Which forms of consideration are most commonly used?
Mergers & Acquisitions (2nd edition)
Cash is most commonly used consideration in connection with acquisitions of both non-listed and listed companies in the Norwegian market. Shareholders normally prefer to be paid in cash. The reason being that it is often difficult to evaluate the future value of other forms of consideration in a volatile macro-economic environment, at least compared with the certainty of receiving cash. In addition, it is far more complex for a bidder to offer settlement in shares, due to the amount of information that is required to be published and the process for finalising the bid documentation.
In a mandatory takeover offer situation, the STA also prescribes that the consideration must be in cash. However, it is possible to offer alternative forms of consideration (namely stocks in the bidder), provided that an option to receive the total offer price in cash is made available and that this option is at least as favourable as the alternative settlement.
There are no statutory limitations under Norwegian law as to what type of consideration that can be offered to shareholders in a voluntary offer.
Sometimes, the buyer proposes to settle the purchase price (or, maybe more often, parts of it) through deferred consideration (vendor notes), or by issuing consideration shares in the buyer or in the buyer's parent. Consideration shares as consideration is often combined with cash. In situations where the buyer and seller do not agree on the value of the target, it is not uncommon that the buyer seeks to bridge the gap by offering the seller an earn-out.
Consideration is most commonly in the form of cash. Such consideration can be financed through retained earnings or loans, but in the case of loan financing, in general the practice in Myanmar is not to deal with financing in the transaction documents because Myanmar’s banking sector is still developing. Such finance is generally obtained offshore.
In terms of financing Myanmar investments, it is generally understood that in practice all transfers of funds into or from Myanmar are governed by the 2012 Foreign Exchange Management Law. Prior approval from CBM is likely to be required in practice for loans, while equity fund transfers need only to be declared to CBM.
Any type of consideration can be provided for shares in private companies, while the most common form chosen is cash (in the form of bank transfers). As far as listed companies are concerned, the acquirer may offer securities, shares, cash, or a combination of the two. In relation to mandatory takeover bids, shareholders of a target company can opt for a cash-for-shares consideration.
In public M&A transactions, the bidder can make a cash offer (i.e., cash-for-share), an exchange offer (i.e., share-for-share), or a combined offer (shareholders may be offered a choice between cash or shares or a combination of cash and shares). In the case of an exchange offer, the bidder must offer liquid shares that are admitted to trading on a stock exchange in a country within the EEA. A cash offer is mandatory if the bidder has acquired more than five percent of the voting rights in the target for cash within six months prior to the announcement of the offer.
The majority of public offers involving German targets are cash offers. Share and combined offers are occasionally observed in mergers of equals such as the Linde Praxair tie-up, or in cross-border mergers.
In private M&A transactions, consideration is typically paid in cash.
In the context of a public offer, the consideration commonly used is cash but the consideration can also consist of securities or a combination of cash and securities.
The price is regulated in a mandatory bid context. It should be at least equal to the higher of: (i) the highest price paid over a period of 12 months before the announcement of the bid for the securities concerned by the bidder or a person acting in concert and (ii) the weighted average of the trading prices on the most liquid market for the securities concerned over the last thirty calendar days before the event giving rise to a mandatory bid (also see below – question 18).
The price in case of a voluntary offer can be freely determined by the bidder. The price should, however, allow the bidder to achieve the result it intends. The price should in principle be the same for all shareholders (also see below – question 18).
In a merger context, the shareholders of the company/ies that will be dissolved receive shares in the surviving or new merger company.
14.1 Cash is the form of consideration which is by far the most commonly used in Vietnam M&A transactions.
14.2 Share swap transactions are expressly recognised by Vietnam law and are increasingly used in Vietnam. There are, however, material regulatory difficulties associated with Vietnam-domiciled companies acquiring or otherwise receiving transfers of shares in the capital of foreign-domiciled companies, meaning that cross-border share swap transactions are difficult to implement and are rare.
14.3 It is possible for consideration to be paid by way of other in-kind forms such as assets, land use rights, technology, or intellectual property and this is done successfully in some cases. There are, however, material administrative difficulties associated with the use of these types of in-kind consideration in Vietnam, meaning that successfully completed transactions implemented on this basis are rare.
A bidder may offer cash, (listed or unlisted) shares or a combination of cash and shares. The vast majority of recent public takeovers were structured as all-cash transactions, including the two largest transactions in 2016 and 2017, Johnson & Johnson/Actelion and ChemChina/Syngenta. If the bidder offers non-listed shares (or if the offered shares are illiquid), a valuation by the review body is required. Under certain circumstances a cash alternative must be offered. In particular, a cash alternative is required in a mandatory offer (for details see question 25 below), or if in the twelve months preceding the tender offer the bidder has acquired at least 10% of the target's share capital for cash or if during the offer the bidder acquires any target shares for cash.
The majority of M&A deals provide for cash consideration for the shares being purchased.
However, in recent years the market finds itself in a situation of low availability of loan financing. In addition, real estate development and certain other businesses are overburdened with debt. As a result, we are aware of several substantial deals which were busted because of the buyer’s inability to secure financing for the transaction.
Accordingly, alternative consideration arrangements are encountered more often, providing, for example, for the buyer’s assistance or investment in relation to another project, share exchange transactions, etc. At the same time, sellers are sometimes expected to provide long term post-completion support to the sold business, and post-completion operational results influence the ultimate consideration obtained by the seller.
The consideration mostly takes the form of cash (either paid directly or via escrow accounts). Share consideration is rarely used.
Cash and share issues.