Acquisitions

Question 0

Do buyers or sellers generally prefer sale shares? Why?

Answer 0

Sellers.

Because other than warranties / indemnities / escrow account, can walk away post transaction

However asset sale also good for seller as can sell off non-profitable divisions of business whilst retaining profitable

Question 1

Do buyers generally prefer asset or sale shares? Why?

Answer 1

Asset shares

Because: can cherry pick

May be quicker and cheaper - less DD and negotiation on warranties and indemnities

Question 2

Advantages to buyer of asset sale?

Answer 2

May be quicker as not so much negotiating over what to buy

But more time spent on DD

Less disruption to business - pretty much carries on as normal

Question 3

Disadvantage for seller of asset sale?

Answer 3

Are unable to transfer liabilities (presuming buyer doesn’t take them).

Question 4

Purpose of disclosure letter?

Answer 4

Discloses all ways seller knows that they do not comply with warranties.

Front end - stuff that should be available in public anyway i.e through searches

Question 5

Main elements of financial assistance?

Answer 5

1) acquisition of shares
2) company prohibited
3) financial assistance - direct or indirect either;
4) before or at same time for purpose of acquisition; OR
5) after for purpose of reducing liabilities

Question 6

If there is a breach of the financial assistance regulations?

Answer 6

Fine / imprisonment
Transaction may be void / unenforceable
Court will try and sever the unlawful assistance so that the transaction is legal

Question 7

Exceptions to financial assistance rules?

Answer 7

Not for purpose of acquisition
(But for)

Purpose was incidental, part of a bigger reason

S681 - assistance via dividends and share buy back

S682 - lending money in ordinary course (provided net assets not reduced)

Question 8

If the target is private company, what assistance is prohibited?

Answer 8

Public subsidiary giving assistance for purchase IS prohibited

Public holding company giving assistance is not

Question 9

What is classed as financial assistance?

Answer 9

Gift, providing guarantee, providing security, loan, anything which reduces net assets of assister

Question 10

Is there a way round the financial assistance provisions?

Answer 10

Under S97, can re-register the public company as private, subject to requirements.