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)
  • 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: January 2018

CHINESE UPDATE – China’s NDRC Issued New Outbound Investment Rules

Editors’ Note: This article was written and contributed by Wang Kaiding, corporate partner at King & Wood Mallesons. Mr. Wang focuses on cross-border mergers and acquisitions, foreign investment in China, corporate governance and general corporate law matters. He has worked on a range of transactions, including domestic and cross-border merger and acquisition transactions, private equity transactions, reorganizations, joint ventures and divestitures. He was joined by Huang Mengting and Tang Xinran in writing this article.

On 26 December 2017, the National Development and Reform Commission (“NDRC”) issued the Administrative Measures for Enterprise Outbound Investment[1] (“Regulation No. 11”) which will come into force on 1 March 2018.

Regulation No. 11 contains six chapters and 66 articles. Compared to the 2014 Administrative Measures for the Verification and Record-filing on Outbound Investment Projects[2] (“Regulation No. 9”), there are several significant changes. The change of the regulation’s title indicates that monitoring of outbound investments will no longer be limited to pre-transaction “verification” and “record-filing”, but will also cover the periods during and after transactions.

For a summary of pre-transaction administrative measures required under Regulation No. 11, please refer to the end of this article.

Key points to note about Regulation No. 11 are:

“Road-pass” regime eliminated, time costs reduced, and more deal certainty

Article 10 of Regulation No. 9 states that:

When undertaking outbound acquisitions or bidding projects with total investment exceeding USD300 million (inclusive), Chinese investors shall submit a project information report to NDRC before carrying out any substantive work.”

This article drew great market attention. Dubbed the “road-pass”, it meant Chinese investors involved in outbound bidding transactions exceeding USD300 million (inclusive), had to obtain confirmation letter from the NDRC before making a binding offer.

Regulation No. 11 eliminates the “road-pass” regime, which evidences NDRC’s intention to “further streamline administration and delegate power”.

Covered transactions expanded

1. Outbound investments are categorized into two types: those conducted directly by domestic investors; or through overseas enterprises controlled by domestic investors.

Regulation No. 9 applies to outbound investments conducted by domestic investors (i.e. domestic legal persons) or through their overseas enterprises or institutions if a domestic investor provided financing or guarantees.

According to Article 2 of Regulation No. 11, the scope of application of Regulation No. 11 covers outbound investments conducted directly by domestic investors (i.e. domestic enterprises) or through controlled overseas enterprises.

(1) Outbound investments conducted directly by domestic investors

Article 2 of Regulation No. 11 does not elaborate on outbound investments conducted “directly by domestic investors” or “through controlled overseas enterprises”.

Based on Article 14 of Regulation No. 11, outbound investments conducted “directly by domestic investors” refers to outbound investments relating to which domestic investors directly invest assets, interests or provide financing or a guarantee. The definition covers outbound investments conducted by domestic investors as the investing entity, or through their overseas enterprises (regardless of whether or not the domestic investor controls the overseas enterprise) with financing or a guarantee provided by a domestic investor.

(2) Outbound investments conducted through overseas enterprises controlled by domestic investors

Under Regulation No. 11, outbound investments conducted “through controlled overseas enterprises” refers to outbound investments conducted by overseas enterprises controlled by domestic investors in which the domestic investors do not directly invest assets, interests or provide financing or a guarantee.

Domestic investors conducting outbound investments through their overseas enterprises are not governed by Regulation No. 9 unless they have provided cross-border financing or guarantees. In practice, many investors used this loophole to avoid the verification and record-filing procedures required by Regulation No. 9. Outbound investments conducted by domestic natural persons are not governed by Regulation No. 9 either.

All outbound investments conducted by domestic investors through their controlled overseas enterprises (regardless of whether the domestic enterprise provides cross-border financing or guarantees or not) will now fall within the scope of Regulation No. 11. In addition, under Article 63 of Regulation No. 11, outbound investments conducted by domestic natural persons through their controlled overseas enterprises are also covered by Regulation No. 11, although Regulation No. 11 still does not apply to outbound investments conducted directly by domestic natural persons.

The wider coverage of Regulation No. 11 will not substantially increase compliance costs for domestic investors. With respect to domestic enterprises and domestic natural persons who conduct outbound investments through their controlled overseas enterprises (domestic investors do not directly invest assets, interests or provide financing or a guarantee):

  • Sensitive projects will be subject to a verification procedure.
  • For non-sensitive projects:
    • if the total investment amount from Chinese parties exceeds USD 300 million (inclusive), investors shall submit a “situation report for a non-sensitive project with a large amount” to NDRC before the project is implemented through an online system. Verification and record-filing procedures are not required;
    • if the total investment amount from Chinese parties is less than USD300 million, then no pre-transaction verification, record-filing or reporting is required.

2. Outbound investments made by financial enterprises are also regulated by NDRC

Regulation No. 9 did not explicitly exclude financial enterprises, but, in practice, some market players were unclear about whether it applied to outbound investments made by domestic financial enterprises.

Under Regulation No. 11, NDRC has specified that Regulation No. 11 applies to outbound investments made by domestic financial enterprises.

Sensitive projects clarified, focusing on national interests and security

“Sensitive projects” under Regulation No. 11 include projects involving sensitive countries, regions or industries.

1.  Sensitive countries and regions

Regulation No. 11 defines “sensitive countries and regions” as including countries and regions:

  • without diplomatic relations with China;
  • experiencing war or internal strife;
  • where investment by enterprise is restricted by international treaties, or agreements China concluded or acceded to.
  • other sensitive countries and regions.

With respect to the newly-added category “other sensitive countries and regions”, investors may consult with NDRC through the procedure stated in Article 15 of Regulation No. 11.

2.  Sensitive Industries

Regulation No. 11 defines “sensitive industries” as including:

  • research on, manufacture and repair of weaponry;
  • cross-border water resources development and utilization;
  • news media;
  • industries to be restricted from outbound investments according to laws, regulations and relevant macro-control policies.

A Sensitive Industry Directory will be released by NDRC separately.

3.  Outbound Investment Guidelines

On 4 August 2017, the State Council promulgated the Guidelines on Further Guiding and Regulating the Directions of outbound Investments[3] (“Guidelines”), formulated by NDRC, Ministry of Commerce, People’s Bank of China and the Ministry of Foreign Affairs. The Guidelines divides outbound investments into “encouraged,” “restricted” and “prohibited” categories.

