The Law of Corporate Finance: General Principles and EU Law (eBook)

Table of Contents 5
1 Introduction 11
1.1 Cash Flow, Risk, Agency, Information, Investments 11
1.2 Funding, Exit, Acquisitions 11
1.3 Financial Crisis 12
2 Funding: Introduction 13
2.1 General Remarks 13
2.2 Separation of Investment and Funding Decisions? 13
2.3 Forms of Funding, Funding Mix, Ancillary Services 15
2.4 Legal Risks Inherent in Funding Transactions 23
2.5 Particular Remarks on the Subprime Mortgage Crisis 27
2.6 Funding Transactions and Community Law 29
3 Reduction of External Funding Needs 30
3.1 Introduction 30
3.2 Retained Earnings 31
3.3 Management of Capital Invested in Assets 31
3.3.1 Introduction 31
3.3.2 Excursion: IFRS and Derecognition 32
3.3.3 Leasing 34
3.3.4 Sale and Lease-back 44
3.3.5 Repos and Securities Lending 48
3.4 Management of Working Capital 48
3.4.1 General Remarks 48
3.4.2 Management of Accounts Payable 49
3.4.3 Management of Accounts Receivable 53
3.4.4 Particular Aspects of Securitisation 66
3.4.5 Cash Management 79
3.5 Excursion: Basel II 90
4 Debt 92
4.1 Introduction 92
4.2 Management of Risk: General Remarks 96
4.3 Particular Clauses in Loan Facility Agreements 107
4.4 Prospectus 120
4.5 Particular Remarks on Corporate Bonds 121
4.6 Particular Remarks on Securities in the Money Market 128
4.7 Particular Remarks on Syndicated Loans 134
5 Equity and Shareholders’ Capital 140
5.1 The Equity Technique, Different Perspectives 140
5.2 Share-based Equity and Equity That Is Not Share-based 147
5.3 The Legal Capital Regime 149
5.4 The Legal Capital Regime Under EU Company Law 154
5.5 Strategic Choices 167
5.6 Legal Aspects of Equity Provided by Shareholders 172
5.6.1 General Remarks 172
5.6.2 General Legal Aspects of Shares in Legal Entities 172
5.6.3 Shares in Partnerships 180
5.6.4 Shares in Limited Partnerships 181
5.6.5 Shares in Private Limited-liability Companies 182
5.7 Private Placements 189
5.8 Shares Admitted to Trading on a Regulated Market 192
5.9 Listing and the Information Management Regime 194
5.9.1 Introduction 194
5.9.2 Listing Conditions 202
5.9.3 Prospectus 208
5.9.4 Periodic and Ongoing Disclosure Obligations 214
5.9.5 Disclosure of Risk 216
5.9.6 Disclosure of Corporate Governance Matters 217
5.9.7 Prohibition of Market Abuse 218
5.9.8 Enforcement 224
5.9.9 Delisting 227
5.10 Shares as a Source of Cash 231
5.10.1 General Remarks 231
5.10.2 Management of Risk 233
5.10.3 Internal Corporate Action 243
5.11 Shares as a Means of Payment 245
5.11.1 Introduction 245
5.11.2 Community Law: General Remarks 246
5.11.3 Mergers and Share Exchanges 248
5.11.4 Mergers and Company Law 253
5.11.5 Share Exchanges and Company Law 265
5.11.6 Share Exchanges and Securities Markets Law 269
5.11.7 Fairness, Price, Existence of a Market 277
5.12 Shares as a Means to Purchase Other Goods 287
5.13 Share-based Executive Incentive Programmes 290
6 Mezzanine 292
6.1 Introduction 292
6.2 Example: Venture Capital Transactions 298
6.3 Loan-based Mezzanine Instruments 301
6.3.1 General Remarks 301
6.3.2 Structural Subordination of Debts 302
6.3.3 Repayment Schedules as a Form of Subordination 302
6.3.4 Statutory Subordination 303
6.3.5 Contractual Subordination of Debts 303
6.3.6 Contractual Subordination of Collateral 307
6.3.7 Structural Subordination of Collateral 309
6.3.8 Participation in Profits 309
6.4 Share-based Mezzanine Instruments 311
6.5 Profit-sharing Arrangements 315
7 Chain Structures and Control 317
7.1 General Remarks 317
7.2 Examples of Cases 317
7.3 Legal Risks 319
7.3.1 Parent 319
7.3.2 Companies Lower Down in the Chain 320
8 Exit: Introduction 322
8.1 General Remarks 322
8.2 Exit from the Perspective of the Investor 323
8.3 General Remarks on the Management of Risk 325
8.3.1 Introduction 325
8.3.2 Replacement Risk and Refinancing Risk 325
8.3.3 Risks Relating to Ownership Structure and Control 327
8.3.4 Counterparty Risks (Agency) in General 328
8.3.5 Information and Reputational Risk 328
9 Exit of Different Classes of Investors 331
9.1 General Remarks 331
9.2 Exit of Asset Investors 331
9.3 Exit of Debt Investors 333
