The Law of Corporate Finance: General Principles and EU Law: Volume III: Funding, Exit, Takeovers

11.4 Process 399

distributions, and provisions of financial assistance can be circumvented by merg-
ing the target with the acquirer.
Interests. The acquirer and the vendor can have differing interests. The vendor
often prefers a cash consideration. In that case, the acquirer must typically raise
debt funding. The acquirer often prefers to pay by issuing new shares to the seller.
The availability of cheap debt or financial assistance by the target or the fear of di-
luting its existing shareholder structure can nevertheless mean that the acquirer
prefers a cash consideration.

11.4 Process.................................................................................................

The acquisition process depends on the parties, the structure of the deal, and other
circumstances. It can depend on:

• the party initiating the transaction (the acquirer can make a friendly bid or a
  hostile bid; the seller may choose whom to approach and whether to use an auc-
  tion sale);


• the assets to be acquired (in an asset deal a company sells assets and is the cont-
  ract party; in a share deal a shareholder sells his shares and is a contract party;
  in a merger the target company is a contract party but the merger consideration
  is paid to the target’s shareholders);


• consensus (the prospective acquirer’s bid can be friendly or hostile; an asset
  deal and a merger are friendly);


• source of funding (the acquirers’s liquid assets, shares issued by the acquirer,
  financial institutions, the target’s assets, or the capital market);


• the parties (their enterprise form plays a role; a listed company’s actions are
  constrained by securities markets laws; a privately-owned company has more
  flexibility);


• the business (takeovers of regulated businesses can be subject to constraints and
  require permits; takeovers of unregulated business are more flexible);


• the country (apart from the usual questions of governing law, some countries
  restrict inward or outward capital movements or foreign ownership);


• the size and market share of the parties (competition laws are more likely to
  apply to takeovers where the parties are large in terms of market share or tur-
  nover); and


• tax laws.

Mitigation of the risk of opportunistic behaviour. There is a typical order of events
and documents for each structure. Regardless of the structure, the management of
information (Chapters 12–13) and the mitigation of the risk that the contract either
will become binding too early or will not become binding (section 12.5 and Vol-
ume II) will play an important role and will be supported by preliminary agree-
ments (heads of terms, confidentiality and exclusivity).