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

Spain

EUROPEAN UPDATE – Guide to Public Takeovers in Europe 2016-2017

Editors’ Note: This guide summarises the main characteristics of the French, Dutch, German, Italian, Spanish and UK laws and regulations applying to public takeover offers as they stood at June 2016.

Executive Summary: The guide has been updated to reflect legal and regulatory changes made to the national takeover regimes since it was last published in April 2013. The Takeover Directive has been implemented in all of the countries which are covered. Its aim is to provide equivalent protection throughout the EU for minority shareholders of companies listed on an EU regulated stock exchange in the event of a change of control, and to provide for minimum guidelines on the conduct of takeover bids.

However, the Takeover Directive makes some of its provisions – relating to defensive measures and voting rights/restrictions – optional, which means that, even after implementation, different regimes exist in different countries.

Against this background, the intention is that this guide will not only be of practical use for users, but also that an understanding of how particular jurisdictions have changed their legal/regulatory systems and practices will be of additional help to users of this guide in understanding the ongoing implications of the Takeover Directive.

Click here to read the full report.

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.

SPANISH UPDATE – New Opportunities For Foreign Investors In The Real Estate Sector

Editors’ Note: This paper was contributed by Juan Miguel Goenechea, a partner at Uría Menéndez in Madrid and a member of XBMA’s Legal Roundtable.  As one of Spain’s leading M&A experts, Mr. Goenechea has broad expertise in corporate, banking, finance and securities transactions at the top end of the market. This paper was authored by Uría Menéndez senior associates Pedro Ravina and Diego Montoya.

Highlights

  • The newly-created Spanish “bad bank” (SAREB) has been transferred a EUR 50.8 billion pool of loans and real estate assets from Spanish credit entities that were totally or partially nationalized, as well as the legal mandate to liquidate the entire portfolio in 15 years.
  • A legal framework has been enacted to facilitate the divestment process. In particular, a new type of investment vehicle with a privileged tax regime has been implemented to attract investment by non-Spanish resident investors. The vehicle is taxed at a 1% CIT rate and income obtained by non-resident investors (including residents in tax havens) will be tax exempt in Spain.
  • SAREB already announced divestitures in 2013 and the pipeline for new projects is extensive and appears to have attracted the attention of the largest international real estate firms as a result of the significant price discounts and the efficiency of the investment structure.
  • Amid the generally improved outlook of the Spanish economy and the increased stability in the Eurozone, the Spanish real estate market appears to be taking off after multiple years of significantly reduced activity.

Main Article:

Background

In the context of the EUR 100 billion external financial assistance requested by the Spanish Government with the aim of facilitating the restructuring and recapitalization of the Spanish banking sector, a memorandum of understanding (MOU) was agreed in July 2012 by and between the Spanish Government and certain European Union authorities (with the participation of the International Monetary Fund) by virtue of which specific political and financial-related conditions were imposed on Spain.

Key elements of the roadmap provided under the MOU included: (i) the identification of the individual capital needs by each of the Spanish banks by means of a “bottom-up” stress test (as well as a determination of which banks would need public support to complete the necessary recapitalization); and (ii) the segregation of the impaired assets of banks under public control or receiving public assistance and their transfer to a “bad bank”.

As a result of the stress test undertaken by Oliver Wyman and released in September 2012, the Spanish banking sector was divided into four groups: group 1 (comprising banks already nationalized, such as Bankia); group 2 (banks with capital needs that would likely lead to the bank requiring public assistance); group 3 (with lower capital needs and no expectation of public intervention); and group 4 (without further capital needs).

In November 2012, legislation enacted in consultation with the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund provided for the creation of the Spanish “bad bank” (denominated the Sociedad de Gestion de Activos Procedentes de la Restructuracion Bancaria, or SAREB) and the establishment of a specific legal and tax framework applicable to the bank.

Creation and main features of SAREB

SAREB is a for-profit corporation which overarching objective is the management and, ultimately, the divestiture of the assets received from the contributing banks within a period of no more than 15 years.

