Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing

Transcription

1 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing November 1, /16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 1

2 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing November 1, 2011 Copyright 2011 Shearman & Sterling LLP. Shearman & Sterling LLP is a limited liability partnership organized under the laws of the State of Delaware, with an affiliated limited liability partnership organized for the practice of law in the United Kingdom and Italy and an affiliated partnership organized for the practice of law in Hong Kong. 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 2

3 Common Structures Merger, Asset Purchase, Stock Purchase, Tender Offer Most large-cap deals involve a merger Successor liability can be a good thing Asset Purchase has particular issues Tender Offers and Two-Steps Margin Regulations Threshold for approval; Appraisal Rights Relevant to both public and private 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 3

4 Example of a Merger Structure SPONSOR TARGET MERGER SUB Target Sub Target Sub Target Sub Target Sub Target Sub Target Sub Target Sub Target Sub Target Sub 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 4

5 Break-Up and Termination Structures Specific Performance Usually only in corporate deals Concerns for financing sources Reverse Break-Up Fee Elements still subject to Specific Performance e.g. requirement to enforce the commitment letters Perception of an option Two-Tiered Remedy depends on whether financing is available or not Specific performance and reverse break-up fee OR Two different reverse break-up fees 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 5

6 Risks Prior to Xerox Tortious interference claims Jury trials Plaintiff-friendly Jurisdictions 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 6

7 Governing Law MAE Acquisition Agreement Representations Merger Agreement New York or Delaware 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 7

8 Xerox Provisions Based on the merger agreement for Xerox s $6.4 billion acquisition of Affiliated Computer Services, one of the early deals to contain these provisions Discuss any deviations with internal counsel this is a big policy/risk issue for every bank. Some recent exceptions in specific performance deals if the financing is not contemplated 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 8

9 Xerox (cont d) The Engagement Parties will require that the Target/Seller agree in the Acquisition Agreement that (i) its sole and exclusive remedy thereunder (including with respect to the Engagement Parties and each of the Lenders (including, without limitation, [list leads])) is the payment of a specified break-up fee (cont d) Market has moved away from requiring break-up fee as the sole remedy Often a defined term Financing Sources which will be broad enough to include affiliates, officers, etc. 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 9

10 Xerox (cont d) (ii) any action or proceeding involving any Engagement Party or Lender (including, without limitation, [list leads]) arising out of or relating to the Acquisition, the Senior Secured Credit Facilities or the performance of any services thereunder be subject to the exclusive jurisdiction of a state or federal court sitting in the County of New York, (cont d) 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 10

11 Xerox (cont d) (iii) it will not, and it will not permit any of its affiliates to, bring or support anyone else in bringing any claim, action or proceeding in any other court, Sometimes expanded to a statement that it will not sue the lenders or support anyone else in doing so (regardless of jurisdiction) (iv) it waives any right to trial by jury in respect of any such claim, suit, action or proceeding, (cont d) 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 11

12 Xerox (cont d) (v) the Engagement Parties and the Lenders (and their respective affiliates) are beneficiaries of any liability cap or other limitation on remedies or damages in the Acquisition Agreement, (cont d) What happens if there is no such cap? 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 12

13 Xerox (cont d) (vi) any adjustment to purchase price, escrow of purchase price hold back amounts and any release or use of such escrowed proceeds shall be satisfactory to the Engagement Parties and (cont d) This provision is seldom insisted on 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 13

14 Xerox (cont d) (vii) that the Engagement Parties and the Lenders (and their respective affiliates) are expressed third-party beneficiaries of the provisions in the Acquisition Agreement reflecting the foregoing agreements. All the Xerox requirements necessitate careful review of the acquisition agreement and understanding of its provisions and how they work together 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 14

15 Material Adverse Effect Date - Last audit is not always a given Since through Closing bringdown Carve-Outs Disproportionate impact qualifier Actions consented to by the buyer Schedules, public filings reasonable specificity, reasonably identifiable, etc. Prospective element Corporate-to-Corporate or Strategic Deals SET FORTH IN COMMITMENT LETTER IN FULL 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 15

16 Acquired Business Material Adverse Effect means: an event, occurrence, or development that has had or would reasonably be expected to have a material adverse effect upon the financial condition, operating results, business or assets of the Acquired Business and its subsidiaries taken as a whole, except any adverse effect resulting from (a) general business or economic conditions affecting the industry in which the Acquired Business or any of its subsidiaries operates, (b) national or international political or social conditions, including the engagement by the United States in hostilities or the escalation thereof, whether or not pursuant to the declaration of a national emergency or war, or the occurrence or the escalation of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (c) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (d) changes in GAAP, (e) changes in Law, Orders or other binding directives issued by any Governmental Body, (f) the taking of any action contemplated by the Acquisition Agreement (including Section 5.03 thereof) or the other agreements contemplated thereby or the announcement of the Acquisition Agreement, the other agreements contemplated thereby or the transactions contemplated thereby, or (g) any matter set forth in the disclosure schedules, delivered to the Lead Arrangers on September 30, 2011, to the Acquisition Agreement to the extent the magnitude of such matter being disclosed is apparent from such disclosure, provided that any effect in excess of such disclosed magnitude shall be considered for purposes of determining whether a Acquired Business Material Adverse Effect has occurred; provided, that in the case of clauses (a), (b), (c), (d) or (e), such changes shall not be excluded to the extent that such changes have a materially disproportionate effect on the Acquired Business and its subsidiaries, taken as a whole, compared with other companies in the industry in which the Acquired Business or any of its subsidiaries operate. 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 16

17 Financing Cooperation Covenant to cooperate to close the financing Providing financial statements Pro formas can be a gating item Authorization letter Participating in marketing Marketing Period ~ 20 business days from delivery of Required Information Condition in commitment letters why here? Capital markets and Finance work together on these provisions if bonds are involved 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 17

18 Representations & Warranties SunGard Conditionality ties to Acquisition Agreement Representations Only if material to the interests of the lenders Only to the extent that the buyer would have the right to terminate or decline to consummate Most agreements have a closing bring-down that is qualified overall by MAE Due diligence and credit agreement reps/schedules 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 18

19 Conditionality Acquisition Agreement Representations Consummation in accordance with the Agreement No waiver, amendment or consent Materially adverse to the Lenders Purchase price reduction deemed materially adverse % threshold Allocation if there is a threshold Required consents and approvals Permitted Debt 10/16/2013 Xerox and Beyond: Merger Agreement Provisions in Acquisition Financing 19