2022 Mergers & Acquisitions - 16th Edition - Skadden, Arps, Slate ...
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Practical cross-border insights into mergers and acquisitions Mergers & Acquisitions 2022 16th Edition Contributing Editors: Lorenzo Corte & Scott C. Hopkins Skadden, Arps, Slate, Meagher & Flom LLP
Table of Contents
Expert Analysis Chapters
2021’s Most Interesting Developments in M&A
1 Adam O. Emmerich & Trevor S. Norwitz, Wachtell, Lipton, Rosen & Katz
Key Drivers and Trends: Digitization, Decarbonization and SPACs
7 George F. Schoen & Jenny Hochenberg, Cravath, Swaine & Moore LLP
Q&A Chapters
Australia Hong Kong
11 Atanaskovic Hartnell: Lawson Jepps & 126 de Bedin & Lee LLP: Derek Chalmers
Sanya Bhatnagar
Hungary
Austria 134 Oppenheim Law Firm: József Bulcsú Fenyvesi &
18 Schoenherr: Christian Herbst & Sascha Hödl Mihály Barcza
Belgium India
29 Van Olmen & Wynant: Luc Wynant & Jeroen Mues 141 Shardul Amarchand Mangaldas & Co.:
Raghubir Menon, Sakshi Mehra, Tanmayee Chaulkar
Brazil & Rooha Khurshid
36 Pinheiro Neto Advogados:
Joamir Müller Romiti Alves, Carlos Elias Mercante, Ireland
Cristina Liu & Camila Otani Nishi 150 Philip Lee LLP: Inez Cullen & John Given
British Virgin Islands Italy
43 Walkers: Matthew Cowman & Patrick Ormond 159 NUNZIANTE MAGRONE: Fiorella Alvino &
Fabio Liguori
Bulgaria
50 Schoenherr (in cooperation with Advokatsko Japan
druzhestvo Stoyanov & Tsekova): Ilko Stoyanov & 166 Nishimura & Asahi: Tomohiro Takagi &
Katerina Kaloyanova-Toshkova Keiichiro Yamanaka
Canada Luxembourg
60 Blake, Cassels & Graydon LLP: Markus Viirland & 175 GSK Stockmann: Marcus Peter & Kate Yu Rao
Richard Turner
Malaysia
Cayman Islands 181 Azmi & Associates: Norhisham Abd Bahrin &
69 Maples Group: Nick Evans, Suzanne Correy & Syed Zomael Hussain
Louise Cowley
Malta
Croatia 188 DF Advocates: Dr. Maria Paloma Deguara & Celia Mifsud
76 Vukić & Partners: Iva Sunko & Ema Vukić
Montenegro
Cyprus 196 Moravčević Vojnović and Partners in cooperation
83 E & G Economides LLC: Virginia Adamidou & with Schoenherr: Slaven Moravčević & Petar Vučinić
George Economides
Netherlands
Czech Republic 204 Houthoff: Alexander J. Kaarls &
90 Wolf Theiss: Tereza Naučová & Michal Matouš Kasper P.W. van der Sanden
Denmark Norway
98 Bech-Bruun: Steen Jensen & David Moalem 213 Aabø-Evensen & Co Advokatfirma:
Ole Kristian Aabø-Evensen
Finland
105 Dittmar & Indrenius: Anders Carlberg & Jan Ollila Serbia
228 Moravčević Vojnović and Partners in cooperation
France with Schoenherr: Matija Vojnović & Vojimir Kurtić
112 Fidal with contributions by Almain:
Stéphanie de Robert Hautequère, Gacia Kazandjian, Singapore
Sally-Anne Mc Mahon & Geoffrey Burrows 236 Bird & Bird ATMD LLP: Marcus Chow & Xing Yi Tan
Germany Slovakia
118 Ebner Stolz: Dr Heiko Jander-McAlister, 244 URBAN STEINECKER GAŠPEREC BOŠANSKÝ:
Dr Roderich Fischer, Dr Jörg R. Nickel & Marián Bošanský & Juraj Steinecker
Dr Christoph WinklerTable of Contents
Q&A Chapters Continued
Slovenia Turkey
250 Schoenherr: Vid Kobe & Bojan Brežan 291 Kolcuoğlu Demirkan Koçaklı Attorneys at Law:
Bihter Bozbay İnan, Gözde Zorlu &
South Africa İrem Cansu Demircioğlu
261 Bowmans: Ezra Davids & Ryan Kitcat
United Kingdom
Spain 298 Weil, Gotshal & Manges (London) LLP:
269 Roca Junyent SLP: Natalia Martí Picó & David Avery-Gee & Murray Cox
Xavier Costa Arnau
USA
Switzerland 306 Skadden, Arps, Slate, Meagher & Flom LLP:
276 Bär & Karrer Ltd.: Dr. Mariel Hoch Ann Beth Stebbins & Thad Hartmann
Taiwan
284 Lee and Li, Attorneys-at-Law: James Huang &
Eddie Hsiung306 Chapter 40
USA
USA
Ann Beth Stebbins
Skadden, Arps, Slate, Meagher & Flom LLP Thad Hartmann
entering into business combination transactions with the target
12 Relevant Authorities and Legislation company for a specified period of time, unless the shareholder
has obtained approval from a supermajority (e.g., 66⅔%) of
1.1 What regulates M&A? the shares held by the target company’s other shareholders or,
prior to acquiring such specified ownership threshold, target
The U.S. has a federal system of government. Accordingly, regu- company board approval. Companies incorporated in the state
lation of M&A activity falls within the dual jurisdiction of the may opt out of the protection of the state’s anti-takeover stat-
federal government and the individual state in which the target utes in their certificate of incorporation. Delaware has a busi-
company is incorporated. Generally, the federal government ness combination statute.
regulates sales and transfers of securities through the Securities Finally, the exchange upon which the company’s securities
and Exchange Commission (SEC), and polices competition are listed may impose additional rules on listed companies, in
matters through the Antitrust Division of the Department of particular with respect to corporate governance matters and
Justice (DOJ) and the Federal Trade Commission (FTC). The shareholder approval for certain actions.