The contributing banks are those financial institutions included under groups 1 and 2.  Assets transferred to SAREB between December 2012 and February 2013 were primarily: (i) foreclosed real estate assets with a net book value exceeding EUR 100,000; (ii) (not necessarily non-performing) loans to real estate developers with a net book value exceeding EUR 250,000; and (iii) controlling shareholdings in real estate companies. Assets for an aggregate value of approximately EUR 50.8 billion have been transferred to SAREB, which price reflects an average haircut over gross book value of approximately 63% for foreclosed assets and 45% for loans. As consideration, SAREB issued state-guaranteed senior debt securities in favor of the participating banks. The securities have been structured to meet all requirements to be accepted as collateral for purposes of European Central Bank financing.

In order to fund operational needs, SAREB has raised equity for an aggregate amount of EUR 4.8 billion (25% share capital and 75% subordinated debt). A public-controlled fund for the restructuring of the Spanish financial sector (FROB) is the major shareholder with 45% of the equity holdings, while the remaining equity (55%) is held by a number of Spanish and foreign financial institutions (including Spanish banks under groups 3 and 4), insurance companies, and leading industrial corporations.

Divestment alternatives: Banking Assets Funds

Although SAREB may decide to refinance or further develop some of the assets received in order to maximize their value, the ultimate objective is the profitable liquidation of the entire pool of assets within the 15-year statutory deadline, either through the full collection of the principal of the loan (where feasible) or, most likely, by transferring the asset.

While the discounted price at which SAREB acquired the assets is itself an incentive for transfers, an ad hoc structure was created by law to facilitate the acquisition by foreign institutional investors of SAREB assets in tax-advantageous conditions.

In short, SAREB is able to divest the assets by incorporating insolvency-remote vehicles (denominated Banking Assets Funds, or BAFs) that provide structural flexibility and a favorable tax regime for investors and the BAFs themselves, subject to the condition that either SAREB or the FROB retain a stake.

BAFs can therefore be featured as joint ventures between investors and SAREB, and can be used to repackage different types of assets. Furthermore, BAFs’ liabilities can include loans, debt securities, quasi-equity instruments, several types of credit enhancement instruments or a combination of several. As a result, investors will have the flexibility to invest or co-invest in one or multiple tranches of BAFs whose assets were previously cherry-picked by investors (or “put on sale” by SAREB). Although the representation and management of the BAFs is legally reserved to regulated Spanish entities (securitization funds management companies), there is an expectation that, and experience has already shown, the leading role when it comes to material decisions (e.g., the sale of an asset allocated in a BAF) will be placed in the hands of investors or an asset manager appointed by them.

Nevertheless, in general, the main benefit of investing in SAREB assets through a stake in a BAF, as opposed to a direct acquisition of the relevant assets by the institutional investor or a subsidiary of the same, is tax-related. While the BAF itself enjoys a privilege treatment (for instance, a 1% corporate income tax rate as opposed to 30% for regular Spanish corporation), the key element of the scheme is the privileged tax regime applicable to the BAF’s stakeholders, particularly non-resident holders: non-resident entities without a permanent establishment in Spain investing in BAFs, including those domiciled in tax havens, will benefit from a full Non-Resident Income Tax exemption on income (interest, distributions) and gains (transfers) deriving from their BAFs’ stakes. Thus, from a tax standpoint, investment in real estate assets using a BAF would be the optimal option in contrast to using a regular corporation for the same objective (which would imply 30% CIT and, if not properly structured, Spanish taxation on income received from the vehicle).The privileged tax regime will only apply as long as SAREB or the FROB remains exposed to the BAF with, in principle, a stake of at least 5%.

Although the resulting outcome of the BAF joint structure is that SAREB will only partially dispose of the assets (as it would still have indirect exposure to them through its stake in the BAF), these assets will now be managed by specialist investors and SAREB will likely benefit from some portion of the upside upon exit.

Debut transactions and prospects

Following the completion of the process to group all assets transferred from the contributing banks and a comprehensive internal commercial and legal due diligence, SAREB has started to test the waters with a number of projects involving diverse types of assets.

Transparency and competitiveness have been key elements in all divestment processes. SAREB has proactively put specific groups of assets “in play” (perhaps after perceiving specific interest in the marketplace) and, with the assistance of corporate and real estate advisors, have organized auctions general open to bidders. The improved outlook of the Spanish economy, the increased stability in the Eurozone and the attractive features of the potential transactions (both in terms of price and tax-efficiency) have incentivized some of the largest international private equity and real estate investment houses to submit bids in these auctions.

