SGS 1 (Private Treaty v Auction) Flashcards
Three benefits of auction sale to seller?
Maximises price (encourages bidders to bid against each other)
Larger pool of potential investors.
Directors can demonstrate they got best price to shareholders / creditors.
Two benefits of auction sale to bidder?
Could use to gain info about target (access to data room)
Receive lower price is few / no other bidders.
Disadvantages of auction sale to seller and bidder?
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.
Preliminary documents for Auction and PTS?
A: IM, process letter, confidentiality agreement.
P: Heads of Terms, exclusivity agreement, confidentiality agreement.
What is the drafting difference?
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.
What is an IM?
Gives info about Target business and is basis upon which bidders submit indicative bids.
Who tends to have rights under a confidentiality agreement?
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.
What is a process letter?
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.
In legal terms, what is a process letter?
AN ITT
Blackpool Flyde Aero Club v Blackpool - bidder has contractual right to have tender considered prior to relevant deadline.
What liability applies only to share sales?
s.19 FSMA (shares are a specified investment - Art 76)
How could an auction process involve a specified activity under s.19 FSMA for Sellers and their solicitors?
SELLER: arranging deal in investments (Art 25), dealing in investments (Art 14)
SOLICITORS: advising (Art 53 RAO), arranging deals in investments (art 25).
Exceptions to s.19 FSMA?
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.
What potentially breaches s.21 FSMA?
Information memorandum
Exemption under Art 62(2)(b), Art 19 or Art 49(2) FPO.
Why must the information memorandum not be embellished?
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.
Related party transaction?
Only applicable if transaction is between LISTED COMPANY and a substantial shareholder / director / shadow director.
Shareholder approval will affect timing