Committee on Foreign Investments in the U.S. (CFIUS) has
broad authority to identify and mitigate risks to U.S. national
1.2 Are there different rules for different types of
security arising from foreign investment in U.S. businesses. company?
Other federal agencies impose additional requirements over
acquisitions in certain regulated industries.
Tender offers in the U.S. are subject to the federal rules and regu- For a tender offer, if the target company’s securities are regis-
lations on tender offers and beneficial ownership reporting under tered under the Exchange Act (regardless of whether the target
the Securities Exchange Act of 1934, as amended (Exchange Act). company is incorporated in the U.S.), the bidder must comply
Acquisitions completed by means of a merger are governed by the with the detailed disclosure requirements of the U.S. tender
law of the state of incorporation of the target company. The solic- offer rules, and a number of procedural requirements (including
itation of votes to approve a merger by the target company share- withdrawal rights for target company shareholders throughout
holders must comply with federal rules and regulations on proxy the offer period, and certain timing and offer extension require-
statements under the Exchange Act. If the bidder offers securities ments). If the target company’s securities are not registered
as consideration to the target company shareholders, the regis- under the Exchange Act but the target company has security
tration requirements of the Securities Act of 1933, as amended holders in the U.S., or if the target company is a foreign private
(Securities Act), will also apply, unless an exemption from the issuer (i.e., its securities are registered under the Exchange Act)
registration requirements is available. and U.S. security holders hold 10% or less of the class of securi-
The law of the state of incorporation of a company regulates ties sought in the offer, the bidder is not required to comply with
the internal affairs of a company, including the fiduciary duties the specific disclosure provisions of the U.S. tender offer rules
owed by the target company’s board of directors and officers (if the target company is a foreign private issuer and U.S. secu-
to its shareholders in responding to a takeover bid and the rity holders hold between 10% and 40% of the class of securi-
applicable statutory requirements for approving and effecting ties sought in the offer, some of the provisions of the U.S. tender
merger transactions. The ability of a target company to impose offer rules apply). Nevertheless, in any tender offer in which
anti-takeover devices will also largely be determined by the law security holders in the U.S. may participate, the bidder must
of its state of incorporation. comply with general anti-fraud and anti-manipulation rules that
Many states, including Delaware (where many of the largest apply to all tender offers in the U.S. These rules prohibit the use
corporations in the U.S. are incorporated), have anti-takeover of materially misleading statements or omissions in the conduct
statutes. State anti-takeover statutes generally take one of two of any offer, prohibit market purchases of the target company’s
forms: control share acquisition statutes; or business combi- securities “outside the offer”, and mandate a minimum offer
nation statutes. Control share acquisition statutes generally period of at least 20 business days.
provide that an acquiring shareholder is not permitted to vote Regardless of whether the target company is incorporated
target company shares in excess of certain percentage owner- in the U.S., if a bidder is offering securities as consideration
ship thresholds without first obtaining approval from the other in an exchange offer (i.e., a tender offer in which the consid-
shareholders. Business combination statutes generally provide eration consists, in whole or in part, of securities) in the U.S.,
that after acquiring securities in the target company in excess the bidder must register the securities with the SEC, unless an
of a specified threshold (e.g., 15%), a shareholder is barred from exemption from registration is available. Following the registra-
tion of securities in the U.S., the registrant, its directors and its
Mergers & Acquisitions 2022Skadden, Arps, Slate, Meagher & Flom LLP 307
officers become subject to the ongoing reporting and disclosure 1.5 What are the principal sources of liability?
obligations established by the Exchange Act. The registrant, its
directors and its officers will also be liable for misstatements and
Failure to comply with the disclosure and procedural require-
omissions in reports filed with the SEC. In addition, following
ments applicable to a transaction may be a source of liability
registration of its securities in the U.S., the registrant, its direc-
under the U.S. federal securities laws for the bidder or a target in
tors and its officers will become subject to the ongoing corpo-
a tender offer, an exchange offer or a merger. The structure of
rate governance, certification and other requirements set out in
the transaction (i.e., tender offer, exchange offer or merger), the
the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act).
form of consideration and the involvement of target company
The rules governing certain M&A transactions will vary
insiders will determine the particular disclosure and procedural
depending on the state of incorporation of the target company.
rules applicable to the transaction. (If a bidder owns a signifi-
The laws of the state of incorporation of a company will regu-
cant stake in a company and then wishes to take that company
late the shareholder and board approvals required in connection
private, or if the bidder is a buyout group that includes members
with a merger transaction, or a transaction involving the sale of
of the company’s senior management (each, a “going-private”
all or substantially all of the assets of a company, as the laws of
transaction), additional disclosure rules will be applicable to the
the state of incorporation of a company are the source of statu-
transaction.) Section 14(e) of the Exchange Act prohibits mate-
tory requirements for effecting these transactions. As described
rial misstatements and omissions, and fraudulent, deceptive, or
in the response to question 1.1, the fiduciary duties owed by the
manipulative acts or practices, in connection with any tender
company’s board of directors and officers to its shareholders in
offer. If the transaction is structured as a merger, no solicita-
responding to a takeover bid and the ability of a target company
tion, whether oral or written, may be false or misleading. This
to impose anti-takeover devices will largely be determined by
applies to any solicitation, including those prior to the delivery
the law of its state of incorporation. In addition, anti-takeover
of a definitive proxy statement (which must be sent to a target
statutes may vary from state to state.
company’s shareholders before they may vote on a merger), as
well as to statements included in any proxy statement/prospectus
1.3 Are there special rules for foreign buyers? (the requirements for the use of a prospectus are discussed in the
response to question 2.6). Controlling persons may also have
Section 721 of the Defense Production Act of 1950, as amended, liability for violations of the Exchange Act, unless they acted
gives CFIUS broad authority to identify and mitigate risks in good faith and did not directly or indirectly induce the act
to U.S. national security arising from foreign investments in constituting the violation.
