To what degree is conditionality an accepted market feature on acquisitions?
Mergers & Acquisitions (3rd edition)
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.
In addition to the possibility to make the bid conditional upon approval by the competition authorities in accordance with the Takeover Bid Decree, 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.
A mandatory bid must be launched once all legal requirements hereto are fulfilled (see below - question 25). As a consequence, it principally cannot include conditionality.
The acceptability of conditionality, e.g. with respect to certainty of funds, tends to be driven by onshore counsel rather than by the Bermuda market. Any Bermuda centric conditionality tends to be restricted to being able to obtain the regulatory permissions referred to elsewhere in this chapter and appropriate shareholder approvals as, without those, the transaction cannot close.
It is customary to include conditions precedents in acquisition agreements related to third parties consents or approvals (for instance obtaining a consent or waiver arising from a change of control provision of a material agreement or an authorization of a governmental authority). Other types of conditionality, for instance “agreeing to agree” on contracts of a transaction, are normally not accepted.
While, as a general rule, offers for publicly traded companies must be unconditional; takeover offers for privately held companies may be subject to some common conditions, such as minimum acceptance, no occurrence of a material adverse change and obtention of all necessary regulatory or third-party approvals (e.g. authorization from the antitrust authority);
11.1 In private M&A transactions: conditions precedents are very common, in particular if the merger filing is mandatory and the Croatian Competition Agency or other industry-specific regulatory authority must approve the transaction.
11.2 In public M&A transactions: The takeover offer generally cannot be conditioned: there can be no financing condition, since the bidder must provide:
- a bank guarantee;
- a cash deposit covering the full purchase price for the shares that are subject to the bid; or
- deposit shares with the depository exchange.
11.3 The bid cannot be subject to approval by the Croatian competition or other governmental authorities. However, if the thresholds for notifying the merger filing / intender concentration are not met, HANFA has adopted a practice according to which it approves the takeover bid if it is submitted with the bidder’s statement, given before a public notary, stating that the intended concentration does not meet the reporting thresholds prescribed by the Competition Act and thus does not have to be announced to the Competition Agency.
Since the takeover bid submitted to HANFA for approval must contain, inter alia, the decision of the Competition Agency on the intended concentration, the implementation and publication of the takeover bid is prohibited until the Competition Agency’s decision has been made.
11.4 All competition or other approvals must be obtained in advance and submitted with the bid documentation submitted to HANFA for approval. HANFA will not approve the publication of a bid before these prior approvals are obtained. The bid must be made for all outstanding voting shares.
11.5 The bid may, however, exclude encumbered shares or stipulate that the bidder will acquire no shares if, as a result of the bid, it does not acquire shares having a certain percentage of the target's voting rights (although the bidder may not specify a percentage lower than the controlling threshold).
The offer can exceptionally be conditioned in a very limited number of cases:
- the encumbered shares can be excluded from the offer; and
- the voluntary takeover can be conditioned by on reaching a certain success threshold that cannot be lower than 25%.
Establishing precedent conditions is an accepted market feature. There may be different types of conditionalities. This is a case by case issue, there are no standards.
In private M&A transactions, conditions precedent are very common, in particular if the Federal Competition Authority needs to approve the transaction. Common conditions precedent are the clearance by the Federal Competition Authority or other authorities (e.g., the Financial Market Authority), material adverse change clauses, bring-down certificates regarding representations and warranties and the execution of ancillary agreements.
For public M&A transactions, pursuant to the Takeover Act an offer may only be conditional if it is objectively justified. Mandatory offers pursuant to the Takeover Act cannot be made conditional (except for legal conditions such as regulatory approvals).
In private M&A transactions, conditions precedent (CPs) are rather common. CPs can include legal obligations (such as the necessary approvals of the company’s bodies, obtaining of merger clearance etc.), but can be also agreed upon in the sense of contractual law by the contracting parties (such as clauses regarding no material adverse changes until closing or declarations and warranties provided by the contracting parties).
