SINGAPORE Law and Practice Contributed by: Evelyn Wee, Sandy Foo, Tracy-Anne Ang, Terence Quek, Hoon Chi Tern, Goh Jun Yi and Tricia Teo, Rajah & Tann Singapore LLP
represent a genuine estimate of the loss suffered by the innocent party. For public deals, there are restrictions and prescribed requirements to be met in the Takeover Code for a listed target to agree to any break fees, and certain safeguards must be observed. Such safeguards assume that a break fee must be nominal, normally not more than 1% of the value of the target calculated by reference to the offer price. The directors of the tar - get company (both public and private) must also con - sider their fiduciary duties in agreeing to such break fees, as well as the possible breach of any financial assistance prohibition under the Companies Act. For a public transaction, the target board and its finan - cial adviser would also be required to provide written confirmations to the SIC, including that (i) the break fee arrangements were agreed as a result of normal commercial negotiations and (ii) they each believe the break fee to be in the best interests of the offeree company shareholders. The break fee arrangement must be fully disclosed in the officer announcement and the offer document, and the SIC should be con - sulted at the earliest opportunity where a break fee or similar arrangements are proposed. While it is generally open to bidders to propose deal security measures (such as break fees), where the Takeover Code applies, the target company should note its duty under the Takeover Code to not under - take any deal security measures that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on that offer’s merits. Further considera - tion should also be given to such measures in view of the SIC’s proposed revisions to the Takeover Code to enhance shareholder protection and regulation of takeovers and mergers in Singapore. 6.7 Termination Rights in Acquisition Documentation Private equity buyers and sellers are usually extremely focused on deal certainty, and termination rights are typically heavily resisted. Sale and purchase agreements typically contain a longstop date by which the closing conditions must be fulfilled, failing which the agreement will termi - nate. However, as mentioned previously, the condi -
tions and necessity of said agreement will usually be heavily negotiated, and any attempt at a “back-door” termination will generally be viewed with suspicion. Longstop dates are typically between three and six months from the signing date. The right to terminate for breach of pre-closing under - takings or representations/warranties will usually be resisted and at the very least pegged to some material thresholds. It should be noted that the termination of the pur - chase agreement is subject to the SIC’s approval in a going-private transaction subject to the Takeover Code, even when the condition giving rise to the ter - mination right has been triggered. 6.8 Allocation of Risk Parties are generally free to negotiate the representa - tions, warranties and indemnities. The scope of these varies widely from transaction to transaction and will depend on the relative bargaining power of the par - ties. Private equity sellers will want to minimise their continuing/residual liability on the sale of a portfolio company and, generally, the risks they are prepared to accept (whether in the form of warranties or indemni - ties or covenants) will be lower compared to corporate sellers. See also 6.9 Warranty and Indemnity Protection and 6.10 Other Protections in Acquisition Documenta- tion . 6.9 Warranty and Indemnity Protection Warranties A private equity seller will usually give fundamental warranties pertaining to title, capacity and authority, but the willingness to provide extensive business war - ranties will depend on the extent of participation and the involvement of management. Where management holds a significant stake, they are expected to give comprehensive warranties to the buyer, together with a management representation made to the private equity sellers. Where the management stake is not significant, the private equity sellers may be prepared to increase the scope of the warranties, subject to negotiated liability caps. See also 6.8 Allocation of Risk .
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