Tackling the Unique Challenges in a Cross-Border Joint Venture

Transcription

1 Tackling the Unique Challenges in a Cross-Border Joint Venture Dallas Bar Association International Law Section Monthly Luncheon Jorge Gonzalez Mo Alturk October 17, 2017

2 What is a cross-border joint venture? Commercial undertaking by two or more parties to run a business for profit, sharing risks, with the parties and/or the business located in more than one jurisdiction Joint development and joint marketing arrangements Area development and franchise relationships Strategic alliances, toll manufacturing and supply and distribution arrangements Consortia Equity joint ventures 2

3 Transaction continuum: Why enter into a cross-border joint venture? Outsourcing Corporate Joint Venture Traditional M&A Greenfield Contract Services Contractual Area Development / Franchise / License Supply/dist Investment Non- Controlling <50% Equity Joint Ventures Controlling 50% Partial Acquisition Controlling >50% Full Acquisition Establishment of Wholly- Owned Subsidiary Non-Equity Equity Increasing Degree of Commitment Increasing Degree of Integration Increasing Degree of Control 3

4 5 Essentials for tackling the unique challenges in a cross-border joint venture 1. Identify Goals and Success Drivers for the JV 2. Cover all of the Regulatory Requirements and Be Ready for Day 1 3. Protect Your Assets 4. Anticipate Common Problems in Documentation 5. Establish Well-Defined Exit Mechanics 4

5 1 Identify goals and success drivers for the JV

6 Identify goals and success drivers for the JV Goals Establish desired location and strategic rationale for entering into a cross-border JV Identify a JV Partner that (i) has goals for the JV that are compatible with your own and (ii) fulfills substantial needs for the success of the JV Establish a common vision for the structure, management and operation of the JV with your JV Partner Risks Failure to define goals for the JV makes it challenging to (i) identify and obtain buy-in from the right JV partner and/or (ii) establish and/or measure the success of the JV (or lack thereof) The ability to achieve objectives for the JV may be significantly undercut by legal, political or economic factors in the relevant jurisdiction(s) Failure to enter into a JV with a compatible JV Partner will result in time, resources and effort that should be put toward operation of the JV being diverted to try to "bridge the gap" between the parties' objectives and/or cultures After agreeing upon general goals, potential JV Partners often find key differences in their views as to how such goals will be achieved due to differences in legal or market practice or cultural or business perspective nothing can be taken for granted in the cross-border context 6

7 Identify goals and success drivers for the JV Best Practices Identify key success drivers for the JV: capital, products, relationships/contracts, facilities, IP, management, market penetration, licenses and permits, local know-how Identify which key success drivers that (i) you will provide, (ii) the JV Partner will provide or (iii) will be jointly provided or created Build and deploy a core deal team with experience in identifying cross-border issues affecting key success drivers (all risks are magnified in cross-border context) Conduct thorough operational and non-operational due diligence with respect to each potential JV Partner such review may be more difficult in the cross-border context Negotiate preliminary documentation (e.g., LOI, MOU or HOA) that sets forth a common understanding of JV structure, management and important issues Address key issues at a fairly granular level: capital/asset contributions, minority equityholder protections (JV equityholder/board super-majority voting requirements), tax issues, distributions, exit Tip: Establish objectives for the JV and plan for cross-border complexities 7

8 2 Cover all of the regulatory requirements: Be ready for Day 1

9 Cover all of the regulatory (and tax) requirements: Be ready for Day 1 Goals Manage antitrust, tax, foreign investment and other regulatory requirements and address the impact of local laws Achieve the smooth commencement and continuance of JV Operations Risks Failure to identify applicable antitrust, foreign investment or other regulatory laws (or do tax planning) in a timely manner can result in delays, last-minute changes to the JV structure or failed transactions Local legal and regulatory requirements may affect fundamental aspects of the JV (e.g., ownership structure, licenses, permits, employment and other operational issues) Cross-border JVs include all of the complexities of other cross-border transactions with the added complication of an ongoing relationship between JV Partners that may have differing business cultures Failure of the JV Partners to collectively identify and execute on key operational needs of the JV for Day 1 and to continue to communicate and execute on the same can negatively affect JV operations and the relationship between the JV Partners 9

10 Cover all of the regulatory (and tax) requirements: Be ready for Day 1 Best Practices Conduct preliminary analysis of antitrust/competition issues, tax, foreign investment, and other local laws early in the process (i.e., in conjunction with the preliminary documentation) Ensure broad definition of foreign investment laws (exchange controls, defense, sensitive lands, culture, etc.) Build any regulatory or local law requirements into project structure and timeline Be open to exploring workarounds or new structures to address concerns and be willing to think creatively Identify material needs of the JV for operation, allocate responsibility and establish a timeline for achievement of the same be prepared to be patient and flexible with your JV Partner Establish specialized working groups to focus on material issues at a granular level (e.g., IT, employment, regulatory matters) Tip: Do not ignore foreign investment and other local requirements 10

11 3 Protect your assets

12 Protect your assets Goals Ensure that the JV Partner and the JV have clear expectations regarding the ethical operation of the JV and monitor the same Include highly-qualified personnel on the JV board and as officers of the JV to protect your interests Protect material non-monetary assets (tangible or intangible) contributed, leased or licensed to the JV Risks Market or cultural practices in the relevant jurisdiction(s) may lead the JV to engage in behaviors that could substantially damage your brand and reputation and/or trigger substantial enforcement actions against you and/or the JV US individuals serving on JV boards or as officers of foreign JVs may be subject to civil and criminal exposure under US and foreign law Local (often technical) practices can severely limit and/or adversely affect your rights to tangible and intangible property (e.g., different classification systems, recording requirements and local name requirements) Local language and cultural considerations may affect meaning and local acceptance of brands 12