A Mandatory offers pursuant to the Act on Takeover Bids cannot be made voluntarily conditional.
British Virgin Islands
Conditionality, subject to the directors of the BVI company common law fiduciary duties and complying with the terms of the Act in relation to the best interests of the company, is a generally accepted market feature on acquisitions.
Conditionality is widely accepted as a feature of acquisitions. It is common practice to include any mandatory consents and approvals which are not within the gift to give of the purchaser as a condition to completion of a transaction, for example the grant of regulatory approval.
The transfer of shares may be subject to special conditions. Thus, the parties may validly subordinate the completion of the assignment to a future and uncertain event (condition precedent) or, very rarely in practice, agree that the assignment will be retroactively resolved in the event of the occurrence - or non-occurrence, depending on the wording of the clause - of a future and uncertain event (condition subsequent or resolutory condition).
Public offers, except for certain limited conditions in case of voluntary offers, such as approval from competition authorities or minimum acceptance threshold expressed in share capital and/or voting rights (in practice 1/2 calculated on a fully diluted basis or 2/3 plus one share/vote calculated on an issued share capital or fully diluted basis), cannot be conditional upon any factor and are, in principle, irrevocable upon filing. A bidder may withdraw its offer with the AMF’s prior approval, if the target adopts measures modifying its substance during the offer period.
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, destruction or deterioration prior to the fulfillment 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.
Parties to an acquisition of stock or assets involving a private company are generally free to contract on whatever terms they may agree and are often made conditional upon satisfaction or waiver of various conditions. For example, most such agreements related to private companies contain conditions regarding the absence of any breach of representations and warranties and covenants, and, if applicable, the receipt of regulatory approvals. In addition, the parties often negotiate to include other conditions such as the absence of material adverse changes and the financing of the acquirer.
By contrast, it should be noted that the withdrawal of a tender offer bid on a listed company is only permitted under the fairly limited circumstances enumerated in the FIEA, such as the decision of the target company to implement anti-takeover measures or the suspension of the target company’s business. In practice, there have been almost no cases where a tender offer bid has been withdrawn after its commencement.
Conditionality is an accepted standard practice and would usually include any requisite shareholder or regulatory approvals. Where the Takeover Code applies, the offer must include a condition that the offer will lapse unless the bidder acquires (or agrees to acquire) more than 50% of the voting rights of the target. A typical condition though is that a bidder acquires at least 75% of the target shares (so that a bidder has a sufficient majority to pass any required shareholder approvals or effect a scheme of arrangement) or at least 90% of the target shares so that it may compulsorily acquire the remaining shares by notice to the relevant shareholders.
Conditionality is an accepted feature on acquisitions but in relation to listed GBCs and Reporting Issuers, the provisions of the Securities (Takeover) Rules 2010 must be adhered to. Where the merger or acquisition is going to need to approval of the Competition Commission or the FSC, this should be sought and received before the offer becomes unconditional. This would usually be achieved by making the offer conditional upon, amongst other things, obtaining all necessary regulatory approvals. The offer document must specify the last date when the offeror can declare the offer unconditional.
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.
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.
Conditioning M&A transactions is commonly accepted. Most common conditions are regulatory approvals, approvals from third parties, meeting budgetary targets, closing certain material agreements, among others.
M&A agreements usually contain conditions attached to their execution and/or consummation as may be stipulated by the parties. Binding offers are usually submitted to the target company or selling shareholders after the conduct of due diligence. Proposed actions to rectify or mitigate material adverse findings discovered through a due diligence audit are made conditions precedent to the signing of the definitive agreement or conditions precedent to closing. In addition, the required government approvals for certain transactions are also included as conditions precedent.
