USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Vinita Sithapathy, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters
• 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. 6.6 Deal Documentation See 6.3 Transaction Structures . 6.7 Minimum Acceptance Conditions Generally, tender offers are conditional 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 6.8 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. 6.8 Squeeze-Out Mechanisms In Delaware, a squeeze-out in the form of an interme- diate form merger can be effected without obtaining stockholder approval following successful completion of a tender offer for at least a majority of the out- standing shares, provided the merger meets certain procedural conditions pursuant to DGCL Section 251 (h). Otherwise, 90% is the most typical threshold for short-form mergers and is the threshold set by New York and for squeeze-outs in Delaware, except follow- ing a tender offer as described previously. In a friendly transaction, a “top-up” stock option may be granted by the target company pursuant to which the target company would issue up to 19.9% of its outstand- ing shares to help the acquirer reach the short-form squeeze-out threshold. If, upon completion of the tender offer, the acquirer owns less than the minimum amount of the target company’s shares necessary to complete a short-form merger or otherwise does not meet the requirements of DGCL Section 251 (h), a long-form merger follow- ing the tender offer would be subject to shareholder approval. Since the acquirer should own the requisite
number of the target company’s shares, such approval should be assured; see 6.7 Minimum Acceptance Conditions . However, the acquirer would still need to comply with state law procedures relating to calling a shareholders’ meeting and SEC requirements relating to proxy statements. 6.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer Historically, certain transactions in the USA had a financing condition precedent (CP) – ie, if the acquirer was unable to raise financing between signing and closing, it would not be required to close the transac- tion. However, such standalone financing CPs are now rare. To mitigate financing risk, parties now typically negotiate covenants for consummating the financing and provide for termination rights and/or reverse ter- mination fees payable by the buyer upon a financing failure. A target can also expect to receive evidence of committed debt financing for the buyer at signing, and may seek specific performance to enforce the buyer’s obligation to close the transaction if debt financing has been funded and other CPs have been satisfied. 6.10 Types of Deal Protection Measures In the USA, 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 other bids or providing confidential information to any third-party bidders, subject to the directors’ fiduciary duties. These clauses typically permit the target company to entertain unsolicited proposals. • Break fees: 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 proposed by an interloper. A break fee may also be payable by the acquirer if 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
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