13 Protect your assets Best Practices Ensure that the JV establishes strong ethics and compliance policies that are consistent with those of your company and require the same in the JV's charter documents Require adequate JV internal controls and regular reporting and include right-to-audit clause in JV documentation Insist upon significant representation on the JV's board and among the JV's officer ranks Provide training with respect to local laws and ensure individuals remain informed regarding JV operations, finance and compliance with laws Provide indemnification and D&O insurance at both the joint venture and parent level to the extent possible Require such directors and officers to report to you regularly Register significant trademarks and acquire domain names in relevant jurisdictions prior to contacting potential JV Partners to avoid trolls Maintain significant control over your material assets to the extent possible (e.g., license IP, lease real property and/or significant equipment or other personal property) Understand and adjust for local language and cultural considerations Specifically address the handling of key assets upon expiration or termination of JV (e.g., termination of license and/or leases) Tip: Insist upon strong ethical practices that may exceed local norms 13

14 4 Anticipate common problems in documentation

15 Anticipate common problems in documentation Goals Establish firm protections for both JV Partners with respect to material matters and mechanisms for resolution should they deadlock regarding a path forward Use detailed contractual provisions to gain leverage in the event of potential disputes Risks The failure to provide clear protections for material matters and/or mechanisms for resolving disagreements with respect to the same may result in one or both of the parties (i) being unable or unwilling to provide requisite support to the JV and/or (ii) seeking redress under available law The effectiveness, nature and structure of such protections may be affected by local law requirements Contractual provisions may not be enforceable as negotiated/written or remedies may be more limited or insufficient 15

16 Anticipate common problems in documentation Best Practices JV equityholder/board super-majority voting requirements for fundamental issues (e.g., capital calls, distributions, new members) - be prepared to work around limitations of local law Management conciliation procedures that permit for a cooling-off period and/or for senior "independent" executives of the JV Partners to provide additional perspective toward resolution Ultimately, if the parties are unable to resolve the dispute between them, then call, put, buy-sell or dissolution mechanisms can avoid the continued tie-up of capital or assets for an indefinite period Review enforceability of terms under local law and understand available remedies (legally and in practice they are no always the same) Negotiate carefully and be strategic about the choice of law and dispute resolution provisions Tip: Protect against fundamental changes to JV operation and deadlock 16

17 5 Establish well-defined exit mechanics

18 Establish well-defined exit mechanics Goal Provide for an orderly exit or unwinding of JV operations upon its expiration or termination Risks An acrimonious end to the JV may lead to long, costly legal disputes and/or the unwarranted loss of market share or other strategic gains A failure to provide for a timely end of the JV may result in the tie-up of capital or assets for an indefinite period 18

19 Establish well-defined exit mechanics Best Practices Consider establishing an expiration date for the JV parties can always choose to extend the same Establish triggers for the termination of the JV (e.g., extended failure to meet an agreed business plan, the loss of key contracts, IP, licensure or managers) Establish clear mechanism(s) by which such termination would occur (e.g., call, put, buy-sell, dissolution mechanisms) one size does not fit all and such rights need not be reciprocal Tip: Provide a clear path by which the parties can end the JV 19

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21 Jorge A. Gonzalez Partner Baker McKenzie 2300 Trammell Crow Center 2001 Ross Avenue Dallas, Texas T jorge.gonzalez@bakermckenzie.com Jorge A. Gonzalez has considerable experience advising multinational corporations on a wide-range of cross-border business and commercial transactions and law issues. Apart from speaking English, Mr. Gonzalez is fluent in Spanish. Practice Focus Mr. Gonzalez focuses his practice on cross-border M&A and joint venture transactions, global corporate reorganizations and restructuring projects, as well as cross-border commercial agreements. He also assists US companies in the expansion of international operations through branches, subsidiaries and representative offices, as well as the maintenance and dissolution of such operations. On the commercial side, Mr. Gonzalez has particular expertise with international licensing, technical services, consulting, distribution, and commercial agency agreements. Mr. Gonzalez also has significant experience advising clients on international government tender processes and contracts, in particular in the oil and gas, pharmaceutical and defense industries.

22 Mohammad Alturk Baker McKenzie 2300 Trammell Crow Center 2001 Ross Avenue Dallas, Texas T mo.alturk@bakermckenzie.com Mo Alturk routinely advises and counsels clients in various industries with respect to the myriad challenges and opportunities presented by expanding, acquiring, selling, financing, franchising and licensing brands and businesses on an international level. Practice Focus Mo has a broad-based business-transactional practice focusing on complex corporate and commercial contract matters, with strong emphasis on global transactions involving public and private companies. His experience extends to cross-border joint venture transactions, international franchising, licensing and distribution transactions, international mergers and acquisitions, international regulatory compliance, and international corporate formation and maintenance.

23 About Baker McKenzie Baker McKenzie locations Baker McKenzie Geographic Initiatives In cooperation agreement Founded in 1949, Baker McKenzie advises many of the world's most dynamic and successful business organizations through more than 4,100 locally qualified lawyers and 6,000 professional staff in 75 offices in 47 countries. The Firm is known for its global perspective, deep understanding of the local language and culture of business, uncompromising commitment to excellence, and world-class fluency in its client service ( 23

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