If the transactional value of or the size of the parties in a merger or acquisition breaches the notification threshold under the PCA, prior notification to and clearance from the PCC is a statutory condition precedent for the validity of an M&A agreement. Failure to comply with this requirement renders the M&A void. For M&A transactions involving regulated industries, the endorsement or approval of appropriate government agencies is usually a condition before an M&A agreement could be executed or consummated.
Isle of Man
Conditionality is an accepted standard practice in accordance with practice in the UK.
In private M&A deals, it is usual – and sometimes legally required (e.g., regulatory approvals) – to subject the effects of a deal to the satisfaction or waiver of conditions precedent.
In public M&A deals, conditionality is the norm. PTOs are usually subject to two types of conditions: conditions on the effectiveness of the offering, which may be mandatory - such as the approval of the prospectus by the CMVM and clearance by the competition authorities - or optional, such as the removal of a voting cap of the target company; and conditions on the success of the offering, such as attaining a minimum number of shares and voting rights.
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.
Conditionality of an M&A transaction is an approach commonly accepted by the market.
The Russian Civil Code explicitly recognises the 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.
A bid can be made subject to a number of pre-conditions; however, caution must be taken to ensure that the bid is not construed as a firm intention to make an offer. This is usually done by the offeror informing the target company that it intends to make a bid after a number of conditions (usually a due diligence) have been fulfilled. The bid is usually confidential at this stage.
There are no mandatory conditions that are required to be attached to a bid. All bids are subject to the Takeover Regulations and must comply with those regulations, and a breach may be subject to action by an interested party or by the TRP, but there are no mandatory conditions which arise. Bids are often subject to regulatory approval, which is particular to the relevant sector and occasionally subject to certain other commercial conditions, such as a material adverse change (MAC) condition, though MAC conditions in particular are viewed cautiously by the TRP to ensure that they do not create subjective optionality in favour of the offeror. All conditions must be objective and not within the control of the offeror.
For transactions involving private companies in Sweden it is standard to include conditions to closing for mandatory regulatory approvals such as competition authority clearance in the transaction documentation. Other than that it is normally quite unusual that the seller accepts deal conditionality such as the absence of “material adverse changes”, the buyer’s financing and similar provisions that we know are common in other jurisdictions. This can however naturally change on a case by case basis depending on the negotiation powers of the parties and the nature of the transaction.
With respect to publicly listed companies, rules prohibiting offer-related arrangements, e.g. break fees, have relatively recently been implemented in the Takeover Rules. Consequently, a target company may normally not commit itself to any offer-related arrangements (i.e. any and every arrangement related to the offer which entails an obligation on the target company in relation to the offeror) vis-à-vis an offeror. However, confidentiality commitments or undertakings not to solicit the offeror’s employees, customers and suppliers are exempted from the prohibition.
With respect to voluntary takeover offers, it is common that the offer is conditional upon certain conditions. The specific offer conditions vary, but will usually include conditions such as e.g. the offeror receiving acceptances of the offer of more than a certain percentage of the shares (and possibly also voting rights) in the target company and the obtaining of all necessary approvals and clearances, including any competition clearances, on terms acceptable to the offeror. Mandatory takeover offers cannot be made subject to conditions, other than a condition of obtaining requisite regulatory approvals.
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 offer or 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.
Apart from conditions relating to the absence of a breach of warranty or material adverse change, the most frequently encountered condition is for shareholders’ approval of the acquirer.
In a public tender offer, the conditions which may be imposed that would enable the acquirer to withdraw are limited to (1) a material adverse event affecting the target and (2) where the target takes action which significantly reduces the value of its shares or delists the shares. The acquirer may withdraw the tender offer only pursuant to any of the following events and such acquirer must have clearly stated such events in the offer document:
- an occurrence of any event or action after the offer document has been submitted to the SEC but during the offer period which causes or may cause serious damage to the status or assets of the acquirer, and such events or actions do not result from the acts of the acquirer or any act for which the acquirer is responsible; or
- the taking of any action by the acquirer after the offer document has been submitted to the SEC but during the offer period which results in a significant decrease in the share value.
