USA – WASHINGTON, DC Trends and Developments Contributed by: Nicholas S. Johnson, Jonathan S. Deem, Jennifer S. Fahey and Japera A. Parker, Bailey & Glasser, LLP
Minority investment and phased acquisition structures In transactions where full merger control filings would trigger comprehensive review, some parties have explored phased structures under which the buyer acquires an initial minority stake – below HSR and foreign investment notification thresholds – before pursuing a subsequent full acquisition. While regula - tory authorities have become more attentive to these strategies and have in some cases challenged minor - ity acquisitions that functionally conveyed control, properly structured phased transactions can allow parties to deepen their relationship, validate integra - tion assumptions and develop regulatory strategy before committing to full acquisition. Structural modifications to reduce CFIUS exposure In foreign investment transactions, the transaction structure itself can meaningfully affect the scope and intensity of CFIUS review. Structures that limit a foreign acquirer’s access to sensitive technology, personal data or critical infrastructure – for example, through the creation of a proxy board, the exclusion of specified business units from the acquired perimeter, or the negotiation of special security agreements at signing – can facilitate CFIUS clearance or reduce the extent of required mitigation. Interim operating covenants and long-stop management When regulatory timelines extend unexpectedly, the interim operating covenants governing the target’s conduct between signing and closing become increas - ingly consequential. Covenants that were designed for a six-month regulatory timeline may become commer - cially problematic if closing is delayed by 18 months or more. Preserving commercial flexibility Standard interim operating covenants requiring the target to operate in the ordinary course and obtain buyer consent for significant decisions can, over extended periods, meaningfully constrain the target’s ability to respond to competitive dynamics, capital markets conditions and strategic opportunities. Deal lawyers should negotiate carve-outs from ordinary course covenants that preserve the target’s ability to take commercially necessary actions, and should
build consent processes that are designed to operate efficiently over potentially extended timelines. Long-stop renegotiation rights Some sophisticated deal structures include explicit provisions permitting either party to request renego - tiation of deal economics or covenants if the outside date is extended beyond a specified threshold. While these provisions introduce uncertainty, they can pro - vide a commercially rational mechanism for preserving deal viability when extended regulatory timelines have fundamentally changed the economic circumstances of the transaction. Regulatory escrows and deferred closing structures An emerging area of deal structuring involves the use of regulatory escrows and deferred closing mecha - nisms to facilitate partial closings or to ring-fence regulatory risk in specific transaction components. In transactions involving multiple distinct businesses, geographic markets or transaction segments, par - ties have increasingly explored structures that permit closing on components of the transaction that have received regulatory clearance while holding other components in escrow pending completion of review. Regulatory escrow arrangements – under which a por - tion of the consideration is held in escrow pending final regulatory approval – can facilitate partial eco - nomic value transfer while regulatory processes are completed. These structures require careful attention to tax treatment, accounting presentation and the allocation of operational responsibility for escrow- held assets. Practical considerations and conclusion Structuring M&A deals around regulatory uncertainty requires a mindset that integrates legal risk man - agement with commercial strategy from the earliest stages of transaction planning. The most successful transactions in high-scrutiny environments share sev - eral common features: • they involve early and candid assessment of regulatory exposure, including engagement with antitrust and regulatory counsel before deal terms are finalised;
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