sandbagging

> Occasionally seen but more usual for agreement to be silent

> Seen regularly (usually by reference to actual awareness of the deal team)

Deposits > Deals in real estate, privatization, bankruptcy (§363 deals) and in the energy sector, as well as those in China, Russia and MENA

Break Fees > Seller break fees unusual. More common in UK, Russia and HK on larger deals requiring shareholder approval

> Purchaser break fees accompany US-style financing and antitrust/regulatory concerns

cross-border transactions presented by robert spatt, co-moderator partner, simpson thacher &...

Documents

global ma volume

net overview cont

banker overview cont

transactions greater

leveraged buyoutsemea

middle east

africa asia

head of ma