Conditionality, whether for regulatory (e.g. relevant ministry approval) or contractual (e.g. lender consent) reasons, is an accepted market practice.
Conditionality is a very commonly accepted market feature on acquisitions. Most of the transactions are subject to there being no material adverse change, subject to the target procuring all internal approvals such as shareholders approvals, as well as any statutory approvals. Further, if any of the material contracts contain a change of control consent provision, then such consents need to be procured. In certain cases, the acquisition may be subject to achievement of specific milestones by the target. Matters that may have come-up in the due diligence would need to be addressed or certain representations, warranties and indemnities procured.
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.
There is no general prohibition on conditioning an acquisition on the occurrence or non-occurrence of certain events. Most acquisitions of public companies contain some degree of conditionality. Typical conditions include the absence of a material adverse effect prior to closing, no breach by either party of the representations, warranties or covenants contained in the merger agreement, the absence of an injunction or other legal restraint and receipt of the necessary regulatory approvals. Financing or similar conditions are permitted and while not common are not unheard of. Where the transaction is structured to include a tender offer, the offer cannot be conditioned on events that are not objective or that are entirely within the buyer’s control or else it may be deemed an “illusory” offer. In certain circumstances where closing conditions are not satisfied, such as the buyer’s failure to secure the necessary regulatory approvals or obtain financing, the buyer may be required to pay a reverse termination fee to the target.
The majority of M&A deals in the PRC are two-step transactions and it is generally accepted in the PRC market that certain conditions will need to be fulfilled or waived before the closing of an M&A transaction.
Private transactions are often subject to satisfaction of certain conditions precedent agreed between the parties, which may include regulatory approvals required for execution or obtaining financing or third party approvals.
As for acquisitions of Publicly Traded Companies, MTOs may not be conditional except in the following cases:
- in case of a share swap involving shares to be issued through a capital increase of a company, the MTO shall be conditional upon approval of the issuance of the capital increase shares by the relevant company;
- in case of FRA approval that completion of the MTO be conditional upon acquisition of at least 75% of the capital or voting rights of the Publicly Traded Company, if the acquisition is made for the purposes of a merger, or at least 51% if the acquisition is made for the purpose of acquiring control of the Publicly Traded Company. In the event the shares offered for sale are less than the percentages set forth in the conditional MTO, the acquirer must first obtain FRA’s approval prior to executing the MTO below the thresholds outlined in the conditional MTO.
As for voluntary tender offers, the potential acquirer may condition its offer upon acquiring any given percentage, provided it falls below one third of the issued shares or voting rights of the Publicly Traded Company.
Conditionality is an accepted market feature on acquisitions, for example, making the transaction conditional upon, amongst other things, obtaining all necessary regulatory approvals.
Where the approval of CICRA is required, there are two application routes available:
- if the acquiring entity is a credit or financial institution, the shortened merger application route may be used. Upon receipt of the application, CICRA will register the application and post a notice on its website inviting comments from the public for a period of 7 days. If no comments are received and CICRA has no concerns over the proposed merger or acquisition, a short form decision will be published on the next working day after expiry of 14 days from the date of registration of the application. If CICRA does have concerns, it will require the parties to prepare a standard application form; and
- in all other circumstances, the standard application route must be used. If the transaction is unlikely to raise substantive competition issues, a draft application form should be submitted to CICRA at least 5 working days in advance of the intended final form being filed. If the application is likely to raise significant issues, CICRA also expects the parties to request a pre-filing meeting to discuss the proposal and potential issues. Upon receipt of the application, CICRA will register the application and publish a notice on their website inviting comments from the pubic for a period of 2 weeks. Whilst there is no deadline for a response on the application form, CICRA endeavours to reach a decision within 25 working days of registration, subject to requiring any further information. If issues arise that mean that CICRA may refuse the application or grant consent but with conditions, CICRA will undertake a second detailed review. Again, there is no statutory deadline for a response but CICRA aims to reach a final decision within 6 months from the date of first registration.
