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 Mondays session at the annual IBA conference in
Dublin titled Public M&A selected
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 targets value to shareholders changes
depending on the number and length of bids.
The US has the most open and longest-running bidding
process. Indias 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
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 companys 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. Weve 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.
Its really up to the board.
In 2006 Frances securities regulator the AMF
(Autorité des Marchés Financiers)
implemented its version of the UKs so-called put-up or
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
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
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.
The former World Bank chief economist Joseph Stiglitz
opened the IBA Annual Conference in Dublin yesterday. Here's
why he believes austerity measures will not solve the global
financial crisis http://www.iflr.com/Conference-newspapers.html