16.5 Purchase Price and the Payment Method 485The adjustment of the consideration can therefore depend on the circumstances of
the target and the circumstances of the acquirer.
Like in a cash offer, the adjustment of the consideration can take place: at clos-
ing; after closing; or by virtue of the principle of equivalent treatment. Alterna-
tively, the acquirer may choose to limit the adjustment of the consideration to ad-
justment based on mandatory provisions of law.
Valuation of the acquirer’s own shares. Typically, share offers are governed by
the same rules and principles as cash offers. The problem is how to apply those
rules and principles to the acquirer’s shares instead of cash. Whereas cash offered
by the acquirer is subject to the principle of nominalism (Volume II), shares are
not. The value of the acquirer’s shares may fluctuate. This leads to the question
how the acquirer’s shares should be valued and how changes in their value should
influence the adjustment of the consideration for the target or its shares.
At closing. There can be some delay between the signing of the acquisition
agreement and the passing of the consideration at closing. During that period, the
market price of shares can change. For this reason, a simple conversion ratio may
not suffice.^84
Adjustment by virtue of the principle of equivalent treatment. Because of valua-
tion problems, it can be particularly difficult to apply mandatory provisions of law
that provide for adjustment by virtue of the principle of equivalent treatment (see
above).
Company law constraints. The adjustment of the consideration is subject to at
least four further particular company law constraints in share offers and share ex-
changes.
First, at least in public limited-liability companies to which the Second Com-
pany Law Directive applies, the adjustment mechanism must normally be decided
on or authorised by the general meeting.^85 It is therefore not sufficient to agree on
an adjustment mechanism between the acquiring company and the vendor com-
pany (asset deal, share offer) or the target company’s shareholders (share deal,
share offer). The agreement can be conditional upon a resolution of the acquirer’s
the general meeting.^86
Second, the adjustment mechanism must be compatible with the legal rules on
the valuation of the object when they are used as consideration for the acquirer’s
shares.^87
Third, the acquirer’s shares may not be issued at a price lower than their nomi-
nal value, or, where there is no nominal value, their accountable par.^88
(^84) For mergers in the US, see Bainbridge SM, Mergers and Acquisitions. Foundation Press,
New York (2003) pp 175–177.
(^85) Article 25(1) of Directive 77/91/EEC (Second Company Law Directive).
(^86) For the legal capital regime, see section 5.4. For counterparty corporate risk and the en-
forceability of such an agreement against the acquiring company, see Volume II.
(^87) Article 10 of Directive 77/91/EEC (Second Company Law Directive).
(^88) Article 8 of Directive 77/91/EEC (Second Company Law Directive).