If a proposed merger or acquisition involves a company which is itself, or which is a (direct or indirect) parent undertaking of, a GFSC regulated entity, certain notifications or applications will need to be made to the GFSC. These will depend on the type of regulatory licence held by the Guernsey entity and the particular transaction. By way of example, the GFSC may take up to 60 days to consent to a change of controller application whereas some changes need only be notified to the GFSC within 14 days after the event has taken place.
The Takeovers Panel regulates M&A of Guernsey companies which are subject to the Takeover Code.
Additional regulatory approvals may be required depending on the specific business sector of the target, for example, the Alderney Gambling Control Commission; CICRA in exercise of its regulatory powers over utilities companies.
Outside of the regulatory sphere, conditionality is largely an accepted market feature. It is not uncommon for acquisitions of stakes in Offshore Entities (not being Offshore Listing Vehicles) to be subject to various conditions precedent, including satisfactory due diligence and the lack of any material adverse change in the target’s financial and operational position subsequent to the execution of the share purchase agreement.
While acquisitions of Offshore Listing Vehicles are still subject to various conditions precedent, certain restrictions against conditionality as provided under the Takeover Code may be applicable.
Under the Code, a takeover bid may include (i) pre-conditions that need to be satisfied or waived before the offer documentation is sent to target shareholders (such pre-conditions must be discussed with the Panel prior to being included) and described in detail in the initial announcement of a firm intention to make a bid and/or (ii) conditions need to be met in order to conclude the transaction and which apply after the offer documentation has been sent to target shareholders.
Pre-conditions and conditions which are solely subjective are not usually permitted, although an element of subjectivity may be acceptable to the Panel. Except with the consent of the Panel, an offer must not be announced subject to a pre-condition unless the pre-condition relates to no reference or initiation of proceedings or referral to the CMA or the European Commission, or involves another material official authorization or regulatory clearance and the offer in question is either a recommended bid or the Panel is satisfied that the authorization or clearance cannot be obtained within the prescribed bid timetable as set out in the Code. Financing conditions or pre-conditions are not permitted except in very limited circumstances and the Panel must be consulted in advance. A “no material adverse change” condition is often included but for a bidder to rely on this condition and withdraw its offer it must demonstrate to the Panel that the material adverse change could not have been reasonably foreseen by the bidder and is of an exceptional nature, striking at the very heart of the purpose of the transaction; this is a very high bar to meet.
With the exception of the condition as to the level of acceptances to be received in respect of a takeover offer (which cannot be lower than a simple majority of the target company’s shares), a bidder can only rely on a condition or pre-condition where the circumstances in question are of material significance to the bidder in the context of the offer. The Code makes it clear that following the announcement of a firm intention to make an offer, a bidder should use all reasonable efforts to ensure that any conditions or pre-conditions are satisfied.
In private M&A transactions, conditions are a matter of negotiation between the parties and will be driven by the commercial requirements of both parties. It is typical for such conditions to be limited to mandatory regulatory or merger control consents, reflecting the seller friendly UK market.
As mentioned above, for schemes of arrangement and private mergers and amalgamations it is necessary to secure the approval of 50% +1 in value of each class of shareholders attending and voting at the relevant general meeting. Furthermore, it is necessary to obtain the consent of 50% +1 in value (out of the creditors present – all creditors must be notified wither in person or via a publication) of separate meetings of the creditors of each merging entity. Finally, the sanction of the competent District Court will also be required for the completion of the procedure.
Furthermore, it is common practice for acquiring parties to include a range of conditions, including receipt of any required regulatory approvals and market specific approvals prior to the completion as well as any merger control procedures that may need to be followed.
It is important to note that for public takeovers an offer may only be revoked in certain specific circumstances as provided by the Public Takeover Law and after approval by the regulatory authority.
