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Standstill Agreement

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					                  Outbound Acquisitions
                              February 23, 2006




Acquiring a Multi-Jurisdictional Public Oil & Gas
Firm: Considerations for the Chinese Acquiror




                      Ingrid W Zhu-Clark
                   Managing Partner for China

       LeBoeuf, Lamb, Greene & MacRae llp
        a limited liability partnership including professional corporations
     Table of Contents
      1.     Introduction
                   A. About LeBoeuf
                   B. Description of Offices

      2.     Key Strategic Considerations
                   A. Issues Related to the Acquisition of a Public
                      Company by a Chinese Acquirer
                   B. General Approaches to Target
                   C. Likely Response of Target
                   D. Key Negotiating Issues
                   E. Other Key Issues


LeBoeuf, Lamb, Greene & MacRae llp                                    1
     Table of Contents                  (Continued)


        3.     Transaction Process
                     A.     Simplified Timeline of a Friendly Deal
                     B.     Key Terms of a Confidentiality and Standstill Agreement
                     C.     Preliminary Due Diligence
                     D.     Transaction Structure
                     E.     Form of Consideration

        4.     Merger Agreement
                     A.     Key Terms

        5.     Announcement and Closing Process
                     A.     Pre-Announcement Issues
                     B.     Securities Regulators
                     D.     Governmental Approvals


LeBoeuf, Lamb, Greene & MacRae llp                                                    2
     1. Introduction

      A. LeBoeuf, Lamb, Greene & MacRae LLP

              •    LeBoeuf, Lamb, Greene & MacRae is one of the world’s
                   leading law firms, with more than 600 lawyers in 22
                   offices worldwide

              •    Ranked as the No. 1 New York Energy Regulatory Law
                   Firm (by Chambers & Partners’ USA Guide to
                   America’s Leading Business Lawyers 2004-2005)

              •    US Energy Law Firm of the Year 2003 (Chambers Global
                   Awards)




LeBoeuf, Lamb, Greene & MacRae llp                                        3
     1. Introduction                 (continued)

     B. Description of Offices
            •     More than 100 lawyers specialized in energy law practice
                  resident in 22 worldwide offices
            •     Geographic Coverage
                New York                  Moscow          Houston

                London                    Beijing         Washington D.C.

                Paris                     Almaty          San Francisco

                Brussels                  Riyadh          Los Angeles

                Johannesburg              Harrisburg      Albany
                Pittsburgh                Boston          Salt Lake City
                Jacksonville              Newark          Hartford
                Chicago
LeBoeuf, Lamb, Greene & MacRae llp                                             4
    1. Introduction                  (continued)




         Presentation Overview

         A. Focus on acquiring companies listed on major stock
            exchanges: New York, London, Toronto

         B. General considerations applicable to all public
            company M&A transactions




LeBoeuf, Lamb, Greene & MacRae llp                               5
     2. Key Strategic Considerations

      A. Issues related to the Acquisition of a Foreign Energy Company
         by a Chinese Acquirer

              •    General approach in most jurisdictions is non-discriminatory

              •    In theory, PRC acquirer should not be different

              •    However, as we have seen, energy assets are politically sensitive

              •    Depending on the jurisdiction, the acquiror may expect to
                   encounter at least some political opposition

              •    Therefore, strategy for obtaining political support may be critical

              •    A local partner may be considered, but may also complicate
                   transaction



LeBoeuf, Lamb, Greene & MacRae llp                                                       6
     2. Key Strategic Considerations                            (continued)


      B. General Approaches to Target
              •    Needs to be non-threatening as hostile offer unlikely to succeed
              •    May initially be through intermediaries but principals should
                   be involved early
              •    Major considerations for Target Board:
                      PRICE!!!
                      Will the Target’s shareholders accept?
                      Can the acquiror close the deal? (analysis of the extent of political
                       support, regulatory hurdles, other third party support or consent
                       issues)
                      Will management and employees’ jobs be preserved?
                      Positive/negative effects on other stakeholders?


