Asia M&A forum day two: key takeaways

Author: IFLR Correspondent | Published: 11 Mar 2015
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In case you missed the second day of IFLR’s Asia M&A forum, being held at the JW Marriott in Hong Kong, here are the key takeaways from today’s panels

Frenemies: best practices in JV governance, competition and exit strategies

  • Chinese companies are looking to the European markets, and the value proposition has been compelling;
  • JV parties must be aware of EU competition law; they must be self-standing entities and not rely on the partners for key support. Failure to do so could trigger anti-competition issues;
  • It’s important for the JV to be established in a jurisdiction where the protection the parties are seeking is recognised by courts;
  • From a European perspective it’s best to include the clauses that really matter in the bylaws rather than the shareholders’ agreement. If there is a breach of the shareholders’ agreement, the party is entitled to damages but is unlikely to get an injunction in a court;
  • Veto rights exist to remind the majority shareholder that the minority shareholder is involved, but alternatives include cooling-off clauses, move-up clauses and side-note clauses.

Best practices when managing the M&A auction process: strategies for buyers and sellers

  •   There are still very few true auction processes in Asia; instead they tend to be truncated auction or sales processes;
  •   Sellers are able to control who is able to bid as well as the information flows. It’s best to give information in stages;
  •   The biggest hurdle to auction processes can be entrepreneurs themselves, who can be focused on headline price versus other terms that could add value;
  •   More counterparties add completion risk, and could chip away at the headline price – regardless of how attractive it looks initially;
  •   Warranty and indemnity insurance is becoming popular in Southeast Asia, and can make bids more attractive. Buyers may be required to pay for coverage in auctions for high-quality assets.

Know your ABCs: Asia-outbound opportunities in Argentina, Brazil and Chile

  • Argentina, Brazil and Chile are very different markets although they’re in the same region; while Argentina is facing sovereign debt issues, Chile is investment-grade.
  •   Buyers from Asia – not only Chinese companies but also those from Japan and Korea – are looking to natural resources and agriculture assets in these countries;
  •   In particular Chinese companies are looking at oil and gas in Argentina – particularly shale oil and shale gas – and infrastructure in Chile;
  •   Bilateral investment treaties and free trade agreements are helpful when investing – and if necessary, enforcing – in these jurisdictions.

Developments in dealing with conflict of interests in M&A

  • There are cultural and jurisdictional differences between different regions and countries, so banks must create a customised or fact-pattern-specific solution;
  • Aside from looking at external conflicts, counsel must also consider conflicts between teams within the bank;
  • Clients will sometimes say that they don’t have issues with a conflict, but banks won’t be able to carry out the transaction regardless. That comes down to reputational risk and regulatory concern;
  • Regulators around the region have sharper teeth, and as they become more sophisticated, they are increasingly focussed on conflicts.

Sanction restrictions and the impact on your business

  • Sanctions are now targeting actual individuals and entities that the EU and US governments feel that are most responsible for certain issues, and that’s more difficult for financial institutions to monitor;
  • Lawyers and in-house are focussing on sanctions issues on the client on-boarding side;
  • There have been no major enforcements involving the financing of transactions that could be viewed as contravening sanctions, but no bank has the risk appetite to be the first;
  • It’s unclear whether Asian countries will implement sanctions regimes, but China has followed the example of other US regulatory regimes – including its anti-corruption and anti-trust regimes – in the past.