12.2 Confidentiality 407terms on the obligations of the vendor (rule-based strategy); a variable purchase
price the amount of which depends on the degree of compliance with the specifi-
cations of the target (alignment of interests); and contractual sanctions in the event
of breach of contract (alignment of interests).
Funding. The terms of the funding mix can influence many of the obligations
of the vendor (section 20.5).
12.2 Confidentiality.....................................................................................
During the course of negotiations, information is disclosed step by step depending
on how likely it is that the parties will reach agreement on mutually acceptable
terms and how likely it is that the prospective acquirer will not abuse the target’s
confidential information. The degree of confidentiality will thus influence the in-
formation disclosed to the prospective acquirer. The parties will try to ensure con-
fidentiality by legal and technical means.
Non-disclosure agreement. In all companies, the people who decide on disclo-
sure of information will have a duty of care based on the provisions of company
law (board members, the managing director/CEO), contract law, or labour law
(other senior managers, employees). Unnecessary or unrestricted disclosure of
confidential information can cause the firm damage.
The purpose of a non-disclosure agreement (NDA) is to prohibit the prospec-
tive acquirer from abusing the target company’s or seller’s confidential informa-
tion. The target company does not permit the acquirer’s due diligence without an
NDA.^3
An NDA usually contains: a prohibition to disclose confidential information
disclosed by the seller or the target other than to a certain group designated in the
NDA; a prohition to use confidential information other than for the purpose of
valuation of the target; a prohibition to disclose the existence of the NDA and the
negotiations; a duty to ensure that the acquirer’s advisers, board members, and
other persons to whom information may be disclosed comply with the NDA; and a
clause on liquidated damages payable in the event of breach.
Insider lists and access to inside information. If a party is a company whose se-
curities have been admitted to trading on a regulated market, it must also limit ac-
cess to inside information and draw up insider lists.
(^3) The following is an example of what can happen in the worst case without and NDA.
Burroughs B, Helyar J, Barbarians at the Gate. The Fall of RJR Nabisco (1990) : “... it
was obvious that Dole had somehow gained access to a wealth of Del Monte confiden-
tial information: shipping schedules, production forecasts, everything. Del Monte’s
competitive position ... had been seriously compromised. ... Dole had been allowed to
snoop into Del Monte’s most secret files. ... Several weeks later [a Del Monte manager]
received a Federal Express package apparently misrouted by a clerk at Dole headquar-
ters. Inside he found photocopied sheets of Del Monte financial data. ... It was clear
Dole was sending the data to its executives around the world. By then, of course, it was
too late to do anything about it.”