The Law of Corporate Finance: General Principles and EU Law - Volume III: Funding, Exit, Takeovers

Table of Contents

1 Introduction

1.1 Cash Flow, Risk, Agency, Information, Investments

1.2 Funding, Exit, Acquisitions

1.3 Financial Crisis

2 Funding: Introduction

2.1 General Remarks

2.2 Separation of Investment and Funding Decisions?

2.3 Forms of Funding, Funding Mix, Ancillary Services

2.4 Legal Risks Inherent in Funding Transactions

2.5 Particular Remarks on the Subprime Mortgage Crisis

2.6 Funding Transactions and Community Law

3 Reduction of External Funding Needs

3.1 Introduction

3.2 Retained Earnings

3.3 Management of Capital Invested in Assets

3.3.1 Introduction

3.3.2 Excursion: IFRS and Derecognition

3.3.3 Leasing

3.3.4 Sale and Lease-back

3.3.5 Repos and Securities Lending

3.4 Management of Working Capital

3.4.1 General Remarks

3.4.2 Management of Accounts Payable

3.4.3 Management of Accounts Receivable

3.4.4 Particular Aspects of Securitisation

3.4.5 Cash Management

3.5 Excursion: Basel II

4 Debt

4.1 Introduction

4.2 Management of Risk: General Remarks

4.3 Particular Clauses in Loan Facility Agreements

4.4 Prospectus

4.5 Particular Remarks on Corporate Bonds

4.6 Particular Remarks on Securities in the Money Market

4.7 Particular Remarks on Syndicated Loans

5 Equity and Shareholders’ Capital

5.1 The Equity Technique, Different Perspectives

5.2 Share-based Equity and Equity That Is Not Share-based

5.3 The Legal Capital Regime

5.4 The Legal Capital Regime Under EU Company Law

5.5 Strategic Choices

5.6 Legal Aspects of Equity Provided by Shareholders

5.6.1 General Remarks

5.6.2 General Legal Aspects of Shares in Legal Entities

5.6.3 Shares in Partnerships

5.6.4 Shares in Limited Partnerships

5.6.5 Shares in Private Limited-liability Companies

5.7 Private Placements

5.8 Shares Admitted to Trading on a Regulated Market

5.9 Listing and the Information Management Regime

5.9.1 Introduction

5.9.2 Listing Conditions

5.9.3 Prospectus

5.9.4 Periodic and Ongoing Disclosure Obligations

5.9.5 Disclosure of Risk

5.9.6 Disclosure of Corporate Governance Matters

5.9.7 Prohibition of Market Abuse

5.9.8 Enforcement

5.9.9 Delisting

5.10 Shares as a Source of Cash

5.10.1 General Remarks

5.10.2 Management of Risk

5.10.3 Internal Corporate Action

5.11 Shares as a Means of Payment

5.11.1 Introduction

5.11.2 Community Law: General Remarks

5.11.3 Mergers and Share Exchanges

5.11.4 Mergers and Company Law

5.11.5 Share Exchanges and Company Law

5.11.6 Share Exchanges and Securities Markets Law

5.11.7 Fairness, Price, Existence of a Market

5.12 Shares as a Means to Purchase Other Goods

5.13 Share-based Executive Incentive Programmes

6 Mezzanine

6.1 Introduction

6.2 Example: Venture Capital Transactions

6.3 Loan-based Mezzanine Instruments

6.3.1 General Remarks

6.3.2 Structural Subordination of Debts

6.3.3 Repayment Schedules as a Form of Subordination

6.3.4 Statutory Subordination

6.3.5 Contractual Subordination of Debts

6.3.6 Contractual Subordination of Collateral

6.3.7 Structural Subordination of Collateral

6.3.8 Participation in Profits

6.4 Share-based Mezzanine Instruments

6.5 Profit-sharing Arrangements

7 Chain Structures and Control

7.1 General Remarks

7.2 Examples of Cases

7.3 Legal Risks

7.3.1 Parent

7.3.2 Companies Lower Down in the Chain

8 Exit: Introduction

8.1 General Remarks

8.2 Exit from the Perspective of the Investor

8.3 General Remarks on the Management of Risk

8.3.1 Introduction

8.3.2 Replacement Risk and Refinancing Risk

8.3.3 Risks Relating to Ownership Structure and Control

8.3.4 Counterparty Risks (Agency) in General

8.3.5 Information and Reputational Risk

9 Exit of Different Classes of Investors

9.1 General Remarks