           (1) Prohibited category

Outbound investments that jeopardize (or may jeopardize) national interests and security are prohibited under the Guidelines. These include (a) outbound investments in relation to unauthorized export of Chinese military core technology and products; (b) outbound investments utilizing technologies, crafts, and products which are banned for export; (c) outbound investments in the gambling and pornography industries; (d) outbound investments prohibited by the international treaties China concluded or acceded to, and (e) other outbound investments that jeopardize or may jeopardize national interest or national security.

Under Article 5 of Regulation No. 11, outbound investments may not violate Chinese law and regulations or jeopardize national security or interests. Therefore, we understand that the category of prohibited outbound investments specified by the Guidelines should be regarded as outbound investments that violate Chinese laws and regulations.

           (2) Restricted category

Outbound investments which are inconsistent with foreign policies regarding peaceful development, mutually beneficial strategies and macro-control are restricted under the Guidelines. These include (a) outbound investments in any sensitive country and region without diplomatic relations with China, experiencing war or strife, or where investment by enterprise is restricted by international treaties, or agreements China concluded or acceded to; (b) outbound investments in the real estate, hotel, cinema, entertainment and sport club industries; (c) formation of equity investment funds or investment platforms without specific industrial projects; (d) outbound investments that utilize obsolete manufacturing equipment which cannot satisfy the technology standard of the destination country; or (e) outbound investments in violation of the destination country’s environment, energy efficiency and security standards.

The Guidelines specify that verification of relevant authorities is required for outbound investments falling under categories (a) to (c).

We understand that outbound investments under category (a) above are to sensitive countries and regions, while outbound investments under categories (b) and (c) are to sensitive industries, all of which are subject to verification under Regulation No. 11. Outbound investments under categories (d) and (e) are not subject to verification but will be closely supervised by authorities.

Verification and record-filing as an implementation condition– to comply with international practices and market conditions

Under Regulation No. 9, verification approval documents or record-filing notices issued by NDRC were a condition for transaction agreements to become effective.

In the international market, government approval is usually a condition for closing but does not affect a contract’s validity. In reality, many cross-border M&A’s conducted by domestic enterprises also regard government approvals as closing conditions. Therefore, there is a gap between Regulation No. 9 and market practice.

Under Regulation No. 11, domestic investors are required to obtain verification approval documents or record-filing notice prior to the “implementation” of a project. Prior to “implementation” means prior to when a domestic investor or its controlled overseas enterprise invests assets or interests into[4], or provides financing or guarantees for a project.

Explicitly stating circumstances and procedures where ‘change’ applications are required

Under Regulation No. 11, circumstances that require a ‘change’ application include:

  • Any change to the number of investors;
  • Any material change to the investment destination;
  • Any material change to main content and scale;
  • Any change to the amount of a Chinese party’s investment, equal to or greater than 20% (compared to the verified and filed amount) or of more than USD 100 million (inclusive);
  • Other circumstances where substantial changes are needed with respect to verification approval documents or record-filing notices.

Strengthening interim and ex post supervision

Articles 43, 44 and 45 of Regulation No. 11 provide mechanisms for reporting material adverse conditions, project completion, and inquiry and reports about material matters.

Under Article 44 (for projects subject to verification and record-filling requirement), the investor shall file a completion status report through the online system within 20 working days after the completion of a project (for example, after construction project completed, target shares or assets transaction closed, or investment amount paid).

Regulation by NDRC is no longer limited to pre-transaction regulation, with reporting and regulation mechanisms added for during the deal and after its closing. It is worth stressing that under Regulation No. 11, investors are only required to provide information to the authorities – not to perform verification and record-filing procedures.

The above changes to administrative measures demonstrate the clear direction of the reform — to streamline administration and delegate power, combine liberation with regulation, and improve services. The outcome will be a more transparent and predictable outbound investment administrative system.

In conclusion, we have summarized the pre-transaction administrative measures required under Regulation No. 11 for different types of outbound investment.


[1] (企业境外投资管理办法)

[2] Issued by NDRC in April 2014 and as amended in December 2014 (境外投资项目核准和备案管理办法)

[3] 《关于进一步引导和规范境外投资方向的指导意见》(国办发〔2017〕74号)

[4] Excluding preliminary expenses for verification and record-filing in accordance with Article 17 of the Measures

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.


Editors’ Note: The XBMA Review is published on a quarterly basis in order to facilitate a deeper understanding of trends and developments. In order to facilitate meaningful comparisons, the Review has utilized generally consistent metrics and sources of data since inception. We welcome feedback and suggestions for improving the XBMA Review or for interpreting the data.
Executive Summary/Highlights: 
  • Global deal volume in 2017 exceeded US$3.6 trillion, just US$80 billion shy of 2016’s volume. 2015, 2016, and 2017 have been the three strongest years of deal-making since the financial crisis, with 2015 representing the high water mark of US$4.4 trillion.
  • Consistent with the trend over the previous two years, global M&A accelerated in Q4, as deal volume exceeded US$1.1 trillion, an increase of almost US$300 billion (or approximately 33%) versus Q3. The acceleration of M&A activity in Q4, driven by robust global economies, tax reform in the United States, and strategic responses to disruptive technologies, provides momentum for continued robust deal-making in 2018, including cross-border M&A.
  • Cross-border M&A activity exceeded US$1.2 trillion in 2017, accounting for approximately 35% of global M&A volume, consistent with recent historical proportions, and accounted for five of the 10 largest deals of 2017.
  • The United States continued to claim the largest share of global deal volume in Q4 and in full-year 2017. Over 46% of global M&A volume (more than US$500 billion) in Q4 consisted of deals involving U.S. targets. For full-year 2017, U.S. targets accounted for $1.4 trillion (40%) of deal volume, with approximately 18% of U.S. deals involving non-U.S. acquirors.
  • Deals for European targets remained the second most active segment in Q4, constituting almost 20% of global M&A volume (but less than the recent historical average of 24%). The market for Chinese targets also continued to demonstrate strength, accounting for more than 17% of global deal volume in Q4 (up from its recent historical average of 15%).
  • For each year since 2012, Q1 has had the lowest quarterly volume of M&A globally (and in North America, excepting 2017, when Q2 was the year’s least active quarter).
  • Global M&A volume in 2017 was led by the Real Estate sector, which topped US$525 billion for the year, driven by a strong Q4. The Energy & Power and High Technology sectors were also among the most active sectors in 2017, with US$482 billion and US$462 billion in deal volume, respectively.
  • Cross-border deals were an especially large component of activity in the Telecommunications sector and the Consumer Products sector, in which cross-border deals accounted for nearly 51% and 45% of global M&A volume, respectively, in 2017. In other sectors, the shares of global M&A volume attributable to cross-border deals ranged from 24% to 39%.

