To what degree is conditionality an accepted market feature on acquisitions?
Mergers & Acquisitions (2nd edition)
When acquiring shares or assets in a non-listed Norwegian company, the parties are in general free to contract on whatever terms they agree and such transactions, are quite frequent being made conditional upon a set of various conditions being fulfilled.
If on the other side, the target is listed on a Norwegian regulated market, and if a shareholder acquires shares triggering the mandatory offer thresholds, such mandatory offer must be unconditional, must embrace all of the target’s issued shares, and the offered settlement needs to be in cash. In a voluntary tender offer or an exchange offer for a listed company, there is however, no general limitation under Norwegian law as to which conditions such an offer may contain. It is for example quite usual that a voluntary offer document requires a certain minimum number of acceptances etc.
It is also possible to make a merger conditional, even mergers involving listed companies.
Myanmar does not have any takeover regulations and there are no laws dealing with tender offers on the YSX. Conditions are not prohibited with respect to business transfers, such as for satisfactory due diligence, and schemes of arrangement could in principle be conditional subject to the court’s supervision.
Shares are transferred pursuant to the general Civil Code provisions on tangible moveable objects. As such, their transfer and acquisition can be made subject to certain conditions; in that case, their destruction or deterioration prior to the fulfilment of the conditions is at the transferor’s risk. By contrast, public takeover bids for listed companies cannot be made conditional upon any type of prerequisites other than those which are included in the information document and relate to regulatory licensing / approval or to the issuing of new shares that will be provided as consideration.
a) Public M&A Transactions
A voluntary tender offer, as opposed to a mandatory offer, may be subject to certain conditions. Customary conditions for a voluntary tender offer are, for instance, a minimum acceptance threshold, absence of competing offers and merger control, and other regulatory clearances. The bidder may also consider including a “material adverse change” condition allowing the bidder to walk away from the offer if the financial situation of the target deteriorates during the offer procedure. However, such a MAC condition is accepted by BaFin only under strict conditions. These conditions (except for merger control clearance and other mandatory regulatory approvals) can typically be waived by the bidder during the offer period and are an important tactical instrument used to improve offer acceptance. In contrast, a mandatory tender offer may only be conditional on merger control and other mandatory regulatory approvals.
b) Private M&A Transactions
Private M&A transactions are often made subject to anti-trust clearance (always), AWG clearance (if required), financing, board approval (both infrequent at final offer stage; rather frequent at indicative offer stage) or a MAC (infrequent).
In private M&A, parties are free to include conditionality in a deal, subject, however, to some limits.
The inclusion of conditionality is more restricted and regulated in public M&A transactions.
A mandatory bid must be launched once all legal requirements hereto are fulfilled (see below - question 25). As a consequence, the bid cannot include conditionality other than the conditionality allowed by law (such as a condition precedent relating to certain approval by the competition authorities if clearance is required).
A voluntary bid can be subject to other conditions (such as the offer reaching a certain level of acceptance), but these must allow the bidder to achieve the intended result. The conditions must be communicated to and approved by the FSMA.
11.1 In the context of target companies being public companies, as a general proposition there is a low degree of tolerance in Vietnam for conditionality, except in relation to mandatory pre-completion requirements such as trading band waivers, competition law clearances, or resolutions of the General Meeting of Shareholders to approve MPO waivers.
11.2 In the context of public companies, the general perception and expectation of target companies and their shareholders is that purchasers ought to acquire shares in the target company on an “as is” basis and in reliance upon publicly available information (as opposed to the conduct of due diligence investigations).
11.3 In the context of target companies being private companies, conditionality is nowadays a widely accepted and fairly commonplace feature of M&A transactions in Vietnam. This represents a significant change in the M&A landscape in Vietnam, as compared with, for example, 20 years ago or even 10 years ago, when conditionality was generally far less acceptable to many proposed vendors.
11.4 Even in private company scenarios, there does remain a significant degree of resistance to lengthy lists of conditions precedent, particularly onerous conditions precedent, and the inclusion of conditions precedent the satisfaction of which is not wholly and clearly within the reasonable control of the vendor(s) and/or the target company. As is the case in many jurisdictions worldwide, in Vietnam it is highly desirable for lists of conditions precedent to be kept as short and user-friendly as possible, and for the responsibility for the fulfilment of each condition precedent to be clearly and specifically allocated to one or more specified parties.
11.5 It is very common in Vietnam for vendors to insist upon the payment by purchasers of up-front deposits, with 10% of the total purchase price being the typical bottom-line demand. Vendors often expect such deposits to be paid direct to them (as opposed to placed into escrow) and to be subject to forfeit if the transaction does not complete in any circumstances aside from unilateral termination by the vendor. Negotiation of arrangements being acceptable to foreign purchasers (such as escrow arrangement or narrowly-defined forfeiture scenarios) is often painstaking and difficult. There is, however, nowadays an increasing degree of acceptance in relation to the use of escrow accounts, subject to reasonable, balanced, and carefully documented release and forfeiture provisions.
11.6 In some cases, conditionality can give rise to bureaucratic difficulties in connection with M&A transactions in respect of which any approval or registration action is required from relevant State licensing authorities in order to achieve completion.
In private M&A transactions, the parties are generally free to agree on any type of closing conditions. In the context of public transactions, the permissibility of conditions is restricted. Under the TOO, a bidder may make a voluntary offer subject to conditions that are not within the bidder's control and in which the bidder has a justified interest. If a condition requires a contribution by the bidder in order to be satisfied, the bidder has to take all reasonable actions required for the satisfaction of the condition. Within this framework, the takeover practice has established a recognized catalogue of conditions that are generally permissible and typically included in voluntary offers, including a minimum acceptance condition, receipt of required regulatory approvals, resignation of existing and election of new board members, removal of share transfer and voting right restrictions from the target's articles, no material adverse change (generally defined as an event, fact or circumstance that, alone or together with other events, facts or circumstances, results in a sustainable reduction of the annual consolidated EBIT/EBITDA of 10% or more, sales of 5% or more or equity of 10% or more, in each case measured against the last financial statements), absence of certain undisclosed liabilities or non-occurrence of share issuances, mergers and spin-offs by the target. The TOB will review these and any new, untested offer conditions and reject or order the amendment of any conditions that do not meet the legal requirements. In principle, offer conditions must be either fulfilled or waived at the expiration of the initial offer period. However, the TOB may authorize an offeror to make its offer subject to conditions that will only be fulfilled (or waived) at the settlement of the offer. In any event, acceptance and No MAC conditions will lapse at the expiration of the initial offer period. In contrast to voluntary bids, mandatory offers must not be made subject to any offer conditions except for important reasons, especially as they are required to comply with regulatory filing or approval obligations.
Conditionality of an M&A transaction is an approach commonly accepted by the market.
Recent amendments to the Russian Civil Code explicitly introduced a concept of conditioned performance of an obligation, providing, inter alia, that potential conditions may be fully dependent on the actions of one of the parties to an obligation. The same conditionality may be agreed in relation to variation or termination of a contractual obligation. Thus, one of the main legal risks relating to conditionality in Russian law contracts was fully removed by amendments to relevant legislation.
Most medium-size and large acquisitions are subject to various conditions (the most frequent of which is merger clearance). Even small acquisitions tend to become conditional.
It is not.