Summary of chapter 42 : Taking control of a company
The art of negotiation consists in allocating the value of the synergies expected from a merger or acquisition between the buyer and the seller. For an unlisted company, there are two basic methods of conducting the negotiations:
- private negotiation, which preserves a high level of confidentiality, while excluding offers that might have been received had the process been public; - a private auction, which heightens the competition between buyers, but is more restrictive for the seller.
Regardless of the chosen procedure, certain elements are common to every deal:
- memorandums of understanding and agreements in principle serve to describe the general agreement found between the parties and are a milestone along the path to full commitment of the parties to the deal; - representations and warranties guarantee to the buyer that all of the means of production belong to the company and that there are no hidden liabilities; - many agreements now also include clauses wherein the seller certifies substantive aspects of the company and the amount of equity capital; - in some cases, earn-out clauses link a portion of the purchase price to the company’s future profits.
The stake building can be the first step to acquiring the control over a listed company. But it can only be slow and faces the requirement of declaring the crossing of thresholds. The public offer is the usual way to acquire a listed company. It is based on two fundamental principles: transparency and equal treatment of shareholders. It can be in cash or in shares, hostile or friendly, voluntary or mandatory.
Contingent value rights (CVRs) are financial instruments issued during an acquisition to persuade shareholders to tender (or dissuade them from tendering) their shares to the bid.