How market rumours shape global M&A

Author: | Published: 1 Oct 2012
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With public M&A bidding rules varying from country to country, there is an uneven playing field developing for shareholders and boards from around the world.

This was brought to the forefront of corporate lawyers minds during Monday’s session at the annual IBA conference in Dublin titled Public M&A – selected topics.

Using the example of a cash-heavy target facing competing bids from two hedge funds – one having made a formal offer and the other having publicly stated its interest – it was shown how a target’s value to shareholders changes depending on the number and length of bids.

The US has the most open and longest-running bidding process. India’s merger regime, on the other hand, typically requires competing bids to be formally submitted within 15 days of a market rumour. European jurisdictions lie somewhere in the middle.

“I think the way the pricing mechanism is set in India, there is no incentive for a second bidder to start a rumour,”said panelist Zia Mody, of AZB & Partners in Mumbai. This is because rumours would cause price fluctuations that could negatively impact the bidder required to make its formal offer 15 days after stating their interest in the company.

That is in stark contrast to the US, where it can be unclear how many bidders will be in play as negotiations proceed. Potential acquirers are even allowed to publish press releases stating their interest in a target, without being required to make a formal offer. This can, however, complicate the process and drive-up price as a target company’s board usually has a fiduciary-out to consider larger offers.

“We love market rumours – they make money for Wall Street, which is very popular in the local press and national media,” Andrew Nussbaum, a New York partner with Wachtell Lipton Rosen & Katz, said sarcastically.

“You can have many rounds of bids (in the US),” Nussbaum said. “We’ve had them go five, six [and] seven rounds. There is no external rule as to how many rounds you can have or how fast they have to go in our country. It’s really up to the board.”

In 2006 France’s securities regulator the AMF (Autorité des Marchés Financiers) implemented its version of the UK’s so-called put-up or shut-up rule.

“If the regulator is convinced that somebody is preparing a bid the AMF asks the potential bidder publicly whether indeed they have the intention to launch the bid or not,” said panelist Jacques Buhart, partner with McDermott Will & Emery in Paris. “The potential bidder has to respond within four or five days usually. If [the bidder] responds ‘no’ [it] is stuck – it cannot launch a bid.”

The put-up or shut-up provision is neither a European Directive nor a provision of German law, but Hengeler Mueller partner Joachim Rosengarten said there is little incentive for a competing bidder to let rumours spread because it would affect its price.

“Other than that, I think [the German bidding process] is quite nice for the shareholders,” Rosengarten said. “This could go on for a while.”

The UK is thought to be a less shareholder-friendly jurisdiction than the US and Germany because there is a cut-off period for bids. The UK has an auction procedure for resolving competing bids.

“The auction procedure can be anything really,” Cleaver said. “You can have full rounds of bids [for example]. Then there will be a cut-off point in the process where final bids will be submitted.”

Nussbaum said the bidder can control the clock of when to launch an offer in the US. This has implications for bidding wars and price.

“At some point somebody decides they would rather take a break-fee than buy the company at that particular price,” he said.

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