USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang, Gregory Gewirtz and Vinita Sithapathy, Linklaters
• removal of any anti-takeover defences; • receipt of financing needed to effect the transac - tion; and • absence of a competing third-party tender offer. However, the conditions must: • be based on objective criteria and not be subject to the sole control of the bidder; and • apply to the entire tender offer. 6.5 Minimum Acceptance Conditions Generally, tender offers are conditioned on the target company’s shareholders tendering a certain minimum number of shares – usually a number of shares suf - ficient to approve the subsequent merger to squeeze out the remaining shareholders; see 6.10 Squeeze- Out Mechanisms . The specific percentage required is based on state law and the target’s governing docu - ments, but is usually at least 50% of the shares plus one additional share. 6.6 Requirement to Obtain Financing It is now rare for a transaction to have a standalone financing condition precedent (CP), whereby an acquirer will not be required to close the transaction if it is unable to raise financing between signing and closing. To mitigate financing risk, parties now typi - cally negotiate respective covenants in terms of con - summating the financing (or, on the part of the seller, to co-operate with the financing process) and provide for termination rights and/or reverse termination fees payable by the buyer upon a financing failure. A tar - get can also expect to receive evidence of committed debt financing for the buyer at signing, and to have the ability to seek specific performance or other equita - ble remedy to enforce the buyer’s obligation to close the transaction if debt financing has been funded and other CPs have been satisfied. 6.7 Types of Deal Security Measures In the United States, the parties to the transaction may agree to a variety of “deal-protection” terms. While the target and acquirer need to negotiate such terms on a case-by-case basis, some common terms in the US market are discussed below.
• “No-shop” clauses restrict the target company’s management and board of directors from soliciting any other bids or from providing any confidential information to any third-party bidders, in each case subject to the board of directors’ fiduciary duties. These clauses typically permit the target company to entertain unsolicited proposals. • Break fees are payable to the acquirer if the target company’s board of directors’ recommendation is withdrawn or if the transaction is not approved by the target company shareholders due to another transaction that has been proposed by an inter - loper. In certain cases, a break fee may be payable by the acquirer in the event that it fails to close the acquisition (“reverse” break fees). • Board or “force the vote” commitments require the board of directors to submit the transaction to the target company’s shareholders for a vote, even if the board no longer recommends that shareholders vote in favour of the transaction. • Right to match (or top) other offers – if the target receives a third-party proposal, the bidder has the right to change the terms of its proposal to “match” or “top” the third-party proposal. See also 6.11 Irrevocable Commitments . While the above mechanisms can help safeguard the success of an acquisition, state law imposes fiduci - ary duties on any target company’s board of direc - tors, which can limit the use of certain deal-protection terms and make it virtually impossible to “lock in” a transaction. Generally, unless the deal is signed and closed simul - taneously, the transaction will involve interim oper - ating covenants for the period between signing and closing. Interim operating covenants require the target to maintain the target business between signing and closing and to deliver it at closing without material impairment. 6.8 Additional Governance Rights Generally, a large shareholder will seek governance rights and other protections of its stock in a company – eg, designation right to the board of directors and a consent right to changes to the target’s governing documents or material business transactions.
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