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

AUSTRALIAN UPDATE – Deal Landscape, Origin of Bidders and Deal Structures

Editors’ Note: This report was contributed by Philip Podzebenko, a member of XBMA’s legal roundtable. Mr Podzebenko is a partner at Herbert Smith Freehills in the Corporate Group. This paper was based on research conducted by other Herbert Smith Freehills staff, Paul Branston, Partner and Michael Denny, Solicitor.


  • The Australian public M&A market has seen relatively steady activity levels, with a modest increase in number of deals, but lower total deal value, in the 12 months to 30 June 2017 (FY17).
  • Success rates were down on FY16, with 66% of deals announced in FY17 being completed.
  • The level of contested bid activity was also subdued in FY17 with only 3 targets attracting multiple bidders.
  • The consumer and industrials sectors featured more strongly in FY17, with deals in those sectors comprising 38% and 41% of total deal value respectively.
  • Deal activity in the information technology and software services sectors increased notably.
  • Inbound public M&A remained steady, with bid activity originating from Asia dominating deals by value.

Deal landscape

Levels of public M&A activity in FY17 remained relatively steady, with 59 deals announced (up from 50 announced in FY16), but with total deal value decreasing to $23 billion in FY17 from $33 billion committed in the previous 12 months. Consistently with the decline in total deal value, with only 4 deals exceeding $1 billion and deals in this category and deals in this category accounting for 67% of all deal activity by value (down from 6 deals exceeding $1 billion , representing 80% of total deal value in FY16).

Success rates also declined moderately in FY17 to 66% relative to 73% in FY16.

Overall, the proportion of bids launched in FY17 without support from the target board from the outset (34%) was lower than in previous years (FY16, 44%). Of the unsolicited bids, 45% were ultimately successful (as compared with a 79% success rate for friendly deals). All of the unsolicited bids which were successful only 63% were recommended by the target board either in the board’s initial response, or following negotiations (down from 100% in FY16).

The number of contested bids in FY17 was subdued, with only 3 targets the subject of multiple bidders (none involving targets with a value exceeding $1 billion), down from 7 targets attracting competing bids in FY16. A number of targets received non-binding competing proposals, but they did not proceed to a stage where they could be considered by shareholders. In all 3 contested scenarios, the underbidder was unsuccessful. Encouraging competing bids remains an effective means for target boards to defend against undervalued or opportunistic bids.

Success rates in hostile and friendly deals


Merger and acquisition activity in the consumer and industrials sectors featured strongly in FY17, representing 38% and 41% of overall deal value respectively. While there was significant private M&A activity in the energy and resources sectors, public M&A activity volumes in that sector were subdued with most deals involving small-cap targets (average deal size of $27.6 million) and total deal volume of only $606 million (FY16, $1.1 billion).

Private equity participation in public M&A in FY17 was subdued, with only 6 private equity backed deals announced (and only one of them exceeding $1 billion). Of the 6 private equity backed deals, 3 involved targets in the resources sector.

Origin of bidders

Foreign bidders accounted for a majority (53%) of all deals in FY17, by value. Foreign bidders were active across all sectors.

Asia-based bidders were more dominant in FY17, with 11 of the 26 foreign bidders being Asia-based and $9.6 billion committed by bidders based in Asia (representing 41% of deals by value). North American bidders also featured strongly representing 9 of the 26 foreign bidders but only 6% of deal value.

Percentage of deals by origin of bidder


Deal structure

The preference for schemes of arrangement increased moderately in FY17, with 49% of all deals involving schemes, compared with 44% in FY15. The use of schemes continued to dominate transactions exceeding $1 billion, with 75% of deals in this category implemented by scheme.

Cash consideration remained he dominant form of consideration in FY17, and was the sole form of consideration in 64% of transactions (up from 62% in FY15). There was a strong preference for cash consideration in unsolicited deals, with 85% of all unsolicited bids being cash-only or having an all-cash alternative. The form of consideration did not have a marked impact on success rates for deals, other than in relation to hostile bids, where all-cash deals were more likely to succeed than all-scrip deals.

Success rates by consideration offered in hostile deals

 FY17 saw an overall decline in premiums offered by bidders, with an average initial premium offered in FY17 of 22% relative to 36% in FY16. The percentage of deals with an initial premium below 20% markedly increased relative to FY16 for both hostile and friendly deals.

Success rates in FY17 continued FY16’s and FY15’s trend, showing a positive correlation between size of premium and bid success, with bids involving an initial premium in the 20-40% range having a 71% success rate, and those with an initial premium exceeding 40% having a 92% success rate.

The use of conditions in takeover bids requiring a minimum percentage of acceptances to be received by the bidder decreased substantially in FY17 with under 50% of acquisitions conducted by way of takeover bid having a minimum acceptance condition (compared with 80% in FY16).

Consistently with previous practice, material adverse change conditions continued to be included in the majority of public M&A deals. However the continued increase in the use of carve outs from the material adverse change conditions for external factors such as changes in law or accounting policy, general economic conditions, industry conditions and stock markets reflect that bidders continue to be willing to accept commercial risk when making a bid.

Deal protection mechanisms continued to feature in negotiated transactions, with use of deal protection mechanisms in FY17 relatively consistent with previous years. The use of toe-holds (where the bidder has a stake in the target before announcement) and reverse break fees increased moderately relative to previous years. ‘Truth in takeovers’ statements (being public statements of intent to accept or otherwise support a bid by target shareholders) remained the preferred form of lock-up, with 68% of lock-ups taking the form of truth in takeovers statements only.