9.2 Exit of Asset Investors

9.3 Exit of Debt Investors

9.4 Exit of Shareholders

10 Exit of Shareholders

10.1 Introduction

10.2 Cash Payments by the Company

10.2.1 General Remarks

10.2.2 Dividends and Other Distributions

10.2.3 Redemption of the Subscribed Capital

10.2.4 Share Buy-backs

10.2.5 Redeemable Shares

10.2.6 Withdrawal of Shares Otherwise

10.3 Third Party as a Source of Remuneration

10.3.1 Introduction

10.3.2 Clean Exit, Private Sale, Auction, IPO, Bids

10.3.3 Termination of a Joint-Venture

10.3.4 Privatisation

10.4 Mergers and Divisions

10.4.1 General Remarks

10.4.2 Mergers

10.4.3 Formation of a Holding SE

10.4.4 Divisions

10.5 Private Equity and Refinancing

10.6 Walking Away

10.7 Liquidation

11 Takeovers: Introduction

11.1 General Remarks, Parties

11.2 Structures

11.3 Consideration and Funding

11.4 Process

11.5 Contents of the Sales Contract

11.6 Summary

12 Acquisition of Shares in a Privately-owned Company for Cash

12.1 Introduction

12.2 Confidentiality

12.3 Preliminary Understanding

12.4 Ensuring Exclusivity, Deal Protection Devices

12.4.1 General Remarks

12.4.2 Exclusivity Clauses

12.4.3 Ensuring Exclusivity v Company Law

12.5 Signing, Conditions Precedent to Closing

12.6 Employee Issues

13 Due Diligence and Disclosures

13.1 General Remarks

13.2 Due Diligence in Practice

13.3 Legal Requirements and Legal Constraints

13.3.1 General Remarks

13.3.2 Vendor Due Diligence, Vendor’s Perspective

13.3.3 Buyer Due Diligence, Vendor’s Perspective

13.3.4 Buyer Due Diligence, Target’s Board

13.3.5 Buyer Due Diligence, Buyer’s Perspective

13.3.6 Buyer Due Diligence, Buyer’s Board

13.4 Particular Remarks on External Fairness Opinions

14 Excursion: Merger Control

14.1 General Remarks

14.2 Jurisdiction

14.3 Complying with Community Law

14.4 National Merger Control

15 Excursion: Sovereign Wealth Funds

15.1 General Remarks

15.2 Community Law

16 Key Provisions of the Acquisition Agreement

16.1 General Remarks

16.2 The Specifications of the Object

16.3 Excursion: Non-Competition Clauses

16.4 Remedies (Indemnities)

16.5 Purchase Price and the Payment Method

16.5.1 General Remarks

16.5.2 Choice of the Payment Method

16.5.3 Adjustment of Consideration

16.6 Buyer Due Diligence After Closing, Claims

16.7 Excursion: Auction Sale

17 Duties of the Board in the Context of Takeovers

17.1 General Remarks

17.2 In Whose Interests Shall Board Members Act?

17.3 Duty to Obtain Advice or to Give Advice

17.4 Takeover Defences and the Interests of the Firm

18 Takeover Defences

18.1 General Remarks

18.2 Pre-Bid Defences Well in Advance

18.3 Structural Takeover Defences, Control

18.4 Price-increasing Defences

18.5 Keeping Assets Away from the Acquirer

18.6 Securities Lending

18.7 The White Knight Defence

18.8 Poison Pills, Shareholder Rights Plans

18.9 Greenmail and Other Targeted Repurchase Actions

18.10 Tactical Litigation, Administrative Constraints

18.11 Example: Arcelor and Mittal

19 A Listed Company as the Target

19.1 General Remarks

19.2 Information Management: Secrecy v Disclosure

19.3 Toehold, Creeping Takeover, Major Holdings

19.4 Selective Disclosure Internally

19.5 Selective Disclosure to Lenders

19.6 Selective Disclosure to Outsiders by the Acquirer

19.7 Selective Disclosure to Outsiders by the Target

19.8 Disclosure to the Public

19.9 Acting in Concert, Acting in a Certain Capacity

19.10 Public Takeover Offers

20 Acquisition Finance

20.1 Introduction

20.2 Funding Mix

20.3 Particular Remarks on Securities Lending

20.4 Financial Assistance

20.5 Debt

20.5.1 General Remarks

20.5.2 Commitment of Banks

20.5.3 Many Legal Entities on the Side of the Borrower

20.5.4 Internal Coherence of Contracts

20.6 Shareholders’ Capital

20.7 Mezzanine

References