LeBoeuf, Lamb, Greene & MacRae llp                                                             7
     2. Key Strategic Considerations                     (continued)



      C. Likely Response of Target
              •    Target will either have a "quiet auction" or will only proceed
                   with initial acquiror if it is a"blow-out" bid, i.e. a highly
                   attractive offer
              •    If quiet auction, a risk of other bidders or a leak and market
                   price increase
              •    Regardless of initial offer, price negotiations are a near
                   certainty
              •    In any case, merger agreement is likely to provide an "out"
                   for the Target to pursue a higher offer, subject to paying
                   “break-up fee” of 1-5% of deal value



LeBoeuf, Lamb, Greene & MacRae llp                                                  8
     2. Key Strategic Considerations                      (continued)


      D. Key Negotiating Issues
              •    Initial offer should be good enough to encourage Target to
                   negotiate but leave room for Target to increase somewhat
              •    Assuming no formal auction, offer should be subject to due
                   diligence but realistically if material issues are discovered it
                   may be hard to renegotiate the price
              •    Many merger agreement issues can be significant and often
                   can only be resolved by the principals
              •    Social issues: CEO, officers and board of Target;
                   representation on acquiror’s board, protection of Target
                   employees and community support
              •    Important that top management of acquiror be thoroughly
                   involved in, or apprised of, negotiations


LeBoeuf, Lamb, Greene & MacRae llp                                                    9
    2. Key Strategic Considerations                     (continued)



           E. Other Key Issues

                  •     Importance of confidentiality: limited number
                        who know, code names and care in use of phones,
                        fax and email

                  •     If news of transaction leaks, it could attract other
                        buyers and will raise market price of Target




LeBoeuf, Lamb, Greene & MacRae llp                                             10
     3. Transaction Process
      A. Simplified Timeline of a Friendly Deal

        Week 1               Preliminary document review based on public filings and assemble
                              diligence materials
                             Negotiate and execute a Confidentiality and Standstill Agreement

       Week 2-6              Preliminary negotiations and valuation
                             Deliver Draft Merger Agreement
                             Negotiate Merger Agreement
                             Acquiror and Target Board meetings
      Weeks 6-10             Execute Merger Agreement and announce transaction
                             File Proxy Statement with relevant securities regulatory and deliver
                              Proxy Statement to the stock market

                              Acquiror and Target file the anti-competition notification with the
      Week 11-18              relevant government department and agency, if applicable
                              Receive and respond to regulatory comments on Proxy Statement, if any
                              File final Proxy Statement with the securities regulatory, and circulate
                              to Target shareholders

       Week 19-24            Special meeting of Target Shareholders to approve the meeting
                             Closing

LeBoeuf, Lamb, Greene & MacRae llp                                                                       11
     3. Transaction Process                             (Continued)
      A. Creation of Deal Team
        Management             Analyze strategies for operational and cost-saving synergies
                               Update financial projections
                               Develop due diligence teams
                               Develop an internal information control strategy
                               Meetings of the Board and/or Subcommittees

       Legal Advisor           Conduct preliminary due diligence based on publicly available documents
                               Review strategic considerations
                               Consider structural options
                               Advise Board on obligations
                               Antitrust/regulatory review

     Financial Advisor         Update valuation analysis and earnings accretion/dilution impact analysis
                               Finalize review of all possible value recognition strategies, including tax impact
                               Evaluate proposal(s)
                               Analyze Target’s strengths and weaknesses
                               Gauge possible reactions of other industry participants

                               Coordinate press releases and press strategy
   Public Relations Firm
                               Coordinate employee communications

          Lobbyist             Contact affected lawmakers
                               Lobby governmental authorities

LeBoeuf, Lamb, Greene & MacRae llp                                                                                   12
     3. Transaction Process                 (Continued)


