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LPC Law Notes Private Acquisitions Notes

Standard Of Disclosure For Specific Disclosure Notes

Updated Standard Of Disclosure For Specific Disclosure Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

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STANDARD OF DISCLOSURE FOR SPECIFIC DISCLOSURE

Contractual protections where delay between exchange and completion

Conditional contract = where the parties sign and exchange SPA, but there is then a delay between exchange and completion normally because S is waiting to obtain consents, clearances or approvals from third parties which are critical to the acquisition.

EXAMPLES:

  • landlord consent to assign a lease

  • third party waiver to a change of control clause

  • shareholder approvals

  • transfer of a market sector regulatory license from S to B

  • clearances, e.g. tax clearance from HMRC on roll-over relief being applicable on securities exchange or competition clearance from Competition Authorities

Completion will not take place until that condition has been fulfilled

  • if it has not been fulfilled within a certain period of time, B will normally have the right to rescind the contract and withdraw from the acquisition.

ALTERNATIVES…

  1. Delay exchange

    1. Problem? not contractually bound:

      1. S problem - B may withdraw

      2. B problem - S may find better offer

    2. Uncertain - may lead to constant renegotiation

    3. Delay - change in the market/business may lead B to want to walk away.

    4. Time and cost

May be better bring negotiations to a close, put the agreement to bed, exchange contracts and then wait to complete

  1. Exclusivity arrangement in separate contract

    1. B won't be worried if S gets better offer

    2. avoids need to exchange too early

  2. Complete and take the risk, then adjust the price afterwards

    1. Take the risk that the consent or approval will be obtained

    2. Negotiate two separate prices for each eventuality:

      1. If condition is fulfilled, price X

      2. If condition is not fulfilled, price Y

Risk allocation – conditional contracts are risky for B:

  • B is agreeing to acquire the company but won't actually gain control until all SPA conditions are satisfied.

  • S will no longer own the company after completion, it may begin to neglect business between signing and completion.

  • S will want to retain as little risk as possible and will be reluctant to allow B to withdraw or renegotiate terms, as it will argue that any change in circumstances are risks assumed by B.

  • How risk is actually allocated between the parties will be a matter of negotiation and bargaining power.

Dealing with risk between exchange and completion?
(1) Repetition of warranties & right to terminate for breach of warranty

B will want S to repeat the warranties:

  1. at exchange;

  2. daily between

  3. on comp

B will also want the corresponding right to terminate the agreement for breach of warranty.

Why?

This will protect B from breaches of the warranties between signing and completion.

Negotiation

  • Warranties unlikely to remain true on completion and so S will request the following limitations:

  1. to be able to disclose breaches on completion

  2. termination for 'material breaches' only

  3. reciprocal right to terminate to avoid situation where B elects to complete agreement and then brings a damages claim for breach of warranty.

  • B will resist disclosure before completion as B is contractually bound to purchase and disclosing breaches of warranty will provide B with little protection from breaches (by contrast B can walk away after disclosure pre-exchange)

Conclusion (matter for negotiation)

  • Repetition of warranties - S bears risk

  • Full disclosure - B bears risk

  • Compromise - disclosure in limited circumstances
Restrictions on Management Actions

On exchange, B is contractually committed to proceed with the acquisition, but will not take control of the target until completion occurs. B has risk that S will neglect business before comp, knowing B must go ahead with the purchase.

  1. Undertaking not to do anything except ordinary course of business (e.g. lend money, grant charge, settle claims, dispose or acquire, hire of fire)

  2. Notify and obtain B's consent for non-routine

  3. B to attend board meetings and review mins

  4. S to supply information to B on reasonable request

  1. B will want S to bear the risk of the target company reducing in value,

  2. S may agree, but NOT where the reduction in value is the result of something which B has pushed for or is the result of meddling in the running of Business pre-completion.

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