9.4 Exit of Shareholders 334
10 Exit of Shareholders 335
10.1 Introduction 335
10.2 Cash Payments by the Company 335
10.2.1 General Remarks 335
10.2.2 Dividends and Other Distributions 337
10.2.3 Redemption of the Subscribed Capital 340
10.2.4 Share Buy-backs 341
10.2.5 Redeemable Shares 346
10.2.6 Withdrawal of Shares Otherwise 348
10.3 Third Party as a Source of Remuneration 348
10.3.1 Introduction 348
10.3.2 Clean Exit, Private Sale, Auction, IPO, Bids 349
10.3.3 Termination of a Joint-Venture 368
10.3.4 Privatisation 371
10.4 Mergers and Divisions 376
10.4.1 General Remarks 376
10.4.2 Mergers 376
10.4.3 Formation of a Holding SE 383
10.4.4 Divisions 384
10.5 Private Equity and Refinancing 389
10.6 Walking Away 394
10.7 Liquidation 395
11 Takeovers: Introduction 396
11.1 General Remarks, Parties 396
11.2 Structures 397
11.3 Consideration and Funding 403
11.4 Process 404
11.5 Contents of the Sales Contract 406
11.6 Summary 408
12 Acquisition of Shares in a Privately-owned Company for Cash 409
12.1 Introduction 409
12.2 Confidentiality 411
12.3 Preliminary Understanding 412
12.4 Ensuring Exclusivity, Deal Protection Devices 414
12.4.1 General Remarks 414
12.4.2 Exclusivity Clauses 415
12.4.3 Ensuring Exclusivity v Company Law 418
12.5 Signing, Conditions Precedent to Closing 421
12.6 Employee Issues 425
13 Due Diligence and Disclosures 431
13.1 General Remarks 431
13.2 Due Diligence in Practice 432
13.3 Legal Requirements and Legal Constraints 436
13.3.1 General Remarks 436
13.3.2 Vendor Due Diligence, Vendor’s Perspective 437
13.3.3 Buyer Due Diligence, Vendor’s Perspective 437
13.3.4 Buyer Due Diligence, Target’s Board 440
13.3.5 Buyer Due Diligence, Buyer’s Perspective 444
13.3.6 Buyer Due Diligence, Buyer’s Board 446
13.4 Particular Remarks on External Fairness Opinions 447
14 Excursion: Merger Control 450
14.1 General Remarks 450
14.2 Jurisdiction 452
14.3 Complying with Community Law 455
14.4 National Merger Control 461
15 Excursion: Sovereign Wealth Funds 462
15.1 General Remarks 462
15.2 Community Law 463
16 Key Provisions of the Acquisition Agreement 465
16.1 General Remarks 465
16.2 The Specifications of the Object 465
16.3 Excursion: Non-Competition Clauses 472
16.4 Remedies (Indemnities) 474
16.5 Purchase Price and the Payment Method 480
16.5.1 General Remarks 480
16.5.2 Choice of the Payment Method 481
16.5.3 Adjustment of Consideration 483
16.6 Buyer Due Diligence After Closing, Claims 488
16.7 Excursion: Auction Sale 489
17 Duties of the Board in the Context of Takeovers 492
17.1 General Remarks 492
17.2 In Whose Interests Shall Board Members Act? 492
17.3 Duty to Obtain Advice or to Give Advice 497
17.4 Takeover Defences and the Interests of the Firm 499
18 Takeover Defences 504
18.1 General Remarks 504
18.2 Pre-Bid Defences Well in Advance 507
18.3 Structural Takeover Defences, Control 507
18.4 Price-increasing Defences 508
18.5 Keeping Assets Away from the Acquirer 509
18.6 Securities Lending 510
18.7 The White Knight Defence 511
18.8 Poison Pills, Shareholder Rights Plans 512
18.9 Greenmail and Other Targeted Repurchase Actions 513
18.10 Tactical Litigation, Administrative Constraints 514
18.11 Example: Arcelor and Mittal 515
19 A Listed Company as the Target 520
19.1 General Remarks 520
19.2 Information Management: Secrecy v Disclosure 522
19.3 Toehold, Creeping Takeover, Major Holdings 525
19.4 Selective Disclosure Internally 532
19.5 Selective Disclosure to Lenders 534
19.6 Selective Disclosure to Outsiders by the Acquirer 534
19.7 Selective Disclosure to Outsiders by the Target 536
19.8 Disclosure to the Public 540
19.9 Acting in Concert, Acting in a Certain Capacity 542
19.10 Public Takeover Offers 544
20 Acquisition Finance 549
20.1 Introduction 549
20.2 Funding Mix 552
20.3 Particular Remarks on Securities Lending 555
20.4 Financial Assistance 556
20.5 Debt 564
20.5.1 General Remarks 564
20.5.2 Commitment of Banks 567
20.5.3 Many Legal Entities on the Side of the Borrower 570
20.5.4 Internal Coherence of Contracts 576
20.6 Shareholders’ Capital 579
20.7 Mezzanine 580
References 583