SGS 1 (Private Treaty v Auction) Flashcards

1
Q

Three benefits of auction sale to seller?

A

Maximises price (encourages bidders to bid against each other)

Larger pool of potential investors.

Directors can demonstrate they got best price to shareholders / creditors.

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2
Q

Two benefits of auction sale to bidder?

A

Could use to gain info about target (access to data room)

Receive lower price is few / no other bidders.

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3
Q

Disadvantages of auction sale to seller and bidder?

A

S: risk of leakage of confidential info to competitors
Transaction costs higher
Management time

B: forced to pay higher price
wasted management time and costs if unsuccessful
more limited due diligence info.

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4
Q

Preliminary documents for Auction and PTS?

A

A: IM, process letter, confidentiality agreement.

P: Heads of Terms, exclusivity agreement, confidentiality agreement.

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5
Q

What is the drafting difference?

A

AA drafted by sellers for A whereas by buyers for PTS (buyer wants to be in control of warranties)

BUY seller prepares first draft of disclosure letter in both.

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6
Q

What is an IM?

A

Gives info about Target business and is basis upon which bidders submit indicative bids.

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7
Q

Who tends to have rights under a confidentiality agreement?

A

Seller and potential bidders are party to it.
Target commonly allowed to enforce terms as if a party to it allowing the successful bidder to be protected if confidential information is leaked AFTER sale.

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8
Q

What is a process letter?

A

Set out after confidentiality agreement is signed and sets out process for auction.
Questions to elicit information enabling Seller to understand if there will be any regulatory problems or conditions that could slow transaction.

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9
Q

In legal terms, what is a process letter?

A

AN ITT
Blackpool Flyde Aero Club v Blackpool - bidder has contractual right to have tender considered prior to relevant deadline.

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10
Q

What liability applies only to share sales?

A

s.19 FSMA (shares are a specified investment - Art 76)

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11
Q

How could an auction process involve a specified activity under s.19 FSMA for Sellers and their solicitors?

A

SELLER: arranging deal in investments (Art 25), dealing in investments (Art 14)

SOLICITORS: advising (Art 53 RAO), arranging deals in investments (art 25).

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12
Q

Exceptions to s.19 FSMA?

A

Seller Art 70, Art 28 - dealing in investments as principal

Solicitors + Art 29 arranging deals through authorised person if seller’s financial adviser is authorised.

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13
Q

What potentially breaches s.21 FSMA?

A

Information memorandum

Exemption under Art 62(2)(b), Art 19 or Art 49(2) FPO.

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14
Q

Why must the information memorandum not be embellished?

A

s.89 FSA CRIMINAL offence to make false or misleading statements to induce someone to enter into an agreement to buy SHARES (NOT asset sales)

Smith New Court: overstating degree of interest or terms offered by other bidders –> fraudulent misrepresentation.

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15
Q

Related party transaction?

A

Only applicable if transaction is between LISTED COMPANY and a substantial shareholder / director / shadow director.

Shareholder approval will affect timing

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16
Q

Regulatory consents?

A

If Target or part of its group FCA REGULATED –> need FCA approval if a holding of at least 10% is changing hands.

Consent of SoS for newspaper merger

Relevant regulator consent for oil / gas interest company acquisition.

17
Q

Shareholder consents?

A

May be required if

Articles require it

Deal involves new long term contracts being entered into by directors.

Deal involves a SPT between company and one or more of its directors.

18
Q

Data protection issues?

A

Confidential employee information in data room should be anonymised to avoid a breach of the Data Protection Act 2018.

19
Q

How does s.21 relate to auction sales?

A

Criminal offence for an unauthorised person to communicate an invitation or inducement to engage in an investment activity.
This includes APPROACHING potential buyers to induce them to enter into NEGOTIATIONS for the acquisition of shares in a company and the DISTRIBUTION of an IM.

20
Q

What are the obligations under DTRs?

A

Apply only to listed companies.

Must disclose major new developments which may have a significant effect on company’s share price.

Can be delayed provided it would not:
mislead the public, anyone who has the info owes a duty of confidentiality to listed co; listed co can ensure confidentiality of the info.

21
Q

If delaying under DTR what is it important to bear in mind?

A

Seller cannot misrepresent matters to the market e.g. saying there are no plans to sell the target.

Nb delay guidelines - negotiations to sell a Target constitute a legitimate interest unless there is breach of confidentiality during negotiations.