10.3 Third Party as a Source of Remuneration 349June 2007, a small group of prospective bidders that had showed interest received limited
financial data on the two brands. In July 2007, Ford received indicative bids which kicked
off the auction. In August 2007, Ford let the prospective bidders begin due diligence. The
successful bidder was expected to sign an estimated 40 contracts as part of the takeover,
ranging from engine production to the operation of information technology systems. In or-
der not to alienate other bidders in case negotiations with the favoured candidate fell
through, Ford could have selected a preferred bidder without making any official an-
nouncement. In January 2008, Ford nevertheless stated that it was committed to focused
negotiations at a more detailed level with Tata Motors. Tata had a period of exclusivity to
secure an agreement. After complicated negotiations, a final arrangement was reached in
March 2008.
A private auction is based on contracts. The relationship of prospective bidders
with the seller, and the relationship of the parties with the auctioneer, if any, falls
within the scope of the Rome I Regulation. The choice of law principle of lex loci
contractus is regarded as the most appropriate for auctions. In the absence of
choice, a presumption under the Rome I Regulation would lead to the application
of lex loci contractus as the governing law.^95
The 1955 Hague Convention on the Law Applicable to International Sales of Goods,
which, as its name implies, does not apply to the sale of shares, contains a special rule for
sales at auctions and the stock exchange. In the absence of choice, those sales will be gov-
erned by the law of the country where the auction or stock exchange is situated, that is, the
lex loci contractus. Some of the Member States of the EU and Contracting States to the
Rome Convention are parties to the Hague Convention.^96
Dutch auction IPO. The Dutch auction has exceptionally been used in IPOs in-
stead of the bookbuilding pricing method (section 5.10.2).
In the US, a committee appointed by the SEC suggested that the Dutch auction
could be used as an alternative to the bookbuilding method (Dutch auction IPO)
according to the following principles:^97 Prospective investors bid on their pre-
ferred number and price of shares. Successful bids are determined by starting with
the highest price and then moving downward until investor demand equals the to-
tal amount of securities offered, or clearing price. All shares are awarded at the
same final offering price. Excess demand results in a pro rata distribution of
shares.
The unconventional Dutch auction was used by Google in its IPO in 2004. In the Google
IPO, only qualified investors could bid for the shares. Prospective investors had to register
in order to obtain a bidder ID and have an account with one of the 28 securities firms un-
derwriting the sale. Qualified investors were asked to specify both the price they were will-
ing to pay and the number of shares they wanted. After this, shares were allocated begin-
ning with the highest-priced bids. The price offered by the last person to receive shares
became the price everyone paid, that is, the “clearing price”. However, Google stock
(^95) Article 4(1)(g) of Regulation 593/2008 (Rome I).
(^96) See also Articles 24–26 of Regulation 593/2008 (Rome I).
(^97) See Oh PB, The Dutch Auction Myth, Wake Forest L R 42 (2007) pp 853–910 at p 855.