Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: November 2015

AUSTRALIAN UPDATE: Distressed M&A: Be Diligent

Editors’ Note: This article was contributed by Philip Podzebenko, a member of XBMA’s Legal Roundtable.  Mr. Podzebenko is a member of Herbert Smith Freehills’ Corporate Group, which is at the forefront of developments shaping Australia’s corporate landscape.  This article was written by Mr. Podzenbenko’s colleagues at Herbert Smith Freehills: Matthew FitzGerald, Partner, Mary Boittier, Executive Counsel and Peter A Smith, Partner, Brisbane.

In brief

The low oil price and limited capacity for oil and gas producers to further reduce operating costs is presenting challenges for producers of all shapes and sizes. In 2015 we expect that a number of producers will conduct strategic reviews which may lead to the sale of ‘non-core’ assets.

Traditional solutions of raising capital or debt may not be available on acceptable terms for many producers due to the uncertainty about the timing and extent of the oil price recovery. The option of warehousing a marginal project until economics improve may not be available either because such a project is now ‘non-core’ or because the producer must comply with minimum work obligations.

If strategic reviews trigger M&A activity in 2015 in the oil and gas sector, one challenge will be matching price expectations of producers with prospective investors. This is because of the inherent uncertainty around the recovery of the oil price. In this scenario, some junior producers may encounter difficulties and enter the M&A market as a distressed vendor.

This article considers some tensions between the positions of vendor and purchaser in an M&A transaction where the vendor is in financial distress.

Diligence is crucial in a distressed sale process

Effective due diligence typically provides the framework for the risk/pricing profile in an M&A transaction. In a distressed vendor environment, the purchaser’s ability to conduct effective due diligence may be impacted by a number of factors including:

  • shortened deal timeframes sought by vendors as a means of limiting the further deterioration of the asset and to obtain certainty, or
  • imperfect information being available due to the transaction being forced upon the vendor (rather than planned as part of an orderly sales process).

A risk to purchasers in these circumstances is ensuring that all key issues are considered and priced into the deal.

Prospective purchasers also need to be wary of the risk of using their bargaining position to obtain a deal which might later be challenged by a liquidator as an uncommercial transaction.

Warranties and indemnities

Where the vendor is in formal insolvency, the insolvency practitioner vendor administering the sale process will be concerned to limit personal liability and will usually resist giving any meaningful warranties or indemnities.

Where possible in a distressed vendor transaction, the purchaser should insist on warranties that provide comfort:

  • that the insolvency practitioner has been validly appointed and has the power and authority to enter into, and give effect to, the transaction,
  • that no consents or registrations are required to give effect to the transaction, other than as set out in the transaction documents, and
  • as to title to the assets and that the assets are unencumbered.

The practical value of any warranties and indemnities given by a distressed vendor or insolvency practitioner to a purchaser may be severely limited in any event. This is because a distressed vendor may not have the financial resources to honour a warranty or indemnity claim. Where such a claim is honoured, there is a risk that a liquidator appointed later may challenge the payments as ‘unfair preferences’. Any warranty or indemnity claims given by an insolvency practitioner as agent for a distressed or insolvent company will be unsecured debts of the company and may form part of the broader unsecured creditors’ pool in liquidation.

Possible options to enhance warranty and indemnity protection for the purchaser include:

  • obtaining security or a guarantee from a third party whose credit worthiness is not in doubt,
  • structuring the transaction so that there is a hold back as to part of the purchase price (provided that the purchaser does not have notice of, or suspicion, that the vendor was insolvent), or
  • obtaining buy-side warranty and indemnity insurance against insurable warranties.

Purchase price adjustments following completion

Post-completion purchase price adjustments may also be at risk where a distressed vendor does not have the financial resources to honour its obligation or, if it does, the amount paid may be later challenged as an ‘unfair preference’. The solutions listed above may be of assistance to protect the purchaser. It is also noted that a drafting solution may be to ensure that it is more likely that the purchaser will be required to pay the adjustment payment (e.g. in respect of a working capital adjustment, to make a conservative estimate of target working capital).

Conclusion

Negotiating a sale and purchase agreement where a vendor is distressed or in formal insolvency is unlikely to be an orderly process. For prospective purchasers, due diligence is critical before making an assessment of whether to proceed with a deal due to the limited legal protection typically on offer in these circumstances.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

U.S. UPDATE: A New Paradigm for Corporate Governance

Editor’s Note:  This article was authored by Martin Lipton of Wachtell, Lipton, Rosen & Katz.

Main Article:

Recently, there have been three important studies by prominent economists and law professors, each of which points out serious flaws in the so-called empirical evidence being put forth to justify short-termism, attacks by activist hedge funds and shareholder-centric corporate governance.  These new studies show that the so-called empirical evidence omit important control variables, use improper specifications, contain errors and methodological flaws, suffer from selection bias and lack real evidence of causality.  In addition, these new studies show that the so-called empirical evidence ignore real-world practical experience and other significant empirical studies that reach contrary conclusions.  These new studies are:

For an earlier recognition of these defects in the so-called empirical evidence see, The Bebchuk Syllogism.

These new studies provide solid support for the recent recognition by major institutional investors that while an activist attack on a company might produce an increase in the market price of one portfolio investment, the defensive reaction of the other hundreds of companies in the portfolio, that have been advised to “manage like an activist”, has the potential of lower future profits and market prices for a large percentage of those companies and a net large decrease in the total value of the portfolio over the long term.  Recognition of the Threat to Shareholders and the Economy from Attacks by Activist Hedge Funds and Some Lessons from BlackRock, Vanguard and DuPont—A New Paradigm for Governance

Hopefully these new studies will enable and encourage major institutional investors to recognize that they are the last practical hope in reversing short-termism and taming the activist hedge funds.  Institutional investors should cease outsourcing oversight of their portfolios to activist hedge funds and bring activism in-house.  Short of effective action by institutional investors, it would appear that there is no effective solution short of federal legislation, which runs the risk of the cure being worse than the illness.  For an interesting attempt to legislate institutional investor focus on long-term rather than short-term performance see, European Commission Proposes to Moderate Short-termism and Reduce Activist Attacks.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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