Conditionality of an M&A transaction before closing is usual market practice in Hungary whereas conditionality after closing is applied very rarely and subject to limitations.
Conditionality before closing. In most cases, deals are structured in a way that the closing (completion) of the transaction is conditional upon a number of conditions precedent (closing conditions). This may have legal (regulatory) reasons but practical considerations relating to the subject matter of the transaction may also come into play.
A manifest closing condition is the approval of the relevant authorities such as the GVH or other supervisory authorities set out in point 1 above. Beyond that, depending on the parties’ agreement, further actions may have to be taken or certain matters may have to be resolved by the transferring party or by the target company. Such actions or matters may include the completion of certain pending obligations, the waiver of pre-emption rights, the conclusion or termination of contracts with third parties and other reorganization steps. In addition, internal consents may have to be obtained by both parties for the parties to be able to complete the transaction.
In order not to allow the uncertain, pending situation to last for too long, the parties usually agree on a long stop date, stipulating that if the closing conditions are not fully completed or waived until that specific date, the transaction agreement terminates or can be rescinded.
Conditionality in case of public takeover bids. Acquisitions of public companies by way of public takeover bids go with a certain level of conditionality. Pursuant to the Capital Market Act an acquirer making a public takeover bid for the shares of a public company must, as a general rule, purchase all shares offered to it. However, the acquirer may reserve its right to rescind if as a result of the public takeover it cannot acquire more than 50 per cent of the votes in the target company. Another factor of conditionality or uncertainty is that in a compulsory public takeover bid, one or more (subsequent) counter-offer(s) can be made, and such subsequent counter-offer(s) automatically invalidate the previous public takeover bids (and counter-offers) and all statements of acceptance made by the shareholders.
Conditionality after closing. Once the closing of the transaction occurred, the parties usually deem it as finished, and, save for crucial and irreparable breaches, the parties do not tend to allow or choose a potential rescission from the transaction. In case of reparable or non-crucial breaches the parties most commonly stipulate contractual sanctions such as penalty or option rights, but usually rescission from the transaction will not be allowed. Only in few cases do the parties agree to rescind or terminate the transaction if certain future conditions are not satisfied (certain profits are not reached or certain events do not occur, etc.). It is more common that post-closing conditionality affects the purchase price. Parties may agree on post-closing purchase price adjustment mechanisms or earn out structures which may take account of future uncertainties of the target company’s business. Usually, such arrangements are requested by purchasers whereas sellers are more interested in completely finalizing the deal at closing without the possibility to reopen certain parts of the agreement.
It is not.
Certain conditions regarding regulatory approvals are mandatory in both public and private M&A. In public M&A deals a takeover offer may only contain conditions expressly allowed by the Takeovers Act (ZPre-1). Acquirers may condition the success of their takeover offers upon a certain acceptance threshold (Article 21 of ZPre-1), and such threshold may generally be lowered during the takeover process, provided that some timing restrictions are respected. If there are any consent or approval requirements for the acquisition, the offer has to contain a condition subsequent, by which it shall be revoked if such consent or approval is not issued or is denied until the expiry of the period for acceptance of the offer (Article 20 of ZPre-1).
Financing may not be conditional according to Article 36 of Takeovers Act (ZPre-1). Prior to the announcement of a takeover bid, the offeror shall deposit with the Central Securities Clearing Corporation (CDD) the sum required for payment of all securities concerned by the takeover bid. The offeror may, instead of depositing the sum deposit a guarantee by a bank established in a EU Member State, whereby the bank unconditionally undertakes to pay, on the first demand of CDD and without objections, the sum necessary to cover the obligation of payment to accepting parties, with a validity period of at least 30 days after the period for payment has expired.
Acquisitions also often include conditions related to obtaining consent of creditors or repayment of loans as well as compliance with certain administrative rules (for example environmental law requirements).