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

20.1 Introduction 551

quirer’s lenders; the target or its assets; the target’s owners; and the target’s lend-
ers.
Traditional categories of takeover financing. Different forms of takeover fi-
nancing can be divided into different categories in many ways.
One can distinguish between three main categories of takeover financing:
bridge loans; refinancing from banks and the capital market; and internal financ-
ing.^3 The fourth category is using the assets of asset investors.

Table 20.1 Forms of Takeover Financing (1)

Bridge loans: Refinancing from

the market:

Internal financing: Assets of asset

investors:

Revolving credit

lines.

Liquidity lines.

Guarantees.

Loan facilities.

Syndicated loans.

Commercial paper.

EMTM programmes

Convertible bonds.

Share issues.

Asset securitisation.

Free cash flow of the

acquirer.

Free cash flow of the

target.

Disinvestments.

Securities lend-

ing.

The existence of different financing instruments increases flexibility and enables
the acquirer to design a financing mix according to its needs.
One can also distinguish between different categories of takeover financing on
the basis of availability. While some financial resources are available immediately
or immediately after the completion of the acquisition, others are available in the
medium or long term. The acquirer will need to review the availability of financial
resources before committing to the acquisition.^4

Table 20.2 Forms of Takeover Financing (2)

Available immediately: Available in the medium or long term:

Existing credit lines.

Free cash flow of the acquirer or the tar-

get.

“The war chest”.

New credit lines and new syndicated

loans.

Securities lending.

Loan facilities.

Syndicated loans.

Convertible bonds.

Public offerings.

Release of capital (for example, through

spin-offs, disinvestments, and asset secu-

ritisation).

Even from a legal perspective, different forms of acquisition financing can be di-
vided into different categories in many ways. In the light of company law con-
straints, the main categories could be: financial assistance in advance; debt; share-
holders’ capital; mezzanine; and restructuring after the completion of the
acquisition.

(^3) Schulte C, Corporate Finance. Die aktuellen Konzepte und Instrumente im Finanzman-
agement. Vahlen, München (2006) p 248.
(^4) Ibid, p 249.