20 & 21 - Acquisitions Flashcards
What is a share sale?
Buyer purchases the entire issued share capital of the target company.
New shareholders Same management (directors)
What is an asset sale?
Buyer purchases whole business or a division as a going concern
Same shareholders
New management/directors
Asset sale - what happens to the seller company if the whole business is sold?
The seller company continues to exist and becomes a cash shell
Do Sellers prefer share sales or asset sales? Why?
Sellers prefer share sales
- clean break
- consideration paid directly to selling SH s
Do Buyers prefer share sales or asset sales? why?
Buyers prefer asset sales
- cherry pick assets
- leave liabilities with seller company
What happens to employees in an asset sale?
Transfer to new owner automatically via TUPE
Which is legally binding: heads of terms, confidentiality agreement, lock out agreement
Confidentiality and lock out agreement = legally binding
Who sends the DDQ?
Buyer sends DDQ to Seller’s solicitor - buyer investigates the target
What is the purpose of a DDQ?
caveat emptor - on the buyer to have enough information to make choices
What is a warranty in the AA?
Seller makes a contractual statement of fact about the target
What is an indemnity in the AA?
Seller promises to reimburse Buyer for any loss suffered relating to a specific liability which may arise in the future
What is a disclosure letter?
Seller gives a letter to Buyer qualifying warranties
Limits the seller’s liability under the SPA. Seller will not face a breach of warranty claim.
Why and when is financial assistance prohibited?
Why: from doctrine of maintenance of share capital - want to protect public companies’ assets representing share capital
When: share sale/issue of shares
