Preparing for a Divestiture: An In-house Counsel s Guide September 20, 2017

Transcription

1 ACC NEW TO IN-HOUSE COMMITTEE LEGAL QUICK HIT Preparing for a Divestiture: An In-house Counsel s Guide September 20, 2017 James F. Modzelewski of Saul Ewing Arnstein & Lehr

2 Principal Considerations Due Diligence Process Bid Process Transaction Structuring Other Considerations

3 Due Diligence Process Assemble all relevant documents Relevant information will depend on the divestiture at issue Stock v. asset value Specific asset(s) v. entire company/division/business Corporate documents Charters, bylaws, resolutions, employment agreements Asset specific documentation Acquisition documents, contracts, tax information, title records, environmental reports, intellectual property

4 Establish a process for sharing documents Online data room, physical data room, FTP site Access to data room Review material agreements for potential issues Change of control/assignment provisions Provisions limiting the seller s ability to disclose the agreement or the terms thereof Change of control or severance payments Rights of first refusal or preferential rights Other termination or adverse consequences as a result of the sale

5 Address issues related to the due diligence process Time and expense related to the process Responsible person(s) for the process Consider the need for secrecy Employee retention issues

6 Bid Process Timeline Identify any legal issues that could affect the proposed timeline Due diligence issues, financing issues, regulatory approvals Identify professionals Investment bankers, accountants, attorneys Negotiate engagement agreements and assemble deal team Non-disclosure agreements Draft form agreement that can be tailed for each potential bidder Consider scope and duration

7 Address any special considerations given the assets, potential bidders or timing Permission for joint bidders Private equity funds and possible portfolio company competitors Management presentations Review written presentation materials to make sure there are not any misstatements or misleading information Confirm management is comfortable with the information being disclosed Due diligence reviews Special considerations for on-site visits Indemnity agreements Insurance

8 Initial indications of interests Final bids Consider whether to require bidders to include markups of purchase and sale contract Inclusion of markup has pros and cons Pros: more fully fleshes out deal terms, indicates bidder seriousness and commitment Cons: potentially limits bidders who are not in a position to do so for timing, cost or other reasons Letters of intent / term sheets Consider whether a public announcement is required Consider appropriateness of exclusivity or no-shop provisions

9 Transaction Structuring Stock v. asset sale Implicates tax, corporate liability and consent issues Potential tax consequences Tax basis/338(h)(10) elections NOL cutbacks 1031 like-kind exchange Treatment of liabilities Identify any key liabilities and address desired treatment Representations and warranties insurance

10 Buyer financing Available cash/credit facilities Consider lender consent issues Debt and equity commitment letters Evaluate firmness of commitments and creditworthiness of commitment sources

11 Other Considerations Corporate governance issues Board and shareholder involvement and consent Need for trading blackout (for public companies) Legacy indemnification or director and officer liability insurance for departing officers or directors Employee issues Affect of divestiture on employee benefits Need for retention packages Treatment of stock options and restricted equity

12 QUESTIONS

13 James F. Modzelewski Saul Ewing Arnstein & Lehr Tel: Jim Modzelewski is a corporate lawyer with Saul Ewing Arnstein & Lehr who represents public and private companies in sophisticated mergers and acquisitions, joint ventures and other corporate transactions. Jim brings the sensibilities of an in-house counsel to his work for these clients from his past experience as vice president and assistant general counsel for a NYSE-listed independent oil and gas company. In this role, he developed deep experience in corporate, securities and transactional matters, and in 11 years completed more than 30 mergers and acquisitions and other corporate transactions, with an aggregate value of more than $1.725 billion. He also has experience handling general corporate matters, including commercial contracts, regulatory inquiries, litigation, bankruptcy and collection and insurance and risk management issues.

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