U.S. businesses. Industries viewed as particularly sensitive by In a tender offer or exchange offer, a bidder must make its offer
CFIUS include defence, aerospace, utilities, transportation, available to all holders of securities of the same class, and the
computer and electronics manufacturing, scientific and technical price paid to each holder must be the best price paid to any holder
services, information technology and telecommunications, with of the same class of securities. Violation of this “all-holders/
increasing focus on data privacy, economic espionage and intel- best price” rule may subject the bidder to liability to all share-
lectual property with potential military applications. The Foreign holders who were paid less consideration for their securities than
Investment Risk Review Modernization Act of 2018 (FIRRMA) any other shareholder in the offer. The all-holders/best-price
expanded CFIUS’s jurisdiction over previously uncovered trans- rule is discussed in further detail in the response to question 2.5.
actions, most notably over certain non-controlling transactions, If a bidder offers securities as consideration for shares of the
and codified certain CFIUS regulations and practices. target company, the bidder, as well as its directors, principal execu-
Regulations promulgated under FIRRMA include manda- tive officers and its underwriters, may have liability under Section
tory short-form filings for certain foreign government-related 11 of the Securities Act for material false and misleading state-
transactions and certain transactions involving critical tech- ments or omissions in the registration statement registering such
nology, and define when parties are required to file in connec- securities. Defendants other than the bidder may avoid liability
tion with transactions that have a nexus to critical technology, if they can prove they made a reasonable investigation and had a
subject to export controls. Certain investors from Australia, reasonable basis to believe, and did believe at the time the regis-
Canada and the United Kingdom are exempt from the manda- tration statement became effective, that there were no material
tory filing requirements and from CFIUS’s expanded authority misstatements or omissions. Additionally, anyone who controls
to review non-controlling minority investments and acquisi- another person with liability under Section 11 of the Securities
tions of certain U.S. real estate interests. The CFIUS review and Act may also have liability, unless the controlling person did not
investigation process is described in more detail in the responses have knowledge of the material misstatement or omission. Under
to questions 2.13 and 2.14. the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act), the SEC has extraterritorial reach to
enforce the antifraud provisions of the federal securities laws so
1.4 Are there any special sector-related rules? long as there exists significant conduct in the U.S. or effect on the
U.S. securities markets, or some combination of the two.
Certain industries, such as public utilities, insurance, gaming, Members of the target company board and officers of the
banking, media, transportation and mining, are highly regu- target company may have liability to the target company share-
lated, and therefore subject to industry-specific rules that regu- holders if the directors and officers fail to properly exercise their
late the ability of any acquirer, whether U.S. or foreign, to engage fiduciary duties when responding to an offer. The Delaware
in business combinations. courts have held that disinterested and independent directors
Additionally, certain types of entities, such as Real Estate who conduct themselves in good faith should not face liability
Investment Trusts (REITs), often include in their organisa- for breach of fiduciary duty claims. In particular, where the
tional documents unique requirements with respect to changes company’s certificate of incorporation includes an exculpation
in ownership in order to protect their tax status. provision, directors do not face liability for money damages for
breaches of the duty of care, leaving only claims for breach of the
duty of loyalty, which are more difficult to prove. On the other
Mergers & Acquisitions 2022308 USA
hand, officers of Delaware companies may have claims brought In a tender offer or an exchange offer, the acquiring company
against them for breach of the duty of care, even where director purchases stock of the target company directly from the target
liability is exculpated. Like directors, corporate officers owe company shareholders. A tender offer or an exchange offer is
fiduciary duties to the company and its shareholders but, unlike often followed by a back-end merger (which may be short-form, as
directors, officers do not have the benefit of exculpation for discussed above), in which the target company in the transaction is
breaches of the duty of care. As a result, even in circumstances merged with a subsidiary of the acquiring company, any remaining
where claims are dismissed against directors, officers who play a target company shares are cancelled, and target company share-
role in a challenged transaction – for example, by preparing the holders who did not tender their shares into the offer are only enti-
proxy statement – may face liability if they perform their duties tled to receive the merger consideration (subject to any state law
in a grossly negligent manner, the standard necessary to estab- appraisal rights, as described in the response to question 2.5).
lish a breach of the duty of care.
As discussed in the responses to questions 3.3 and 8.1, the 2.2 What advisers do the parties need?
conduct of the target board will be subject to an enhanced level
of scrutiny by the courts in a change-of-control transaction to
determine if the board’s conduct was reasonable. If the offer is The parties in a public company acquisition transaction gener-
a going-private transaction, in many states, including Delaware, ally retain legal and financial advisers. The financial adviser to
the conduct of the target board may be reviewed using an the acquiring company assists the acquiring company in valuing
“entire fairness” standard, which requires that both the price the target company and structuring its offer. Legal advisers to
and process be fair to the target company shareholders. As the acquiring company will also assist the acquiring company
discussed more fully in the response to question 3.3, the defer- in structuring its offer, as well as drafting and negotiating the
ential “business judgment rule” is applicable in going-private necessary documentation.
transactions where certain procedural safeguards are employed. The financial adviser to the target company assists the target
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 company board in identifying potential bidders, reviewing
and related rules (Hart-Scott-Rodino Act) imposes notice require- any bids received and assessing their fairness, from a financial
ments and waiting periods in connection with the acquisition point of view. The target company board generally requests a
of voting securities or assets in excess of certain thresholds, as “fairness opinion” from its financial adviser, and may retain a
second financial adviser for this purpose, including in situations
described in more detail in the response to question 2.14. Failure
where the board has determined that the first financial advis-
to comply with the Hart-Scott-Rodino Act may result in a mone-
er’s relationships may present potential conflicts of interest.
tary penalty of $46,517 per day.