Bull Project, whose EUR 100 million portfolio included real estate developments located in eight different Spanish regions, was the first auction completed last August. The selected buyer was H.I.G. Capital (through its affiliate Bayside Capital) and the transaction was structured through a BAF which will be held by H.I.G (with a 51% stake) and SAREB (with a 49% stake). Prestigious funds such Lone Star, Apollo, Colony, Centerbridge and Cerberus were reportedly among the other bidders in the auction.

As of July 2013, SAREB had sold 1,800 retail residential assets through the participating banks’ branch network. That figure increased to around 6,400 real estate assets as of November 2013. In addition, a portfolio of stakes in syndicated loans granted to Spanish listed real estate companies (Metrovacesa and Colonial, for approximately EUR 1.2 billion) have also been transferred to an undisclosed investor and Burlington, respectively. Other transactions in SAREB’s pipeline (including urban and rural land, luxury homes, shopping malls, office projects and additional stakes in loans to Spanish listed real estate companies), are expected to be announced before the end of the year or in the first quarter of 2014.

The general perception that the Spanish economy and real estate market have bottomed out and that prices now reflect the fair market value of the real estate assets is also contributing to a significant activation of the Spanish real estate M&A sector after several years of dramatic downturn. Some of the 2012 and 2013 deals included the acquisitions by TPG, Cerberus and a consortium of Kennedy Wilson and Varde of the Caixabank, Bankia and Catalunya Bank’s real estate portfolio management companies, respectively (and Grupo Santander and Banco Popular are also in the process of selling their recovery units). In all the cases of these sales of servicing companies by healthy banks, the managed assets are not transferred, but retained by the transferor. Other recent highlights include the purchase of Aktua (the former customer collection company within the Santander group) by Centerbridge, the approximately EUR 200 million sale by the Madrid regional government of a group of 3,000 subsidized apartments to a Goldman Sachs affiliate, and the pool of 1,860 rent-controlled properties sold by the City of Madrid to Blackstone for EUR 125 million.

Furthermore, all signs seem to indicate that the Spanish real estate market will continue to provide attractive opportunities for international funds in future months. SAREB projects will continue to fuel the activity, as SAREB’s business plan contemplates the divestiture of half of its portfolio during its first five years of existence. Additionally, most of the Spanish banks within groups 3 and 4 created their own “bad banks” in late 2012, into which they transferred all foreclosed assets as well as those acquired through debt-to-asset transactions. As the banks try to refocus on their core business, most of these “bad banks” (some of which became major Spanish real estate companies in terms of volume of assets) are up for sale, attracting the attention of the international investors.

For investors in distressed assets, undertaking appropriate servicing actions is a key element in their long-term plans to recover value on acquired bad debts. The offsetting up of local teams and the acquisition of Spanish collection platforms and real estate management companies by the largest international funds suggests that the investors are here to stay (at least for a while).

Nevertheless, there is no hope, or fear, of a new construction “boom” in Spain, as the main indicators on new construction, construction employment and cement consumption have remained weak. Conversely, experts consider that Spain is living in a period of price correction and reordering of the real estate existing stock which will produce attractive yields to those who are able to anticipate and invest at these valuation levels.

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.

SPANISH UPDATE – Foreign Investment in Spain

Editors’ Note: This paper was contributed by Juan Miguel Goenechea, a partner at Uría Menéndez in Madrid and a member of XBMA’s Legal Roundtable. As one of Spain’s leading M&A experts, Mr. Goenechea has broad expertise in corporate, banking, finance and securities transactions at the top end of the market.  The authors of this paper are Edurne Navarro, partner in charge of Uría Menéndez’s Brussels office and Alfonso Ventoso, partner in Uría Menéndez’s Madrid office.

Executive Summary: Although Spain’s current microeconomic situation is still critical, the macroeconomic framework is more stable; it appears that Spain is once again becoming regarded as a safe jurisdiction for investors.  This stability, together with a steep fall in valuations, is reinvigorating the market, and investors have begun looking at future investment opportunities.  This article, first published in The Foreign Investment Regulation Review, Edition 1 and reproduced with permission of Law Business Research, introduces Spain’s foreign investment regime, typical transaction structures, the review procedure by the relevant competent authority and foreign investor protection, as well as a projection of potential trends in this area.

