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- The Panel may require a leak announcement at an early stage if there is press speculation or an untoward price rise after the point at which a bid is “actively considered” by the potential bidder.
- The risk of a leak announcement is heightened on approaching the target.
- The financial advisor leads engagement with the Panel on whether a leak announcement is required.
- If it is, the Code imposes a 28-day deadline for the bidder to announce a firm offer (fully financed, due diligence complete) or walk away. This can be extended by the target.
- A maximum of six external parties (excluding advisors) may be brought inside before announcement.
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- As a general matter, no requirement to disclose approaches and negotiations in response to inquiries, and therefore most companies adopt a “no comment” policy in the event of a leak.
- A party may not remain silent about negotiations, however, if silence would result in a temporally relevant disclosure becoming inaccurate or misleading.
- Also, “no comment” typically does not work in response to an official inquiry (e.g. resulting from unusual trading or market rumors).
- However, stock exchanges will be reluctant to accept “no comment” in response to an official inquiry.
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- Typically more limited than in private and U.S. M&A deals.
- Any due diligence information provided by the target must also be given to other potential bidders that may emerge, even if less welcome, which naturally constrains what information may be forthcoming.
| - Similar to the U.K. position, however no rule requiring that all bidders be given the same due diligence information, even though the result in practice may be the same.
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- The target is prohibited from agreeing most deal protection measures with a bidder (e.g. break fees, no-shop, matching rights, etc).
- The target can commit to assist with regulatory clearances, but the board is otherwise free to withdraw and switch its recommendation.
- Reverse break fees are seen where there are substantive regulatory risks and/or bidder shareholder approval is required.
- Bidders focus on director and shareholder irrevocable undertakings, price, speed and execution certainty to impose hurdles for potential interlopers.
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- Deal protection measures are ubiquitous in U.S. transactions, which typically have a no-shop covenant, with a “fiduciary out” – an ability for the board to change its recommendation and terminate the agreement upon payment of a break fee (which typically is between 2% and 4% of equity value based on constraints imposed by fiduciary principles under Delaware law) and matching rights.
- Some U.S. transactions include a “go shop”, which permits the target company to shop itself to others for an agreed number of days after signing, typically with a lower break fee payable if an alternative deal is struck during this period.
- Reverse break fees are common to address substantive regulatory approval risks. No upper limit on reverse break fees imposed by applicable law, so on average, amounts tend to be higher than typical break fees.
- Tender/support/voting agreements with directors and significant shareholders are common.
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- Panel requires all reasonable steps to be taken to satisfy conditions.
- Panel will not permit a condition to be invoked unless circumstances are of material significance in context of offer. Panel will apply this test to a remedy required by a regulator to the extent known before the long-stop date.
- Target companies typically negotiate contractual commitments to obtain regulatory clearances, which exist alongside Panel regime, although litigation is rare.
- Long-stop date is a key focus, in particular whether it should accommodate a second request/in-depth review notwithstanding financing cost of longer period.
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- Unlike in the U.K., the parties are free to agree on conditions to the transaction by contract and the SEC and courts will not intervene in what those conditions are.
- Similarly, invocation of a condition is a matter between the parties (and ultimately the courts if there is a dispute as to whether it was properly invoked) and not something the SEC is involved in.
- Similar approach to U.K. around negotiation of contractual commitments to obtain regulatory clearances and long-stop date.
- Litigation more common in the U.S.
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MAC and other general conditions |
- Very difficult to invoke. Bidder can improve ability to invoke by including specific negotiated conditions and clearly disclosing to shareholders the circumstances in which bidder would seek to invoke.
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- Again, parties are free to agree contractually on the conditions to the transaction, and the SEC will not get involved. MAC provisions in the U.S. rarely include specific triggers, leaving this to the parties' (and courts') interpretation However, similar to the U.K., the no MAC condition is very difficult to successfully invoke – a landmark Delaware case in 2018 marked the first ever successful invocation of a MAC in Delaware.
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- Scheme of arrangement most common structure on recommended transactions – requires two-limbed shareholder approval: (i) majority in number; and (ii) 75% by value, in each case of shareholders voting.
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- Statutory merger most common structure in friendly transactions, which requires (in Delaware) the affirmative vote of a simple majority of the target’s outstanding shares to approve.
- Tender offers are also fairly commonly used in situations where speed is paramount and the regulatory approval process can be completed very quickly, as well as in hostile situations.
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- Certain funds required at time of firm offer announcement (full financing documentation). Financial advisor must provide cash confirmation statement and will appoint own counsel to verify source(s) of funds.
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- No certain funds type rules or cash confirmation as in the U.K., but rather a matter of contract between the parties.
- Typically acquiror will provide target company with signed debt commitment letters that, subject to limited customary conditions, require the lender party thereto to provide the required debt financing at closing.
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- Bidder must disclose intentions for the business, locations, management, employees and R&D (pre-vetted by Panel before deal is announced). Panel review after 12 months to ensure compliance.
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- No similar requirements in U.S. transactions, though often, as an IR, PR and retention matter, buyers will explain their plans at a high level to market the transaction.
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- Any post-completion incentives package requires full disclosure and fairness opinion. Equity arrangements (outside ordinary course awards) or unusual incentive arrangements can require separate shareholder vote. Incentive arrangements often deferred until post-completion.
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- Disclosure will also be required, but no requirement to obtain a fairness opinion.
- Certain arrangements may require a shareholder vote, but these are not that common in the typical U.S. public company transaction as they are usually handled post-closing once the target company is no longer public.
- Arrangements with target company management will generally not be negotiated until key deal terms, including price, have been agreed.
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