The board of the acquiring company may also request a fairness
opinion from its financial adviser in an acquisition of a target
22 Mechanics of Acquisition company whose size is significant in relation to the size of the
acquirer. The target company board will take advice from its
2.1 What alternative means of acquisition are there? legal advisers as to its fiduciary duties with respect to reviewing
and responding to the offer, and the legal advisers will partici-
The most common methods for acquiring a U.S. public company pate in drafting and negotiating the transaction documentation,
are statutory merger, tender offer and exchange offer. together with the acquiring company’s legal advisers.
In a typical merger transaction, the acquiring company forms The parties may also engage accounting firms to assist them
a new acquisition subsidiary to effect the merger. The target in the due diligence review of the other party’s business (a due
company is merged with the new acquisition subsidiary, and either diligence review by the target of the acquiring company’s busi-
the target company or the acquisition subsidiary will survive the ness is customary when the acquiring company is offering its
merger as a wholly owned subsidiary of the acquiring company. securities as all or a significant portion of the consideration to
The merger becomes effective at such time as a “certificate of the target company’s shareholders). As required by the situa-
merger” is filed with the Secretary of State in the state in which the tion, environmental consultants, employee benefit consultants
surviving company is incorporated, or such later time as specified and other specialists may also be engaged by the parties. Legal
therein. Upon effectiveness of the merger, all shares of the target advisers to the acquiring company and the target company will
company owned by the target company shareholders are auto- also provide expert advice as required, in particular in connec-
matically cancelled, with no action required on the part of target tion with antitrust and other regulatory matters.
company shareholders, and the target company shares will repre- The conduct of investment banking advisers in M&A trans-
sent only the right to receive the merger consideration (subject to actions is often subject to scrutiny by Delaware courts, particu-
any state law appraisal rights, as described in the response to ques- larly in situations where a financial adviser may have perceived
tion 2.5). The merger consideration may comprise cash, equity conflicts of interest arising out of relationships with both the
or debt securities, rights, other property, or a combination of any target and the acquirer that were not disclosed to its client. In
of the foregoing. Merger transactions typically require approval one notable case, the Delaware Supreme Court upheld the Court
of the boards of directors of the constituent companies and a of Chancery’s finding that a sell-side financial adviser aided and
abetted the target board’s violation of fiduciary duties by, among
vote of the shareholders of the constituent companies. However,
other things, failing to disclose conflicts arising from the finan-
under the laws of many states, including Delaware, a “short-form
cial adviser’s attempt to be part of the buyer’s financing group. A
merger” can be consummated by an acquirer that owns at least
target board should take steps to design a sale process that iden-
90% of the shares of the target company without target company
tifies and mitigates any potential adviser conflicts, and provides
board approval or a separate shareholder vote. As described in
appropriate oversight over advisers during a sale process.
the response to question 7.4, Delaware also permits, in certain
circumstances, the use of a “short-form merger” if the acquirer
owns a sufficient number of shares to approve the merger (typi- 2.3 How long does it take?
cally a majority of the outstanding shares) following the comple-
tion of a tender offer. The typical timeline for the acquisition of a public company
varies depending on the structure of the transaction, the form of
Mergers & Acquisitions 2022Skadden, Arps, Slate, Meagher & Flom LLP 309
consideration, the conditions to be satisfied and whether the trans- the required exchange offer documents, and must be declared
action is friendly or hostile. The timelines set forth below may effective by the SEC before the bidder can acquire shares in the
be extended if the transaction is subject to regulatory approval, offer. The portion of the registration statement that is sent to
including review by CFIUS over transactions that could result in target company shareholders is called the prospectus.
foreign control of a U.S. business, or any extension of the waiting Although in most instances SEC rules permit the bidder to
period under the Hart-Scott-Rodino Act, each as described in the commence the offer before the registration statement is declared
response to question 2.14. In addition, a bidder should assume effective, in practice this is often not done because the bidder
a longer timeline if the offer is hostile and, as a result, the target may be forced to recirculate its exchange offer documents if the
company seeks to take advantage of available takeover defences. SEC has material comments to the registration statement. The
Cash tender offer : In general, a cash tender offer has the shortest exchange offer must remain open for at least 20 business days
timeline, and can be effected 20 business days from the date once commenced; however, the offer period is generally longer
offering materials are first disseminated to the target company in an exchange offer because it may not be completed until the
shareholders, assuming there are no conditions that would SEC has declared the registration statement effective. The SEC
take more than 20 business days to satisfy. If there is a change review and comment process may take as long as approximately
in price or in the percentage of securities being sought in the six to eight weeks.
offer, the offer must be kept open for at least 10 additional busi- The timeline may be further extended if the securities to be
ness days from the date of the change. Certain other material offered in the exchange offer represent 20% or more of the
changes, including the waiver of a condition or the satisfac- bidder’s issued and outstanding share capital, in which case the
tion of a funding or financing condition, require the offer to be bidder will be required to obtain shareholder approval for the
kept open at least five business days after the change is made, issuance of shares from the bidder’s shareholders if the bidder is
though the SEC has provided guidance that this extension is not a domestic company listed on an exchange with such an approval
required in the context of a “two-step” merger transaction of the requirement. (This will be the case if the bidder is a domestic
type described in response to question 7.4. The target company company with securities listed on the New York Stock Exchange
must file with the SEC a recommendation statement on Schedule (NYSE) or Nasdaq. The other principal U.S. securities exchanges
14D-9 (the requirements of which are described in the response generally have shareholder approval rules similar to that of the
to question 3.3) within 10 business days from the commence- NYSE and Nasdaq.) The NYSE and Nasdaq do not apply the
ment of the offer. Set forth below is an indicative timeline for a 20% issuance shareholder approval rule to foreign private issuers.