Consistent with previous years, notification and matching rights remained popular with notification and matching rights being found in 90% and 77% respectively of negotiated deals. Use of break fees decreased moderately with 77% of negotiated deals including a break fee (down from 86% in FY16). The use of reverse break fees increased significantly with 49% of negotiated transactions including a reverse break fee (FY16, 32%).

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.

CHINESE UPDATE – NDRC New Regulation Simplifies its Approval/Filing Procedures over Outbound Investment Projects

Contributed by: Adam Li (Li Qi), Jun He Law Offices (Shanghai)

Editors’ Note: Contributed by Adam Li, a partner at JunHe and a member of XBMA’s Legal Roundtable. Mr. Li is a leading expert in international mergers & acquisitions, capital markets and international financial transactions involving Chinese companies. This article was authored by Mr. Yi Wang, and Ms. Fang He, both partners at JunHe. Fang is also a member of XBMA’s Legal Roundtable.  Mr. Wang has broad experience in capital markets and private equity, and Ms. He is specialized in cross-border M&A, private equity, trust and assets management.


  • NDRC launches new regulations, which indicates further relaxation measures on PRC outbound investment.
  • The controversial “road-pass” requirement has been removed.
  • The NDRC approval and filing requirement has been changed from a condition for effectiveness of the acquisition contract to a condition for closing.

Main Article

On December 26, 2017, the National Development and Reform Commission (“NDRC”) formally promulgated the Administrative Measures for Outbound Investment by Enterprises (“Order No. 11” or the “New Measures”) in lieu of the Administrative Measures for the Verification and Approval and Record-Filing of Outbound Investment Projects promulgated in April 2014 (as amended in December 2014) (“Order No. 9” or the “Old Measures”).  Order No. 11 will come into effect on March 1, 2018.  It largely adopted the provisions of the Administrative Measures for Outbound Investment by Enterprises (Draft for Comments) promulgated by the NDRC on November 3, 2017.

Compared with Order No. 9, Order No. 11 is less regulated in NDRC’s reviews of outbound investment, and has simplified the process and requirements of review. Overall, it will be conducive to outbound investment projects.

In the New Measures, the major simplified procedures include:

1. The “confirmation letter” is no longer required.

The Old Measures provided that the investor of an outbound investment or bidding project with the investment amount reaching or exceeding USD 300 million was required to submit a project information report to and obtain a confirmation letter (also known as “Road-Pass”) from the NDRC. This provision has been removed in the New Measures.  This simplification removal is one of the most welcome signals for market players in the area.  In China’s outbound investment practices, what troubled and concerned overseas sellers the most has been whether the Chinese investors had obtained and when they would obtain the confirmation letters from the NDRC, because the Chinese investor could not submit a binding offer to the overseas seller or sign a binding contract until the confirmation letter was obtained.  The abolishment of confirmation letters will undoubtedly increase the flexibility of Chinese bidders in overseas investment bidding.

2. The verification and approval by or record-filing with the NDRC has changed from a condition for the contract to take effect to a condition precedent to closing.

The Old Measures provided that prior to signing any final and legally binding document with an external party, the Chinese investor should obtain the verification and approval document or the record-filing notice issued by the NDRC; alternatively, the investor could specify in the document signed that it should come into effect on the condition that the verification and approval document or the record-filing notice issued by the NDRC was obtained. It was relatively difficult to meet this requirement in practice.  Sellers are unwilling to accept that provisions on break-up fee, security deposit, and many other seller protection mechanisms ultimately would not take effect until NDRS approves it, so in some projects it was stipulated in the contract that the NDRC’s verification and approval document or record-filing notice was only a condition for closing of the transaction.  However, this is certainly not in line with Order No. 9, and its validity was questionable.  In the New Measures, amendments have been made to only require that Chinese investors shall obtain the verification and approval document or the record-filing notice prior to the implementation of the project (i.e., the actual payment of funds to overseas sellers or the actual investment of funds in overseas projects), which reflects and meets the practical needs of the parties.

3. Making applications via the NDRC’s local counterpart is no longer required, and direct online applications are encouraged.

The Old Measures required investors to submit applications via the NDRC’s local counterpart, which was unnecessary in practice and delayed the review and approval process. The New Measures have removed this requirement and encourage direct online applications.  Previously, although the local counterpart of the NDRC provided great support, some clients had experienced delays before their applications were successfully submitted to the NDRC via its local counterpart.  Now making applications directly to the NDRC is indeed more simplified and takes less time, which will accelerate the response by Chinese investors in overseas bidding procedures.

4. Less time is needed for project assessment.

The New Measures slightly adjusted the time limit for project assessment. As for most projects, the time limit for assessment is reduced from 40 working days to 30 working days, while it can be extended to 60 working days for major projects if it is appropriate.

In general, the New Measures as compared with the old ones have optimized and simplified the NDRC review and filing procedures for outbound investment projects. To a certain extent, they can improve the transparency of the Chinese government’s regulations over outbound investments and reduce the confusion and worries of overseas sellers over the approvals by the Chinese government, so it should be good news for Chinese outbound investment.


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 – 2018 Checklist for Successful Acquisitions in the United States

Editors’ Note: This submission updates a checklist co-authored by Messrs. Emmerich and Panovka, members of XBMA’s Legal Roundtable, with their colleagues at Wachtell Lipton David A. Katz, Scott K. Charles, Ilene Knable Gotts, Andrew J. Nussbaum, Joshua R. Cammaker, Mark Gordon, T. Eiko Stange, William Savitt, Eric M. Rosof, Joshua M. Holmes, Emil A. Kleinhaus, Gordon S. Moodie, Edward J. Lee and Raaj S. Narayan.

Global M&A accelerated in the fourth quarter of 2017, driven in part by tech expansion and strong economies in several key markets, and there are many signals pointing to a continued strong pace of transactions, including in the U.S. Overall M&A volume in 2017 continued to be robust, reaching $3.6 trillion, approximately 35% of which involved cross-border deals. Four of the ten largest non-hostile deals announced in 2017 were cross-border transactions.

