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What preliminary agreements are commonly drafted?
Typically, the parties will enter into heads of terms to record the non-binding terms of the deal at that stage. The heads of terms may also:
- grant exclusivity to the buyer;
- impose non-disclosure obligations on the buyer in relation to the due diligence information provided; and
- impose non-solicitation obligations in relation to staff, customers and suppliers.
The UK City Code on Takeovers and Mergers restricts a target's ability to enter into pre-deal commitments with a potential bidder which may reduce its ability to deal with or recommend a competing bid.
What documents are required?
For an acquisition of a non-listed company, the typical documents would be:
- heads of terms or an exclusivity or non-disclosure agreement;
- a share purchase agreement or business purchase agreement;
- a tax covenant (which may be included in the share purchase agreement);
- a disclosure letter;
- stock transfer forms;
- resignation letters for directors; and
- board minutes of the target.
For an acquisition of a listed company by way of a recommended general offer, the typical documents would be:
- an indicative offer letter (to the board of the target);
- the announcement of intention to make an offer;
- the offer document (also containing recommendation from the board of the target);
- irrevocable undertakings; and
- an acceptance form.
For a scheme of arrangement, a scheme document (prepared by the target with some input from the bidder) must be prepared.
Which side normally prepares the first drafts?
For a sale by agreement, the buyer usually prepares the first draft of the acquisition documents, unless there is a competitive auction process, in which case the seller will prepare the first draft so that each bidder can comment. The seller will prepare the disclosure letter.
In a takeover offer, the bidder prepares the offer document.
In a scheme of arrangement, the target prepares the scheme document, with assistance from the bidder.
What are the substantive clauses that comprise an acquisition agreement?
An acquisition agreement comprises the following substantive clauses:
- agreement to sell/buy;
- conditions to completion;
- undertakings before completion;
- mechanics of completion;
- limitations of liability;
- post-completion obligations;
- parent company guarantee (in respect of the seller);
- non-compete clause; and
- confidentiality clause.
What provisions are made for deal protection?
For a non-listed target the buyer can negotiate any protection and will usually seek full exclusivity.
In a recommended bid for a listed target, the terms of any agreement between the bidder and the target are heavily restricted by the UK City Code on Takeovers and Mergers. Any such agreement is generally prohibited, except to the extent that it deals with the following points:
- confidentiality undertakings, provided that these do not prevent the target from making announcements required by the UK code;
- a commitment not to solicit employees, customers or suppliers;
- a commitment to provide information or assistance for the purposes of obtaining any official authorisation or regulatory clearance;
- irrevocable commitments and letters of intent (eg, the shareholder directors of the target may provide an undertaking to accept the offer in respect of their own shares if the bid is made on the terms indicated);
- any term which imposes obligations only on the bidder or its concert party, other than in the context of a reverse takeover (eg, a reverse break fee or a standstill obligation prohibiting the bidder from making market purchases of shares in the target); and
- any agreement relating to an existing employee incentive arrangement.
Under the UK code, the target's board of directors cannot agree to not solicit or recommend other offers. The UK code also prevents the target from agreeing to pay a break fee to the bidder, except in certain limited circumstances.
What documents are normally executed at signing and closing?
At signing, the share purchase agreement and disclosure letter are normally executed. Other documents will be initialled as being in agreed form.
At completion, the following are normally executed:
- stock transfer forms;
- board minutes;
- resignation letters;
- appointment letters; and
- any necessary waivers or consents.
Are there formalities for the execution of documents by foreign companies?
Guernsey law does not impose its own formalities. The foreign company would need to execute documents in accordance with its local law.
Are digital signatures binding and enforceable?
In principle yes, but the parties should ensure that it can be demonstrated that the signature was attached under the requisite authority.
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