      B. Key Terms of a Confidentiality and Standstill
         Agreement
              •    Initiates the due diligence/review process
              •    Key provisions:
                      Keep existence of discussions confidential
                      Keep non-public information confidential
              •    An exclusivity provision would prevent Target from
                   seeking other suitors for limited period of time (30 to 90
                   days)
                      Probably not available in an auction
              •    Standstill prevents acquiror from buying stock in Target
                   for a specified period of time (18 to 36 months)


LeBoeuf, Lamb, Greene & MacRae llp                                              13
     3. Transaction Process                  (Continued)


      C. Preliminary Due Diligence
              •    Phases of Due Diligence

                      Initial phase limited to review of publicly available
                       information
                      Next phase limited to exchange of information based on due
                       diligence checklist between limited number of upper-level
                       management
                      Dataroom could be physical or virtual
                      Further phases expand into teams involving direct contact
                       with specialty counterparts coupled with interviews and on
                       site visits
                      Goal is to substantially complete all phases in coordination
                       with negotiation of Merger Agreement


LeBoeuf, Lamb, Greene & MacRae llp                                                    14
     3. Transaction Process                 (Continued)


      C. Preliminary Due Diligence (Continued)

              •    Key Areas of Review

                      Corporate Organization
                      Financial/Business
                      Financing
                      Regulatory
                      Environmental Regulatory Matters
                      Franchises and Regulation
                      Tax/Accounting
                      Employee/Labor
                      Litigation/Arbitration


LeBoeuf, Lamb, Greene & MacRae llp                        15
     3. Transaction Process                  (Continued)


      C. Preliminary Due Diligence (Continued)
              •    Key Areas of Review (Continued)
                      Relationship with Shareholders
                      Insurance Coverage
                      Acquisitions/Divestitures
                      Litigation
                      Oil and Gas Properties (including material oil and gas leases,
                       operating agreements, gas sales contracts and other
                       agreements covering oil and gas properties and oil and gas
                       reserve reports)
                      Material Contracts
                      Intellectual Property
                      Suppliers, Customers and Operations

LeBoeuf, Lamb, Greene & MacRae llp                                                      16
     3. Transaction Process                      (Continued)

      C. Preliminary Due Diligence (Continued)
              •    Results of Diligence
                      Coordinate with negotiation of material terms of Merger
                       Agreement
                      Development of corporate diagnostic on corporate structure
                       of Target
                           –   Target capital structure
                           –   Target Board structure
                           –   Applicable Target voting provisions on business combinations
                           –   Relevant corporate law
                      Development of comprehensive due diligence report on all
                       material aspects of Target business
                           –   Highlight material business issues for treatment in Merger
                               Agreement and valuation


LeBoeuf, Lamb, Greene & MacRae llp                                                            17
     3. Transaction Process                   (Continued)


      D. Transaction Structure
              •    Structuring will coincide with, and be dependent upon, due
                   diligence
              •    Available options depend on governing corporate and
                   securities law
              •    Once options are established, choice of structure will depend
                   on:
                      Tax issues
                      Timing issues
                      Flexibility in achieving post-closing objectives
                      Anticipated level of shareholder approval
                      Ability to offer desired consideration (cash or equity)
                      Target’s preferences
LeBoeuf, Lamb, Greene & MacRae llp                                                 18
     3. Transaction Process                          (Continued)


       E. Form of Consideration
               •     Cash
                            +    Positive Considerations
                                     » Easy to value
                                     » Easy to explain to retail shareholders of Target
                                     » No post-transaction dividend and foreign
                                       exchange issues
                            –    Negative Considerations
                                     » Requires Target to maximize value (a legal
                                       obligation in the U.S., Canada and other
                                       countries)
                                     » Taxable transaction for Target shareholders




LeBoeuf, Lamb, Greene & MacRae llp                                                        19
     3. Transaction Process                        (Continued)