U.S. targets accounted for approximately $1.4 trillion (approximately 40%) of last year’s deal volume, with approximately 18% of U.S. deals involving non- U.S. acquirors. German, French, Canadian, Japanese and U.K. acquirors accounted for approximately 55% of the volume of cross-border deals involving U.S. targets, and acquirors from China, India and other emerging economies accounted for approximately 6% (down from approximately 15% in 2016). Cross-border deals involving U.S. targets included a number of noteworthy transactions, including Reckitt Benckiser’s $17 billion acquisition of Mead Johnson and JAB’s $7 billion acquisition of Panera Bread.

Based on the current economic environment and recent U.S. tax legislation, we expect the pace of cross-border deals into the U.S. to remain strong. As always, advance preparation, strategic implementation and deal structures calibrated to anticipate likely concerns will continue to be critical to successful acquisitions in the U.S. The following is our updated checklist of issues that should be carefully considered in advance of an acquisition or strategic investment in the U.S.  Because each cross-border deal is unique, the relative significance of the issues discussed below will depend upon the specific facts, circumstances and dynamics of each particular situation.

  • Political and Regulatory Considerations. Investment into the U.S. remains mostly well-received and generally not politicized. But the Trump administration’s periodic policy departures and “America First” rhetoric and policy make it more important than ever that prospective non-U.S. acquirors of U.S. businesses or assets undertake a thoughtful analysis of U.S. political and regulatory implications well in advance of any acquisition proposal or program. This is particularly so if the target company operates in a sensitive industry; if post-transaction business plans contemplate major changes in investment, employment or business strategy; or if the acquiror is sponsored or financed by a foreign government or organized in a jurisdiction where a high level of government involvement in business is generally understood to exist.  The likely concerns of federal, state and local government agencies, employees, customers, suppliers, communities and other interested parties should be thoroughly considered and, if possible, addressed before any acquisition or investment proposal becomes public. It is also essential to implement a comprehensive communications strategy, focusing not only on public investors but also on these other core constituencies, prior to the announcement of a transaction so all of the relevant constituencies may be addressed with appropriately tailored messages. It will often be useful, if not essential, to involve experienced public relations firms at an early stage in the planning process of any potentially sensitive deal. Similarly, potential regulatory hurdles require sophisticated advance planning. In addition to securities and antitrust regulations, acquisitions may be subject to CFIUS review (discussed below), and acquisitions in regulated industries (e.g., energy, public utilities, gaming, insurance, telecommunications and media, financial institutions, transportation and defense contracting) may be subject to an additional layer of regulatory approvals. Regulation in these areas is often complex, and political opponents, reluctant targets and competitors may seize upon perceived weaknesses in an acquiror’s ability to clear regulatory obstacles as a tactic to undermine a proposed transaction. High- profile transactions may also result in political scrutiny by federal, state and local officials. Finally, depending on the industry involved and the geo- graphic distribution of the workforce, labor unions will continue to play an active role during the review process. Pre-announcement communications plans must take account of all of these interests.
  • Transaction Structures. Non-U.S. acquirors should consider a variety of po- tential transaction structures, particularly in strategically or politically sensi- tive transactions. Structures that may be helpful in sensitive situations to overcome potential political or regulatory resistance include no-governance and low-governance investments, minority positions or joint ventures, possibly with the right to increase ownership or governance rights over time; partnering with a U.S. company or management team or collaborating with a U.S. source of financing or co-investor (such as a private equity firm); utilizing a controlled or partly controlled U.S. acquisition vehicle, possibly with a board of directors having a substantial number of U.S. citizens and prominent U.S. citizens in high-profile roles; or implementing bespoke governance structures (such as a U.S. proxy board) with respect to specific sensitive subsidiaries or businesses of the target company. Use of debt or preferred securities (rather than common stock) should also be considered. Even seemingly more modest social issues, such as the name of the continuing enterprise and its corporate location or headquarters, or the choice of the nominal legal acquiror in a merger, can affect the perspective of government and labor officials.
  • CFIUS. Under current U.S. federal law, the Committee on Foreign Investment in the United States (CFIUS) – a multi-agency governmental body chaired by the Secretary of the Treasury, the recommendations of which the President of the United States has personal authority to accept or reject – has discretion to review transactions in which a non-U.S. acquiror could obtain “control” of a U.S. business or in which a non-U.S. acquiror invests in U.S. infrastructure, technology or energy assets, in order to evaluate whether such transactions could pose a risk to U.S. national security. That authority was notably used in 2016 to block the Aixtron and Lumileds transactions, and in 2017 reportedly to cause the abandonment of transactions including U.S. electronics maker Inseego’s sale of its MiFi business to TCL Industries; HNA Group’s proposed investment in Global Eagle Entertainment, a U.S.- based in-flight services company; and Canyon Bridge Capital Power’s acquisition of Lattice Semiconductor (following President Trump’s issuance of an executive order to block the transaction). Although filings with CFIUS are voluntary, CFIUS also has the ability to investigate transactions at its discretion, including after the transaction has closed. While it is still not clear if and how CFIUS’s review of cross-border transactions will change during the Trump administration, the last year has been marked by a greater number of CFIUS filings, resulting in longer overall review periods for most transactions. Moreover, pending U.S. congressional legislation would expand CFIUS’s review period, increase the scope of transactions subject to CFIUS’s jurisdiction, make certain notifications mandatory and allow for expedited review and approval of certain transactions. This legislation, if enacted, would heighten further the potential role of CFIUS and the need to factor into deal analysis and planning the risks and timing of the CFIUS re- view process.

We recommend three rules of thumb in dealing with CFIUS:

  1. In general it is prudent to make a voluntary filing with CFIUS if an investigation is reasonably likely or if competing bidders are likely to take advantage of the uncertainty of a potential investigation.
  2. It is often best to take the initiative and suggest methods of mitigation early in the review process in order to help shape any remedial measures and avoid delay or potential disapproval.
  3. It is often a mistake to make a CFIUS filing before initiating discussions with the U.S. Department of the Treasury and other officials and relevant parties. In some cases, it may even be prudent to make the initial contact prior to the public announcement of the transaction. CFIUS is not as mysterious or unpredictable as some fear – consultation with the U.S. Department of the Treasury and other officials(who, to date, have generally been supportive of investment in the U.S. economy) and CFIUS specialists will generally provide a good sense of what it will take to clear the CFIUS process. Retaining advi- sors with significant CFIUS expertise and experience is often crucial to successful navigation of the CFIUS process. Transactions that may require a CFIUS filing should have a carefully crafted communications plan in place prior to any public announcement or disclosure. In addition, given that CFIUS will require a draft filing in advance of the official filing, building in sufficient lead time is essential.