Click here to read the article.

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.

SPANISH UPDATE – Information Exchange in the Framework of a Merger

Editors’ Note:  This paper was contributed by Juan Miguel Goenechea, a partner at Uría Menéndez in Madrid and a member of XBMA’s Legal Roundtable.  As one of Spain’s leading M&A experts, Mr. Goenechea has broad expertise in corporate, banking, finance and securities transactions at the top end of the market.  Edurne Navarro, the partner in charge of Uría Menéndez’s Brussels office, authored this article.  Ms. Navarro’s practice focuses on EU and Spanish competition law, as well as trade law.

Highlights:

  • Prior to the authorization of a merger by the relevant authorities, the exchange of information between them, while a crucial part of the deal, might be considered in certain circumstances a violation against proceeding with a merger without authorization.  Outlined below are some of the precautions to be taken in order to avoid a violation of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) or the corresponding legal provision in national law.
  • Agreements on the exchange of information are incompatible with the rules on competition if they reduce or remove the degree of uncertainty as to the operation of the market in question, rendering it artificially transparent, resulting in a restriction of competition between undertakings.  Competition law does not impede the exchange of information if it is (i) non confidential or (ii) even if confidential, not commercially sensitive.
  • Prior to the approval of the merger, access to information must be limited to what is needed to know to ensure future operations once the merger has been authorized.  Access also must be limited to a specific group of people within each organization (usually known as the “Clean Team”) who are not be part of the commercial or marketing teams and who will not share competitively sensitive information beyond what is required for legitimate purposes such as negotiation, due diligence, and integration planning.

MAIN ARTICLE

INTRODUCTION

Information exchange in the framework of a merger constitutes an important issue where the demands of the course of trade need to be balanced with the limitations imposed by competition law. Companies aim at completing the merger as soon as possible. However, competition law in most European jurisdictions requires the merger to be suspended until authorization is granted. Prior to the authorization, the parties to the merger remain competitors, and exchanging information between them is a walk on very thin ice.

Competition law considers that the exchange of information renders a market artificially transparent and may restrict competition. In that sense, the exchange of information during the negotiation of a merger may fall under the scope of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) or the corresponding legal provision in national law.

On the other hand, the exchange of information between merging companies is a crucial part of the merger itself. It is thus logical that, after an agreement to merge has been reached and before the authorization to execute the merger has been granted, the exchange of information might be considered in certain circumstances as a violation of the suspension obligation.

Therefore, legal concerns may arise both (I) prior to the merger agreement, when the exchange of information may be considered part of an anticompetitive practice and, (II) after a merger agreement has been reached, when the exchange of information may constitute an indication of the execution of the merger prior to its authorization, also known as gun-jumping.

II.  EXCHANGE OF INFORMATION DURING THE NEGOTIATION OF A MERGER

Agreements on the exchange of information are incompatible with the rules on competition if they reduce or remove the degree of uncertainty as to the operation of the market in question, rendering it artificially transparent, resulting in a restriction of competition between undertakings.

Competition law does not impede the exchange of information if it is (i) non confidential or (ii) even if confidential, not commercially sensitive. Specifically,

  • Information accessible through public sources or that companies may obtain by their own means is considered as non-confidential.
  • As to non-commercially sensitive information, this is information that, even if not generally accessible to third parties, is not directly related to the commercial strategy of the companies.

Areas where the exchange of information is particularly sensitive include non-aggregated turnover and financial data, information on costs, relationships with suppliers and customers, and confidential market information (such as the company’s position in the markets where it operates, statements as to the strengths or weaknesses of competition in these markets, or indications as to the position of third parties as close or distant competitors). However the type of information that should be considered sensitive for a certain company depends on the type of business and the market in which it operates.