friendly cash tender offer: In addition, a bidder will be required under the NYSE and Nasdaq
rules to obtain shareholder approval for the issuance of shares to
Date Cash Tender Offer fund an acquisition if the issuance is to a related party and such
related party has a direct or indirect interest in the target company
Weeks 1–2 ■ Receive information from target. that is 5% or greater (10% or greater if related parties are acting
■ Due diligence review by bidder. collectively). A bidder would also be required to seek approval
■ Valuation analysis by financial advisors. from its shareholders if it does not have sufficient authorised share
■ Draft merger agreement providing for capital to complete a transaction and as a result, an amendment to
tender offer. its charter is required. Set forth below is an indicative timeline
■ Negotiate merger agreement providing for for a friendly exchange offer, assuming issuance of shares by a
tender offer. domestic NYSE- or Nasdaq-listed bidder representing more than
Week 3 ■ Boards approve merger agreement. 20% of the bidder’s outstanding shares:
■ Merger agreement executed.
■ Transaction announced. Date Exchange Offer
■ Bidder drafts and files tender offer state- Weeks 1–2 ■ Exchange information with target.
ment on Schedule TO. ■ Due diligence review by target and bidder.
■ Mail offer documents to shareholders of ■ Valuation analysis by financial advisors.
target company. ■ Draft merger agreement providing for
■ 20-business-day offer period commences. exchange offer.
■ Target company drafts and files recom-
mendation statement on Schedule 14D-9. Week 3 ■ Negotiate merger agreement providing
for exchange offer.
Week 7 ■ Offer period expires.
■ Bidder promptly pays for target company Week 4 ■ Boards approve merger agreement.
shares tendered. ■ Merger agreement executed.
■ If bidder owns a sufficient number of ■ Transaction announced.
the target company’s voting securities Weeks 5–7 ■ Draft exchange offer documents (including
(and is otherwise eligible to use a short- registration statement) and proxy statement
form merger), bidder files merger certif- to be sent to bidder’s shareholders to solicit
icate; if not, target company calls share- their approval for issuance of the bidder’s
holder meeting to approve the merger (see shares.
merger timeline and response to question Week 8 ■ File exchange offer documents and proxy
7.4 below). statement with the SEC (review period
commences; typically 30 days).
Exchange offer : Any time securities are offered as consideration
Weeks ■ SEC comments received on exchange
in an exchange offer, the acquiring company must register the
13–15 offer documents and proxy statement.
securities under the Securities Act (unless an exemption from
■ Respond to SEC comments.
registration is available) and the timeline will likely be extended.
The registration statement must be filed with the SEC along with
Mergers & Acquisitions 2022310 USA
Date Exchange Offer Date Merger – Stock Consideration
Week 16 ■ SEC declares effective registration state- Week 16 ■ SEC declares effective registration
ment included in exchange offer documents statement.
and clears proxy statement. ■ Proxy statement/prospectus mailed to
■ Bidder files tender offer statement on shareholders of target company and
Schedule TO. acquiring company.
■ Mail exchange offer documents (including Week 20 ■ Meetings of target shareholders and
prospectus forming part of the registration acquiring company shareholders.
statement) and proxy statement to share- ■ Closing (assuming no other conditions to
holders of target company and bidder. be satisfied).
■ 20-business-day offer period commences. ■ Merger effective when merger certificate is
■ Target company files recommendation filed with Secretary of State (or such later
statement on Schedule 14D-9. date specified therein).
Merger : Because a merger requires the approval of the target Set forth below is an indicative timeline for a merger in which
company shareholders, a meeting of the target company share- all of the consideration offered is cash:
holders must be convened to vote on the merger and proxy mate-
rials must be disseminated to the target company shareholders Date Merger – Cash Consideration (assuming SEC
in advance of the meeting. The proxy materials must be filed Review of Proxy Statement)
with, and cleared by, the SEC before the target company uses the
proxy materials to solicit the votes of its shareholders. In recent Weeks 1–2 ■ Due diligence review by bidder.
years, the SEC has often declined to comment on proxy state- ■ Valuation analysis by financial advisors.
ments for cash mergers, thereby potentially shortening the time- ■ Draft merger agreement.
line for an all-cash merger by two to four weeks. If the target Week 3 ■ Negotiate merger agreement.
company shareholders are to receive securities of the acquiring Week 4 ■ Boards approve merger agreement.
company as consideration in the merger, such securities must ■ Merger agreement executed.
be registered by means of the filing of a registration statement ■ Transaction announced.
with the SEC, as described above. Also, as described above, if
the securities to be issued by the acquiring company as consid- Weeks 5–7 ■ Draft proxy statement.
eration in the merger represent 20% or more of the acquiring Week 8 ■ File proxy statement with the SEC.
company’s issued and outstanding share capital (or if shares are Weeks ■ SEC comments received on proxy statement.
to be issued to certain related parties in excess of the thresh- 13–14 ■ Respond to SEC comments.
olds described above to fund an acquisition) and the acquiring
company is a domestic company listed on an exchange with an Week 15 ■ SEC clears proxy statement.
approval requirement, the acquiring company will be required to ■ Proxy statement mailed to target company
obtain shareholder approval for the issuance of shares. Set forth shareholders.
below is an indicative timeline for a merger in which all or part of Week 19 ■ Meeting of target shareholders.
the consideration offered is securities in the acquiring company: ■ Closing (assuming no other conditions to
be satisfied).
Date Merger – Stock Consideration ■ Merger effective when merger certificate is
filed with Secretary of State (or such later
Weeks 1–2 ■ Exchange information with target. date specified therein).