Although practice varies, some transactions in recent years have sought to address CFIUS-related non-consummation risk by including reverse break fees specifically tied to the CFIUS review process. In some of these transactions, U.S. sellers have sought to secure the payment of the reverse break fee by requiring the acquiror to deposit the amount of the reverse break fee into a U.S. escrow account in U.S. dollars, either at signing or in installments over a period of time following signing. While still an evolving product, some insurers have also begun offering insurance coverage for CFIUS- related non-consummation risk, covering payment of the reverse break fee in the event a transaction does not close due to CFIUS review, at a cost of ap- proximately 10 – 15% of the reverse break fee.

  • Acquisition Currency. Cash is the preponderant form of consideration in cross-border deals into the U.S., with all-cash transactions representing approximately two-thirds of the volume of cross-border deals into the U.S. in 2017 (up from approximately one-half in 2015 and 2016), as compared to approximately 45% of the volume of all deals involving U.S. targets in 2017. However, non-U.S. acquirors should think creatively about potential avenues for offering U.S. target shareholders a security that allows them to participate in the resulting global enterprise. For example, publicly listed acquirors may consider offering existing common stock or depositary receipts (e.g., ADRs) or special securities (e.g., contingent value rights). When U.S. target shareholders obtain a continuing interest in a surviving corporation that had not already been publicly listed in the U.S., expect heightened focus on the corporate governance and other ownership and structural arrangements of the non-U.S. acquiror, including as to the presence of any controlling or large shareholders, and heightened scrutiny placed on any de facto controllers or promoters. Creative structures, such as the issuance of non-voting stock or other special securities of a non-U.S. acquiror, may minimize or mitigate the issues raised by U.S. corporate governance concerns. The world’s equity markets have never been more globalized, and the interest of investors in major capital markets to invest in non-local business never greater; equity consideration, or an equity issuance to support a transaction, should be considered in appropriate circumstances.
  • M&A Practice. It is essential to understand the custom and practice of U.S. For instance, understanding when to respect – and when to challenge – a target’s sale “process” may be critical. Knowing how and at what price level to enter the discussions will often determine the success or failure of a proposal; in some situations it is prudent to start with an offer on the low side, while in other situations offering a full price at the outset may be essential to achieving a negotiated deal and discouraging competitors, including those who might raise political or regulatory issues. In strategically or politically sensitive transactions, hostile maneuvers may be imprudent; in other cases, unsolicited pressure might be the only way to force a transaction. Takeover regulations in the U.S. differ in many significant respects from those in non-U.S. jurisdictions; for example, the mandatory bid concept common in Europe, India and other countries is not present in U.S. practice. Permissible deal protection structures, pricing requirements and defensive measures available to U.S. targets will also likely differ in meaningful ways from what non-U.S. acquirors are accustomed to in their home jurisdictions. Sensitivity must also be shown to the distinct contours of the target board’s fiduciary duties and decision-making obligations under state law. Finally, often overlooked in cross-border situations is how subtle differences in language, communication expectations and the role of different transaction participants can affect transactions and discussions; preparation and engagement during a transaction must take this into account.
  • U.S. Board Practice and Custom. Where the target is a U.S. public company, the customs and formalities surrounding board of director participation in the M&A process, including the participation of legal and financial advisors, the provision of customary fairness opinions and the inquiry and analysis surrounding the activities of the board and financial advisors, can be unfamiliar and potentially confusing to non-U.S. transaction participants and can lead to misunderstandings that threaten to upset delicate transaction negotiations. Non-U.S. participants need to be well advised as to the role of U.S. public company boards and the legal, regulatory and litigation frame- work and risks that can constrain or prescribe board action. These factors can impact both tactics and timing of M&A processes and the nature of communications with the target company.
  • Distressed Acquisitions. Distressed M&A is a well-developed specialty in the U.S., with its own subculture of sophisticated investors, lawyers and financial advisors. The U.S. continues to be a popular destination for restructurings of multinational corporations, including those with few assets or operations in the U.S., because of its debtor-friendly reorganization laws. Among other advantages, the U.S. bankruptcy system has expansive jurisdiction (such as a worldwide stay of actions against a debtor’s property and liberal filing requirements), provides relative predictability in outcomes and allows for the imposition of debt restructurings on non-consenting creditors, making reorganizations more feasible. In recent years, court-supervised “Section 363” auctions of a debtor’s assets (as opposed to the more tradi- tional Chapter 11 plan of reorganization) have become more common, in part because they can be completed comparatively quickly, efficiently and cheaply. Additionally, large non-U.S. companies have increasingly turned to Chapter 15 of the U.S. Bankruptcy Code, which accords debtors that are already in insolvency proceedings abroad key protections from creditors in the U.S. and  has facilitated restructurings and asset sales approved outside the U.S. Firms evaluating a potential acquisition of a distressed target based in the U.S. should consider the full array of tools that the U.S. bankruptcy process makes available, including acquisition of the target’s fulcrum debt securities that are expected to be converted into equity through an out-of- court restructuring or plan of reorganization, acting as a plan investor or sponsor in connection with a plan of reorganization, backstopping a plan- related rights offering or participating as a bidder in a “Section 363” auction. Transaction certainty is critical to success in a transaction in bankruptcy, and non-U.S. participants accordingly need to plan carefully (particularly with respect to transactions that might be subject to CFIUS review, as discussed above) to ensure they will be on a relatively level playing field with U.S. bidders. Acquirors must also be aware that they will likely need to address the numerous constituencies involved in a bankruptcy case, each with its own interests and often conflicting agendas, including bank lenders, bond- holders, distressed-focused hedge funds and holders of structured debt securities and credit default protection, as well as landlords and trade creditors.
