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#10208 - Merger Control Letter Of Intent Ws 2 Prep Task And Ws Tasks - Mergers and Acquisitions (Private Acquisitions)

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1. Factors impacting on the method of sale:

  1. Mergers are regulated in the UK by the Enterprise Act 2002 (EA 2002). However, where European Regulation 139/2004 applies (ie where the merger has a ‘Community dimension’) this overrides the UK legislation, or that of any other EU Member State.

  2. There are two options for the sale, a Private Sale and an Auction Sale. The choice depends on whether:

  3. ¿Is it a Public or a Private Co.? This is a Private Company.

Auction Sale Private Sale

- By S.755(1) CA 2006 Private Co.’s cannot offer shares for sale to general public. BUT,

- By s.756(3) and advertisement issued to specifically identified B’s is the exception, BUT

- Note FSMA 2000

 - there are no restrictions on the company to be sold in a private sale.

  1. ¿How quickly do they want to do it?

  2. ¿Are the potential buyers serious about the purchase?

  3. Confidentiality Agreement + Due Diligence

  4. Negotiating favourable terms within the SPA

2. Application of merger control regulation in the EU or the UK if the private sale proceeds:

  1. Apply the EU Test: The EU Merger Regulation 139/2004 will apply to anasset/share/merger purchaseof a Pub or Priv Co. if it constitutes a concentration with a Community dimension:

Say Apply Comment

¿Is there a Concentration?

Under Art. 3 of EU Reg. 139/2004

1. Merger of two or more independent undertakings:

Or,

 YES

2. Acquisition of direct/indirect control of the whole or part of an undertaking or undertakings:

  • Control means: more than just voting control it includes a situation where one party can exercise decisive influence over another (over 25% is being purchased)

  • Acquisition means:a direct financial purchase by contract, a purchase of shares or securitiesor any other resources.

 YES
¿Does The 2/3rdsRule apply?p.27 If the main impact 2/3rdsof the merger is within one Member State, it will not have a Community dimension. It may be caught by national competition rules. If the 2/3rdsrule applies the commission will not have jurisdiction. No

EU

¿Is there a Community Dimension?

Art. 1 EU Reg. 139/2004

(apply both tests)

Test 1

Or,

Test 2

  1. The Aggregate Worldwide turnover of all the parties exceeds 5,000m; and

  2. The aggregate community-wide turnover of each of at least two of the parties exceeds 250m

 No

  1. The aggregate worldwide turnover of all parties exceeds 2,500m;

  2. The aggregate community-wide turnover of each of at least two of the parties exceeds 100m; and

  3. In at least three Member States

  1. The aggregate turnover of all the parties exceeds 100m; and

  2. The aggregate turnover of each of at least two of the parties exceeds 25m

 No
¿What do the parties want? The parties can request the European Commission to take jurisdiction over the transaction if the merger is capable of being reviewed under the national competition laws of at least three Member States No

¿Does UK Merger Control Apply?

Enterprise Act 2002 (EA 2002)

Apply all four steps.

  1. ¿Is it caught by the EU Merger Regulation above?

 No

  1. s.129(1)EA¿Two or more enterprises cease to be distinct if either: ?

  • They are brought under common ownership or control; or

  • One ceased its business to prevent competition for the other.

 Yes

  1. The time limit for a reference of the Competition Commission has not yet expired (4 months since the merger EA 2002 s.24); (i.e. if over 4 months have passed it will not be caught)

 No

  1. …and either of these two tests is fulfilled:

 Market Share Test: Merger results in at least 25% of all goods or services of a particular description which are supplied in the UK, or a substantial part of it, being supplied by or to the same person. (or if already over 25% then that the merger does not increase the existing market share) No (the 30% market share threshold will not increase as a result of the purchase. It will have to increase as a result of the purchase.
Turn Over Test: the value of the turnover in the UK of the enterprise being taken over exceeds 70m. No(the turn over in the UK is 32 m.)
Conclude

Three Options:

1.It is not caught by either the EU or the UK competition regulation authorities; or

2. If the transaction is considered to be likely to be referred to the Competition Commission within the UK, the parties may try to seek “clearance” by serving a “merger notice” on the Office of Fair Trading OFT. The parties will be aiming to elicit formal confirmation that the transaction will not be referred to the Competition Commission. The notice works as safety net since the OFT’s failure to refer the merger to the Competition Commission within 20 days (may be extended 10 days), it will lose the right to make such a reference. The down side is that the merger has to be made public before serving the notice.

3.if the transaction has a EU dimension, the parties must notify the European Comission before completion. The merger cannot complet until the E Commission clears it. Comission has 25 days to say that a) it does not have jurisdiction, b) to clear it and c) to investigate and either clear, allow or block the merger.
US antitrust laws and other EU jurisdictional concerns We should advice the client that it will be necessary to check with local counsel whether the transaction is affected by US antitrust laws. Similarly, there may be other EU specific jurisdictions.
Notify

It will be necessary to notify any authorities.

In this scenario there is no deed to notify neither the EU competition authorities or the UK competition authorities.

3. Summary and suggested Next Steps:

Letter of Intent (WS Task)

Heads of Agreement/ Letter of Intent/ Heads of Terms (all mean the same thing)

  • Not legally binding

  • Records basis on which parties wish to proceed

  • Main points, don’t include detail

  • The letter must be addressed to the Sellers (not the company, that’s for sale of assets)

  • Some parts should be expressly binding

    • Exclusivity (needs to be lock-put)

    • Confidentiality

    • Governing Law

Legal Status of Letter

  • Is the provision on the choice of English law effective and if so, why?

    • (Rome I) Article 3(1) – as long as it reflects the commercial reality of the deal, parties are free to choose their own jurisdiction. Clause 5 of the Letter of Intent. The UK and the US recognises a choice of law clause and therefore the parties can choose whichever governing law they want. This is effective as it has been agreed on both parties. In the UK the choice of law clause is subject to Rome I Regulation. Art. 3(1) of Rome recognises the choice of law of the parties. Art. 3(3) states that the choice of law cannot be “shopped around” and therefore there has to be a commercial connection between the choice of law and the whole transaction. There has to be a commercial connection between the transaction and the choice of law. The choice of law cannot be used to escape. Brussels I allows for the choice of jurisdiction as agreed by the parties.

  • What are the requirements of a binding contact under English Law?

    • Offer+Acceptance+Consideration+Certainty+Intention to create legally binding relations (no presumption of intention in domestic situations, but there is a presumption of intention in commercial situations (a way to escape the presumption in commercial situations is to say “Subject to Contract”))

Letter of intent doesn’t usually satisfy intention to create a legally binding document (i.e. Agreement to agree)

  • Amendments to the proposed letter of intent that you would suggest to clarify the intended legal status of each element?

    • Letter should include a ‘subject to contract’ statement. This usually means that it refers to another document that is binding (i.e. the contract) and that this one is not intended to be binding.

    • Specifically, you would want a sentence saying ‘the following paragraphs are intended to be legally binding’ you can even expressly state before each paragraph whether it is legally binding. The Seller wants to make legally enforceable the Exclusivity...

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