474 16 Key Provisions of the Acquisition Agreement
mains^50 and it is unclear to what extent the old case-law can or cannot be applied to share
deals and asset deals.^51 This has increased interpretation of law risk in acquisition agree-
ments and made it even more necessary for the parties to regulate all terms expressly in the
contract. Because of the new provisions of the BGB, the parties will pay attention to
whether the vendor’s promises concerning the specifications of object would be inter-
preted^52 as “dependent guarantees” or “independent guarantees”. Breach of the latter is
combined with a heavier duty to pay damages.^53
The doctrine of regarding a share deal as an asset deal is fundamentally flawed,
because it is impossible to draw a line between these two forms of share deal. Fur-
thermore, the unrestricted application of asset deal remedies to a share deal as if
the share deal actually were an asset deal would be likely to enrich buyers at the
cost of sellers.
For example, let us assume that the buyer has paid €1 for shares of a company which, ac-
cording to the terms of the acquisition agreement, owns a machine worth €1 million and
other assets. If it turns out that the company does not own the machine, the buyer of shares
will sustain a loss up to €1 and the buyer of assets a loss up to €1 million, to simplify the
matter. Only the buyer of the machine would have sustained a loss of €1 million. It is pos-
sible that the failure of the target company to own the machine would not have had any ma-
terial effect on the valuation of the company’s shares. For example, the company’s balance
sheet may be €1 billion.^54
Statutory remedies. Depending on the governing law, the buyer of movable goods
might have a right to: claim damages; claim a price reduction; claim performance;
require the seller to remedy the lack of conformity by repair; or declare the con-
tract avoided. Most of such remedies are not mutually exclusive (cumulation or
remedies).^55
However, the only remedies that can easily be applied to share deals and assets
deals are the right to claim damages and/or a price reduction.
Rescission of a business acquisition contract is notoriously difficult, because
the buyer has taken control of the business and cannot return the business in the
same condition to the seller as when the buyer received it from the seller. This is
one of the factors that make conditions precedent to closing so important.
Even the right to claim damages and the right to claim a price reduction can be
problematic. To begin with, there are problems relating to evidence, causation,
and the valuation of the target: the buyer cannot always prove breach of contract;
the buyer cannot always show that the buyer has actually sustained loss or damage
from the breach; and the buyer cannot always show that the breach would have in-
fluenced price, because a shortfall in warranted assets and other breaches of war-
(^50) §§ 433 and 453 BGB.
(^51) Schröcker S, op cit, p 64.
(^52) §§ 133 and 157 BGB.
(^53) §§ 443 and 444 BGB.
(^54) Generally, Mäntysaari P, Mängelhaftung beim Kauf von Gesellschaftsanteilen. Swedish
School of Economics and Business Administration, Helsingfors (1998).
(^55) See, for example, CISG Article 45; § 437 BGB; DCFR III.–3:102.