  • Debt Financing. While recent trends that have influenced acquisition financing seem positioned to continue in 2018, the recent U.S. tax legislation could alter the course of these trends in significant ways. Modestly rising interest rates and generally strong reception for acquisition financings in both the investment grade and high-yield markets continue to provide oppor- tunity to lock in attractive long-term fixed rates to finance acquisitions. Moreover, as anticipated in our 2017 memo, U.S. regulatory oversight of banks that led to leveraged lending constraints appears to be relaxing in practice, with banks providing acquirors more flexibility to finance acquisitions at higher leverage levels.The recently enacted U.S. tax legislation, described in greater detail below, could influence these trends in a number of ways. First, the new law vastly reduces the incentives for U.S. parented multinationals to hold cash off- shore, which cash will now be available for U.S. parent corporations to repay debt or for alternative purposes (e.g., share buybacks or M&A) that oth- erwise may have necessitated incremental borrowings in the U.S. Second, the new law limits deductions for net business interest expense, imposes additional limitations on deductible payments to non-U.S. affiliates and denies deductions for amounts paid or accrued in respect of certain “hybrid” arrangements. The potential limitations on interest expense deductibility aris- ing from these rules need to be carefully considered in connection with any potential acquisition of a U.S. target. In addition, financing-related market trends and developments generally should be monitored in planning acquisitions in the U.S.Important questions to ask when considering a transaction that requires debt financing include: what the appropriate leverage level for the resulting business is; where financing with the most favorable after-tax costs, terms and conditions is available; what currencies the financing should be raised in; how fluctuations in currency exchange rates can affect costs, repayment and covenant compliance; how committed the financing is or should be; which lenders have the best understanding of the acquiror’s and target’s businesses; whether there are transaction structures that can minimize financing and refinancing requirements; and how comfortable a target will feel with the terms and conditions of the financing.
  • Litigation. Shareholder litigation accompanies many transactions involving a U.S. public company but generally is not a cause for concern. Excluding situations involving competing bids – where litigation may play a direct role in the contest – and going-private or other “conflict” transactions initiated by controlling shareholders or management – which form a separate category requiring special care and planning – there are very few examples of major acquisitions of U.S. public companies being blocked or prevented due to shareholder litigation or of materially increased costs being imposed on arm’s-length acquirors. In most cases, where a transaction has been proper- ly planned and implemented with the benefit of appropriate legal and in- vestment banking advice on both sides, such litigation can be dismissed or settled for relatively small amounts or other concessions. Moreover, the rate of such litigation (and the average number of lawsuits per deal) has declined in recent years, due in part to changes in the law that reduced the incentives for shareholder plaintiffs’ attorneys to bring such suits. Sophisticated counsel can usually predict the likely range of litigation outcomes or settlement costs, which should be viewed as a cost of the deal.While well-advised parties can substantially reduce the risk of U.S. share- holder litigation, the reverse is also true: the conduct of the parties during negotiations can create an unattractive factual record that may both encourage shareholder litigation and provoke judicial rebuke, including significant monetary judgments. Sophisticated litigation counsel should be included in key stages of the deal negotiation process. In all cases, the acquiror, its di- rectors and shareholders and offshore reporters and regulators should be conditioned in advance (to the extent possible) to expect litigation and not to view it as a sign of trouble. In addition, it is important to understand that the U.S. discovery process in litigation is different, and in some contexts more intrusive, than the process in other jurisdictions. Here again, planning is key to reducing the risk.Likewise critical is careful consideration of the litigation aspects of a cross- border merger agreement. The choice of governing law and the choice of forum to govern any potential dispute between the parties about the terms or enforceability of the agreement will substantially affect the outcome of any such dispute and may be outcome-determinative. Parties entering into cross- border transactions should consider with care whether to specify the remedies available for breach of the transaction documents and the mechanisms for obtaining or resisting such remedies.
  • Tax Considerations. President Trump recently signed into law sweeping changes to business-related U.S. federal income tax rules that are expected to have far-reaching implications for U.S. domestic and multinational busi- nesses, as well as domestic and cross-border transactions. Among other things, the new law significantly reduces corporate tax rates, permits full expensing of certain property, adopts features of a “territorial” tax regime and imposes additional limitations on the deduction of business interest and various related-party payments. By reducing the “headline” corporate tax rate below that of many Organisation for Economic Co-operation and Develop- ment (OECD) countries, the new law makes conducting business in the U.S. more attractive. But, to pay for the reduced rates and migration to a “territorial” tax regime, the new law contains numerous revenue raising provisions as well. While a comprehensive summary is beyond the scope of this check- list (for more detail, see our memo of December 23, 2017), key changes inU.S. business taxation include the following:
    • A permanent reduction of the corporate federal income tax rate to 21%, and full expensing of depreciable tangible assets placed in service during the next five years.
    • A move toward a “territorial” tax system that generally eliminates tax on dividends received by a domestic corporation from a 10% owned non-U.S. corporation (and that may also eliminate tax on gain recog- nized upon a sale or disposition of such stake in a non-U.S. corpora- tion). The new law mandates a one-time income inclusion by 10% U.S. shareholders of the historic earnings of a non-U.S. subsidiary, generally at a tax rate of 15.5% or 8%, depending on whether such earnings were invested in cash or other assets. The international tax regime also includes new rules that are intended to deter U.S. corporations from shifting profits out of the U.S. and, to this end, taxes 10% U.S. shareholders on the “global intangible low-taxed income” of a non-U.S. subsidiary (generally, the non-U.S. subsidiary’s earnings in excess of a deemed 10% return on tangible assets), and provides a favorable deduction relating to income deemed attributable to sales of property for non-U.S. use or services provided to a person outside the U.S.
    • The new law limits deductions for net business interest expense to 30% of an amount that approximates EBITDA (and, beginning in 2022, EBIT), limits deductible payments made from U.S. to non-U.S. affiliates in multinational groups by way of a “base erosion” tax and prohibits deductions for certain interest and royalty payments to relat- ed non-U.S. parties pursuant to “hybrid” arrangements. In addition, the use of a corporation’s net operating loss carryforwards in any par- ticular year will be limited to 80% of taxable income.
    • The new law includes additional rules intended to deter “inversion” transactions.

The totality of these changes may shift transaction dynamics in complex and potentially unanticipated ways that will unfold over time. Specifically, we anticipate that (i) eliminating the incentives for U.S. parented multinationals to hold cash offshore could free up a significant portion of such cash for domestic and cross-border acquisitions by U.S. corporations, (ii) in cross- border transactions involving the receipt of acquiror stock, the identity of the acquiring entity will continue to be affected by the U.S. anti-“inversion” rules, and (iii) the changes to the U.S. international tax regime are unlike to establish the U.S. as an attractive holding company jurisdiction due to the retention and expansion of complex “controlled foreign corporation” rules.