      E. Form of Consideration (Continued)
              •    Equity or a Combination of Cash and Equity
                           Positive Considerations
                                 » In many jurisdictions, can be structured as a tax-free
                                   transaction for Target shareholders
                                 » May allow Target to avoid seeking to maximize value
                                   (where applicable)
                           Negative Considerations
                                 »   More difficult to value
                                 »   Might require higher premium for Target shareholders
                                 »   More difficult to explain to retail shareholders of Target
                                 »   Post-transaction dividend and foreign exchange issues




LeBoeuf, Lamb, Greene & MacRae llp                                                                20
     4. Merger Agreement
     A. Key Terms
             •    “Merger Agreement” can be called many things, but the principal
                  issues are the same
             •    Price
                    Form and Timing of Consideration
                     Attractiveness of Consideration to Target's Shareholders
             •    Social Issues
                    Top Executive Positions
                    Employee Issues
                    Board Representation
                    Headquarters Location
             •    Representations and Warranties
                    Topics to be covered have become standardized
                    No "survival" after closing and no practical ability to recover for breach
                    “Bring down“ clause



LeBoeuf, Lamb, Greene & MacRae llp                                                                21
     4. Merger Agreement                    (Continued)


      A. Key Terms (Continued)
              •    Interim Covenants
                      Operations of Target between signing and closing
                      Non-solicitation provisions – acquiror’s primary protection
                       against losing the deal to another bidder

              •    Closing Conditions
                      Material Adverse Change clauses
                      Governmental Approvals
                      Tension between minimizing uncertainty and planning for
                       unforeseen events




LeBoeuf, Lamb, Greene & MacRae llp                                                   22
     4. Merger Agreement                       (Continued)


      A. Key Terms (Continued)
              •    Indemnification
                      Protects against inaccuracies in representations and warranties
                      Usually not available if Target is public company, unless a major selling
                       shareholder can back-stop the obligation

              •    Termination Provisions and Break-up Fees
                      Often minimized to mutual consent, deal deadline exceeded, uncured
                       major breaches and impossibility of closing
                      Break-up Fees negotiated to protect investment of time and resources
                      To be enforceable, amount must be reasonable
                        – Common range is 1%-5% (average 2-3%) of deal value




LeBoeuf, Lamb, Greene & MacRae llp                                                                 23
     5. Announcement and Closing Process

      A. Pre-Announcement Issues
              •    Practical Problems of Maintaining Confidentiality
              •    Managing the Disclosure Process
                      Monitoring Price Movements in the Stocks
                      Responding to Inquiries from Exchanges and Press
                      Crucial for Avoiding Disruption of Negotiations

              •    Usefulness of Public Relations Firm




LeBoeuf, Lamb, Greene & MacRae llp                                        24
     5. Announcement and Closing Process                 (Continued)



     C. Key Issues with Securities Regulators
             •    Depends on form of consideration
             •    If offering equity to Target's shareholders, rather than
                  cash, process will become more complex:
                     Enhanced disclosure requirements
                     Longer timeframe

             •    In some jurisdictions, regulatory review of offering
                  materials can take some time




LeBoeuf, Lamb, Greene & MacRae llp                                           25
     5. Announcement and Closing Process                                 (Continued)


      D. Governmental and other Third Party Approvals
             •     Competition/Anti-Trust approvals and filing requirements
             •     Foreign investment review or similar legislation
             •     Other Laws and Regulations
                         Will largely depend on the nature of the assets held by Target and their
                          location
                         Stock exchange requirements apply where there is a listing of new shares;
                          delisting of stock following transaction; notice and shareholder approval
                          requirements
                         Director and shareholder approvals under corporate law
             •     Chinese government approvals
             •     Other approvals may be required from third parties (e.g. lenders and
                   other contracting parties)




LeBoeuf, Lamb, Greene & MacRae llp                                                                    26

				
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