In some cases, the parties may need to evaluate the economic efficiencies resulting from the merger, which can be relevant when defending the transaction before the competition authorities. Doing so will, in most cases, require not only information publicly available on the market, but also specific data that only the target can provide to the acquirer. Therefore, to satisfy an order to include in the notification to the authorities reliable data on possible efficiencies derived from the merger, the parties may need to exchange sensitive information. The limits which are imposed on the information that can be exchanged may, however, hinder the efficiencies claims. Nevertheless some mechanisms can be put in place to deal with this issue:

  • The creation of a “clean team”, as explained below.
  • Involvement of a third party: hiring, for instance, an economic consultant, not belonging to any of the parties in the transaction, with the ability to access and treat the sensitive information needed to assess post-merger efficiencies, without the threat of infringing competition law provisions.

III.  EXCHANGE OF INFORMATION AFTER THE MERGER AGREEMENT BUT BEFORE THE AUTHORIZATION TO MERGE HAS BEEN GRANTED

As mentioned, in most jurisdictions competition law establishes a suspension obligation when a merger must be reported to the relevant competition authorities. The parties must suspend the implementation of the transaction until the antitrust authorities grant an authorization. The infringement of this obligation is considered in most jurisdictions a serious offense and may entail significant fines.

Therefore, before the approval of the merger has been granted, the affected companies will be considered competitors and any joint commercial actions, such as price setting, joint contract negotiation, or the exchange of sensitive information, will be considered contrary to Article 101 TFEU or the equivalent national provisions.

However, parties are allowed to undertake preparatory actions regarding the implementation of the merger. The main objective of information exchanges prior to the authorization of the merger by competition authorities may be: (a) to comply with contractual obligations (e.g. information necessary for valuation purposes); (b) to prepare and ensure the integration of the businesses; and (c) to define actions or adopt decisions concerning the company resulting from the merger which will have effects after the authorization but need to be taken previously to avoid undermining the value of the company. In that framework, exchanges of confidential and commercially sensitive information are licit under certain conditions:

  • Access to information must be limited to what is needed to know to ensure future operations once the merger has been authorized. For example, commercial information for renegotiating suppliers’ contracts in order for them to enter into force once the merger is authorized.
  • Access must be limited to a specific group of people within each organization (usually known as the “Clean Team”) with the following characteristics:

i.      The employees in the Clean Team must not be part of the commercial or marketing teams.

ii.     They must sign a confidentiality agreement stating that the parties shall not share competitively sensitive information beyond what is required for legitimate purposes such as negotiation, due diligence, and integration planning. Such information should be shared only in accordance with the confidentiality agreement, limit its use to consideration of the transaction, and be disclosed only to persons who need access thereto for such purpose.

iii.    It is advisable to record the minutes of the meetings and to maintain a record of the shared information.

The members of the team will disclose the information to the relevant persons in the company, having previously removed the confidential or more sensitive information.

Such groups cannot be created with the objective or effect of coordinating the current commercial strategy of the companies, nor give an opportunity for an exchange of confidential information relating to said commercial strategy. The information exchanged should also be destroyed in case the merger does not ultimately proceed.

IV.  CONCLUSION

The exchange of information in the framework of a merger is an extremely delicate matter that, if not carried out properly, can infringe competition law and result in the imposition of very high fines on the companies involved. It is important to remember that the scope of the limits imposed by competition law to exchanges of information extend beyond the agreement to merge and are not lifted until the authorization to merge is granted. Prior to that moment, safeguard measures have to be put in place.

We have outlined here some of the precautions to be taken, but a case-by-case analysis has to be carried out in order to define the type of information that can be exchanged in each case and to put in place the necessary measures to prevent any antitrust concerns. It is thus important to seek legal advice to ensure that the behavior undertaken complies with the limits imposed by the law.

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.

UK UPDATE – Understanding and Dealing with Hedge Funds and Shareholder Activism Across Europe: The Impact of the Financial Crisis

Editors’ Note:  Contributed by Nigel Boardman, a partner at Slaughter and May and a founding director of XBMA.  Mr. Boardman is one of the leading M&A lawyers in the UK with broad experience in a wide range of cross-border transactions.

Executive summary:

The attached guide takes a pan-European look at trends and developments through the 2008 financial crisis and in the period since, focusing on:

  • the position of hedge funds: their behaviour, performance and strategies in that period, as well as the changed regulatory landscape they now face, and
  • activist behaviour by both hedge funds and other investors during that period.

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