Potential acquirors of U.S. target businesses will need to carefully model the anticipated tax rate of such businesses, taking into account the benefits of the reduced corporate tax rate, immediate expensing and, if applicable, the fa- vorable deduction for export-related activities, but also the impact of the new limitations on interest expense deductions and certain related-party payments, as well as the consequences of owning non-U.S. subsidiaries through an intermediate U.S. entity.

  • Disclosure Obligations. How and when an acquiror’s interest in the target is publicly disclosed should be carefully controlled and considered, keeping in mind the various ownership thresholds that trigger mandatory disclosure on a Schedule 13D under the federal securities laws and under regulatory agency rules such as those of the Federal Reserve Board, the Federal Energy Regulatory Commission (FERC) and the Federal Communications Commis- sion (FCC). While the Hart-Scott-Rodino Antitrust Improvements Act (HSR) does not require disclosure to the general public, the HSR rules do require disclosure to the target before relatively low ownership thresholds may be crossed. Non-U.S. acquirors should be mindful of disclosure norms and timing requirements relating to home jurisdiction requirements with respect to cross-border investment and acquisition activity. In many cases, the U.S. disclosure regime is subject to greater judgment and analysis than the strict requirements of other jurisdictions. Treatment of derivative securities and other pecuniary interests in a target other than common stock holdings can also vary by jurisdiction.
  • Shareholder Approval. Because most U.S. public companies do not have one or more controlling shareholders, public shareholder approval is typically a key consideration in U.S. transactions. Understanding in advance the roles of arbitrageurs, hedge funds, institutional investors, private equity funds, proxy voting advisors and other market players – and their likely views of the anticipated acquisition attempt as well as when they appear and disappear from the scene – can be pivotal to the success or failure of the transaction. These considerations may also influence certain of the substan- tive terms of the transaction documents. It is advisable to retain an experienced proxy solicitation firm well before the shareholder meeting to vote on the transaction (and sometimes prior to the announcement of a deal) to implement an effective strategy to obtain shareholder approval.
  • Integration Planning. Post-acquisition integration is often especially chal- lenging in cross-border deals where the integration process may require translation across multiple cultures, languages and historic business methods. If possible, the executives and consultants who will be responsible for integration should be involved in the early stages of the deal so that they can help formulate and “own” the plans that they will be expected to execute. Too often, a separation between the deal team and the integration/execution teams invites slippage in execution of a plan that in hindsight is labeled by the new team as unrealistic or overly ambitious. Integration planning should be carefully phased in as implementation may not occur prior to the receipt of certain regulatory approvals.
  • Corporate Governance and Securities Law. Current U.S. securities and corporate governance rules can be troublesome for non-U.S. acquirors who will be issuing securities that will become publicly traded in the U.S. as a result of an acquisition. SEC rules, the Sarbanes-Oxley and Dodd-Frank Acts and stock exchange requirements should be evaluated to ensure compatibility with home jurisdiction rules and to be certain that a non-U.S. acquiror will be able to comply. Rules relating to director independence, internal control reports and loans to officers and directors, among others, can frequently raise issues for non-U.S. companies listing in the U.S. Non-U.S. acquirors should also be mindful that U.S. securities regulations may apply to acquisitions and other business combination activities involving non-U.S. target companies with U.S. security holders. Whether the Trump administration, U.S. Congress and new commissioners of the U.S. Securities and Exchange Commission will significantly alter the regulatory landscape for public companies and transactions will be a subject of keen interest not only to non- U.S. acquirors, but to all public companies, acquirors and investors. Sweeping change has been promised and may be delivered.
  • Antitrust Issues. To the extent that a non-U.S. acquiror directly or indirectly competes or holds an interest in a company that competes in the same indus- try as the target company, antitrust concerns may arise either at the U.S. fed- eral agency or state attorneys general level. Although less typical, concerns can also arise if a non-U.S. acquiror competes either in an upstream or downstream market of the target. As noted above, pre-closing integration efforts should also be conducted with sensitivity to antitrust requirements that can be limiting. Home jurisdiction or other foreign competition laws may raise their own sets of issues that should be carefully analyzed with counsel. The change in the leadership of the U.S. antitrust agencies is not likely to affect the review process in most transactions because the administration of the antitrust laws in the U.S. is carried out by professional agencies relying on well-established analytical frameworks. Accordingly, the outcomes of most transactions can generally be easily predicted. Deals that will be viewed by the agencies as raising substantive antitrust concerns, and the degree of difficulty in overcoming those concerns, can also be confident- ly identified in advance. In such situations, careful planning is imperative and a proactive approach to engagement with the agencies is generally advisable. In addition, the Trump administration is likely to continue to scru- tinize the remedies offered by transaction parties, and to prefer (1) divesti- tures in lieu of conduct remedies that require ongoing oversight to ensure compliance and (2) acquirors of the divestiture assets to be approved prior to closing rather than permitting divestiture acquirors to be identified by the parties and approved by the agency after closing.
  • Due Diligence. Wholesale application of the acquiror’s domestic due diligence standards to the target’s jurisdiction can cause delay, waste time and resources or result in missing a problem. Due diligence methods must take account of the target jurisdiction’s legal regime and, particularly important in a competitive auction situation, local norms.  Many due diligence requests are best channeled through legal or financial intermediaries as opposed to being made directly to the target company. Due diligence requests that ap- pear to the target as particularly unusual or unreasonable (which occurs with some frequency in cross-border deals) can easily create friction or cause a bidder to lose credibility. Similarly, missing a significant local issue for lack of local knowledge can be highly problematic and costly. Prospective acquirors should also be familiar with the legal and regulatory context in the U.S. for diligence areas of increasing focus, including cybersecurity, data privacy and protection, Foreign Corrupt Practices Act (FCPA) compliance and other matters. In some cases, a potential acquiror may wish to investigate obtaining representation and warranty insurance in connection with a potential transaction, which has been used with increasing frequency as a tool to offset losses resulting from certain breaches of representations and warranties.
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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