■ Due diligence review.
■ Valuation analysis by financial advisors.
■ Draft merger agreement.
2.4 What are the main hurdles?
Week 3 ■ Negotiate merger agreement.
Week 4 ■ Boards approve merger agreement.
Cash tender offer : Once an offer is commenced, the main hurdle
■ Merger agreement executed.
to completion is the satisfaction (or, to the extent legally permis-
■ Transaction announced.
sible, waiver) of any conditions, including any minimum tender
Weeks 5–7 ■ Draft proxy statement/registration state- condition and regulatory conditions, including expiration of the
ment (including prospectus). Hart-Scott-Rodino Act waiting period, if applicable.
Week 8 ■ File proxy statement/registration state- Exchange offer : The SEC must declare effective the registra-
ment (including prospectus) with the SEC tion statement for the securities to be offered as consideration
(review period commences; typically 30 in the offer. Once the offer is commenced, all conditions to the
days). offer, including the minimum tender condition, and any regula-
tory conditions, including expiration of the Hart-Scott-Rodino
Weeks ■ SEC comments received on proxy state- Act waiting period, if applicable, must be satisfied (or, to the
13–15 ment/registration statement (including extent legally permissible, waived). If the securities to be issued
prospectus). in the exchange offer represent 20% or more of the bidder’s
■ Respond to SEC comments. issued and outstanding share capital (or if shares are to be issued
Mergers & Acquisitions 2022Skadden, Arps, Slate, Meagher & Flom LLP 311
to certain related parties in excess of the thresholds described or are held by more than 2,000 shareholders. Appraisal is gener-
in response to question 2.3 to fund an acquisition) and the ally available if the target company shareholders receive all cash
acquiring company is a domestic company listed on an exchange or a combination of cash and securities as merger consideration.
with an approval requirement, the bidder’s shareholders will be Appraisal rights are also available to shareholders of a Delaware
required to approve the issuance of the new shares before the target company if the acquirer effects a short-form merger
offer can be consummated. following a tender offer and the acquirer owns less than 90% of
Merger : The SEC must clear the proxy materials to be dissem- the target company’s voting securities prior to the consummation
inated to the shareholders of the target company. If the consid- of the merger, even if the consideration received by the target
eration includes securities of the acquiring company, the SEC company shareholders is publicly traded securities. Dissenting
must declare effective the registration statement relating to such shareholders who seek appraisal are entitled to receive interest at
securities. (In practice, the proxy statement and prospectus are a statutory rate that accrues on the entire amount of the merger
combined into a single document, which is reviewed by the SEC.) consideration, regardless of whether the dissenting shareholder
Shareholders of the target company must approve the merger. If ultimately prevails on its appraisal claim; however, acquirers
the acquiring company is issuing new shares representing 20% may choose to prepay the appraisal amount so as to reduce the
or more of its share capital (or if shares are to be issued to certain statutory interest payable on such amount (5% over the Federal
related parties in excess of the thresholds described in response to Reserve discount rate and generally compounded quarterly). In
question 2.3 to fund an acquisition) and the acquiring company several recent appraisal cases, the Delaware courts have held that
is a domestic company listed on an exchange with an approval deal price is the most reliable indicator of fair value, absent defi-
requirement, the acquiring company shareholders will be required ciencies in the deal process.
to also approve the transaction. Antitrust and other regulatory
approvals are usually conditions to the closing of the merger.
2.6 What differences are there between offering cash
and other consideration?
2.5 How much flexibility is there over deal terms and
price? Any time securities are offered as part of the consideration in an
exchange offer or in a merger, absent an exemption, the acquiring
Tender/exchange offer : Under the all-holders/best-price rule (Rule company must register the securities under the Securities Act.
14D-10 under the Exchange Act), an offer must be open to all In the case of an exchange offer, the registration statement must
holders of the class of securities for which the offer is made, and be filed with the SEC along with the required exchange offer
the highest consideration paid to one holder in the offer must documents, and must be declared effective by the SEC before
be paid to all holders. If the acquiring company increases the the bidder can acquire the shares in the offer. In the case of a
consideration during the offer period, the increased consider- merger, the proxy solicitation materials will be combined with a
ation must be paid to all tendering shareholders, regardless of registration statement (including a prospectus) that must be filed
whether they tendered their securities before or after the consid- with the SEC and declared effective before the proxy statement/
eration was increased. prospectus is distributed to the target company shareholders. By
The all-holders/best-price rule applies only to the considera- registering securities with the SEC, a non-U.S. bidder becomes
tion paid for tendered securities in connection with a tender or subject to the periodic reporting requirements of the Exchange
exchange offer, and does not apply to employment compensation, Act and certain other ongoing corporate governance, certifica-
severance or other employee benefit arrangements entered into tion, internal controls and disclosure requirements under the
with the target company’s shareholders who are also employees Sarbanes-Oxley Act.
of the target company. If such compensatory arrangements are More information about the acquiring company will be
approved by the compensation committee or another committee required to be disclosed to the target company shareholders if
of independent directors of the board of directors of either the the consideration includes securities of the acquiring company.
bidder or the target company, they will conclusively be deemed to For example, the acquiring company will be required to
not constitute consideration paid for tendered securities. include in its registration statement certain financial infor-
Unlike certain other jurisdictions, there is no requirement in mation. If the acquiring company is a foreign private issuer
the U.S. that the offer price in a tender offer or exchange offer and its financial statements are prepared in accordance with
be at least as high as the price paid by the bidder for shares prior International Financial Reporting Standards (IFRS) issued by
to the commencement of the offer. the International Accounting Standards Board (IASB), then no
As described in the response to question 2.3, a tender offer or reconciliation to U.S. generally accepted accounting principles
exchange offer must remain open for at least 20 business days. (GAAP) will be required. Otherwise, if the acquiring compa-
Shareholders of the target company must be permitted to with- ny’s financial statements are not prepared in accordance with
draw any securities tendered during the offer period. If the U.S. GAAP, a reconciliation to U.S. GAAP will be necessary.
offer is made for fewer than all of the securities of the class and The timing differences between offering cash and securities
the offer is oversubscribed, the bidder must purchase securities in a merger and in a tender/exchange offer are discussed in the
from the target company shareholders on a pro rata basis. response to question 2.3.
