570 20 Acquisition Finance
tion” (General Principle 5). Under the rules of the City Code, an offeror should make an
announcement of a firm intention to make an offer only when the offeror “has every reason
to believe that it can and will continue to be able to implement the offer” (Rule 2.5). Pre-
conditions to the offer are not permitted under the rules of the City Code, if they “depend
solely on subjective judgements by the directors of the offeror or of the offeree company
(as the case may be) or the fulfilment of which is in their hands” (Rule 13.1).
This means that: certain funds must be available to implement the bid; and the offer
must not, under normal conditions, be made subject to any financing conditions or pre-
conditions other than regulatory clearances.
Interestingly, the market for corporate control is more flexible and lender-friendly for
companies listed in the US. There are no restrictions on the conditionality of the bid and no
certain funds requirements.^71
In market practice, any potential offeror or buyer wanting to be taken seriously
must demonstrate reasonable certainty of funding. This has made it increasingly
difficult for lenders to negotiate conditions not included in the acquisition offer. A
pre-condition requiring the absence of any material adverse change is fairly stan-
dard.
Conditions precedent. As said above (section 12.5), the availability of funding
is a typical condition precedent to closing in a privately negotiated acquisition.^72
Even the loan facility agreement contains conditions precedent. In addition to
conditions precedent to closing, the agreement lays down conditions precedent to
drawdown (see below).
20.5.3 Many Legal Entities on the Side of the Borrower
General Remarks
The existence of two or more legal entities on the side of the borrower and the
changing of control over the target following a completed acquisition will influ-
ence the legal framework. The acquirer will try to ensure that it can complete the
acquisition, restructure the target, refinance the acquisition, have managerial dis-
cretion to run the business, and exit the target in due course. The lenders will try to
ensure that they can understand the nature of the participating companies and the
transactions, manage their risk exposure, and avoid any material adverse change in
their risk exposure. For this reason, they must review not only the proposed loan
facility but also the proposed acquisition and the planned restructuring and refi-
nancing. The lenders must also perform a due diligence inspection of all relevant
companies on the side of the borrower and a due diligence inspection of the target.
(^71) Bids for US-listed companies are regulated by the Williams Act 1968, which grants the
SEC authority to establish rules to govern bids for shares in companies registered under
the Securities Exchange Act 1934.
(^72) See nevertheless Rule 13.1 of the City Code on Takeovers and Mergers.