Merger : In a merger, the terms and price are negotiated between As noted in the response to question 2.5, shareholders of
the acquiring company and the target company, and the merger a Delaware target company can bring appraisal claims if the
is subject to the approval of the target company shareholders. consideration consists of all cash or a mix of cash and securities,
In many states, target company shareholders who do not vote under the circumstances described above.
to approve the merger and follow specified statutory procedures
may be entitled to seek appraisal, in which case they will be enti-
2.7 Do the same terms have to be offered to all
tled to the appraised value of their shares (which may be more or
shareholders?
less than the merger consideration). In Delaware, appraisal rights
are not available if target company shareholders receive only
securities as consideration for their target company shares, and As described in the response to question 2.5, under the all-
such securities are either listed on a national securities exchange holders/best-price rule, a tender offer must be extended to all
Mergers & Acquisitions 2022312 USA
holders of securities of the same class, and the highest consid- company management in its negotiation of the transaction, or
eration paid to one holder in the tender offer must be paid to the target company board in its approval and recommendation
all target company shareholders. When the tender offer is for of the transaction.
fewer than 100% of the securities of a class and the tender offer As discussed in the response to question 2.5, in the context of
is oversubscribed, the bidder must purchase shares on a pro a tender offer, compensatory arrangements should be approved
rata basis from all security holders who tender. Following the by the compensation committee or another committee of inde-
announcement by a bidder of a tender offer until the expiration of pendent directors of the board of directors of either the bidder
the tender offer, the bidder is not permitted to purchase, directly or the target company in order to ensure that the safe harbour
or indirectly, or make arrangements to purchase, the securities provisions in the all-holders/best-price rule will apply to such
that are the subject of the offer otherwise than pursuant to the compensatory arrangements and, as a result, that such compen-
tender offer. sation arrangements will not be deemed to be consideration paid
In a statutory merger, all shares of the same class of stock are in the tender offer.
generally treated equally, although the acquirer may agree sepa-
rately with certain shareholders to treat their shares differently
2.10 What role do employees, pension trustees and
and outside of the merger. Such disparate treatment commonly other stakeholders play?
occurs in a going-private transaction, in which members of
management may retain an equity interest in the target company,
rather than having their shares converted into cash (like shares In general, there is no requirement in the U.S. that the target
held by other target company shareholders) and thereafter company or the acquiring company consult with the employees
exchange them for shares in the target company’s new owners. of the target company with respect to a potential offer or merger.
This type of “rollover” is generally not taxable to the shareholder. However, certain states (not including Delaware) have constit-
uency statutes that permit or require the target company board
to consider the interests of the target company employees when
2.8 Are there obligations to purchase other classes of approving a merger or recommending an offer.
target securities?
2.11 What documentation is needed?
There is no statutory requirement that an offer be extended to
holders of a class of securities other than the class subject to
the offer. In friendly tender/exchange offers and mergers, the acquiring
company, an acquisition subsidiary of the acquiring company
and the target company will enter into a merger agreement
2.9 Are there any limits on agreeing terms with (which, if a tender or exchange offer is to be made as the “first
employees?
step” of the acquisition prior to the merger, will set forth the
terms and conditions of the offer).
The success of an acquisition often depends on whether the Agreements to acquire public company targets generally
target company employees decide to remain with the company. contain “no-shop” provisions subject to a fiduciary out (as
To increase the likelihood of key employees staying on, the described in the response to question 6.2), provisions allocating
acquiring company may agree to transaction or retention antitrust and other regulatory risks (as described in the last para-
bonuses that become payable to such employees following the graph in the response to question 6.1), and conditions to closing
completion of the acquisition. The acquiring company may also (as described in the response to question 7.1). In addition, agree-
enter into new compensation arrangements with key employees ments to acquire public company targets contain representations
that become effective upon closing of the acquisition. In some and warranties that are typically subject to broad materiality and
circumstances (for example, a going-private transaction with “material adverse effect” qualifiers. The representations and
a private equity buyer involving participation by the target warranties typically do not survive closing, and the acquiring
management), the target board may limit the negotiating role of company is not indemnified for any breaches of such representa-
target company management and prohibit discussions between tions and warranties. The acquiring company generally takes
the target company management and the acquiror with respect comfort from the fact that the target company, as a public
to post-closing equity ownership, incentive plans and employ- company, is subject to the reporting and liability provisions of
ment arrangements until after a definitive agreement is executed the U.S. federal securities laws.
or its principal economic terms have been agreed. Tender offer : In a tender offer, the bidder will file a tender offer
Compensation arrangements entered into in connection with statement (Schedule TO) with the SEC, which will include the
a merger or acquisition must be disclosed in the target compa- offer document. The contents of the tender offer statement are
ny’s proxy statement or recommendation statement on Schedule described in response to question 2.12.
14D-9. Public companies subject to the federal proxy rules are Exchange offer : In an exchange offer, the registration require-
required to provide detailed disclosure of “golden parachute” ments of the Securities Act will apply because the bidder is
arrangements between the target or acquirer on the one hand, offering securities as consideration. The registration statement
and senior management of each company on the other hand. (which includes the bidder’s prospectus) on Form S-4 (Form
Moreover, a target company soliciting proxies in connection F-4 if the bidder is a foreign private issuer) must be filed with
with a merger or similar transaction is required to submit any the SEC along with the exchange offer document on Schedule
such compensation arrangements that it has with its senior TO (in practice, the bidder’s prospectus and exchange offer
management to a non-binding advisory vote of the target document are combined into a single document) and must be
company’s shareholders (i.e., a “say-on-golden parachute” vote). declared effective by the SEC before the bidder can acquire any
In addition, the proxy statement or recommendation state- shares in the offer. The contents of the registration statement
ment on Schedule 14D-9 must provide target company share- are described in response to question 2.12.
holders with all material information with respect to poten- Merger : After a merger agreement is executed, the acquiring
tial conflicts of interest that could have influenced the target company and the target company will draft a proxy statement,
Mergers & Acquisitions 2022Skadden, Arps, Slate, Meagher & Flom LLP 313
which is the document that will be used to solicit the approval of ■ additional information relating to regulatory issues,
the merger by the target company’s shareholders. The contents compliance with laws, litigation and applicability of anti-
of the proxy statement are described in response to question 2.12. trust laws; and
If the consideration includes securities of the acquiring ■ exhibits, including tender offer materials, loan agreements
company, the acquiring company must also prepare and file with relating to the financing of the transaction and contracts or
the SEC a registration statement on Form S-4 (Form F-4 if the arrangements between the target company and the bidder.
acquiring company is a foreign private issuer). The contents of a Exchange offer : The registration statement on Form S-4 (Form
joint proxy statement/registration statement where the consider- F-4 if the acquiring company is a foreign private issuer) must
ation includes securities of the acquiring company are described include the following information (some of which may be incor-
in the response to question 2.12. porated by reference to the bidder’s or target’s SEC filings, if
Assuming shareholders of the target company approve the applicable), in addition to the items set forth above for inclusion
merger, a certificate of merger is filed with the Secretary of State in the tender offer statement on Schedule TO:
in the state of incorporation in which the surviving corporation ■ selected historical audited income statement and balance
is incorporated. sheet information for the past five fiscal years for each of
the bidder and the target company and selected unaudited
financial information for the latest interim period and the
2.12 Are there any special disclosure requirements?
comparable period in the preceding year;
■ full audited financial statements of the bidder, including
Tender offer : The contents of the tender offer statement (Schedule balance sheet statements for the last two fiscal years and
TO) must include: income and cash flow statements for the last three fiscal
■ a summary term sheet, with a brief description in bullet years;
point format of the most material terms of the offer; ■ full interim unaudited financial statements of the bidder
■ basic information about the target company, including for the most recent interim period and for the comparable
its name, address and telephone number, title and total period in the preceding year;
number of shares outstanding of the class of securi- ■ unaudited historical and combined pro forma per share data
ties being sought, the principal market where the target for the bidder and the target company;
company securities are traded and information about the ■ prices of the bidder’s and the target company’s shares prior
target company’s share price for the last two years; to the announcement of the offer and prior to the printing
■ the bidder’s identity and background; date of the prospectus/exchange offer document included
■ terms of the offer; in the registration statement;
■ past contacts, transactions and negotiations between the ■ risk factors relating to the offer and to the business of the
bidder and the target company and any conflicts of interest; bidder, including risks relating to the combined entity;
■ the source and amount of the bidder’s funds, including any ■ management’s discussion and analyses (MD&A) of the
conditions to its financing; financial condition and results of operations for the bidder
■ the purpose of the tender offer and plans of the bidder that and the target company;
would change the target company’s management, business ■ business description of the bidder and the target company;
or corporate structure or would affect the marketability or ■ comparison of rights of holders of bidder securities and
registration of the target company’s stock; target company equity securities being sought in the offer;
■ the interest in target company securities, disclosing the ■ reconciliation to U.S. GAAP (quantitative and qualitative)
target company shares owned by the bidder and trans- unless the bidder already prepares accounts according to
actions in target company securities by the bidder and U.S. GAAP or is a foreign private issuer that prepares its
certain persons and entities related to the bidder within accounts according to IASB IFRS; and
the past 60 days; ■ pro forma consolidated balance sheet and income statement
■ persons retained to assist in the solicitation of shares to be information giving effect to the merger of the bidder and
tendered and the terms of their compensation; the target company for the latest fiscal year and the latest
■ financial statements of the bidder (audited for the last two interim period.
fiscal years and unaudited for the most recent interim period Merger : The contents of the proxy statement must include:
available) must be included if material; financial statements ■ a summary of the terms of the merger;
are not material if: (i) the consideration consists solely of ■ the date, time and place of the meeting of target company
cash; (ii) the offer is not subject to a financing condition; shareholders;
and (iii) either the offer is for all outstanding securities of ■ the name of the person(s) making the solicitation and a
the subject class or the offeror is a public reporting company description of their interest, direct or indirect, in any
(if financial information is required and the bidder is a matter to be acted upon at the shareholders’ meeting;
foreign private issuer with financial statements prepared in ■ an outline of the dissenting shareholders’ rights of
accordance with IASB IFRS, then no reconciliation to U.S. appraisal (if any);
GAAP will be required; otherwise, if the bidder’s financial ■ a description of the voting securities and principal holders
statements are not prepared in accordance with U.S. GAAP, thereof and, to the extent known, any arrangement that
a reconciliation to U.S. GAAP will be necessary); may result in a change of control of the target company;
■ pro forma financial information; this is required only in cash ■ certain facts relating to the target company directors and
tender offer statements when securities are to be offered executive officers, including their compensation;
in a subsequent merger or other transaction in which ■ a description of the merger agreement and of the terms of
remaining target company securities are acquired and the merger plan;
the acquisition of the target company is significant to the ■ a discussion of the status of any necessary regulatory
bidder (if pro forma financial information is required to be approvals;
included, then historical financial statements of the bidder ■ a description of past contacts, transactions and negotiations
will also be required); between the acquiring company and the target company;
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