LAWSG077 (2017) 1 CROSS-BORDER MERGERS AND ACQUISITIONS Answer THREE questions out of the six questions available, including at least ONE question from PART A and at least ONE question from PART B. PART A 1. On July 25, 2016, UK telecommunications company Merizon plc (“Merizon”), which is premium listed on the London Stock Exchange and has a market value of ￡25 billion, offered ￡4.83 billion to purchase the search engine business currently owned by Yupee, Inc. (“Yupee”). Yupee is a US internet company listed on the New York Stock Exchange, which, in addition to internet search, is also active in marketing services and – because of the company’s complicated corporate history – oil exploration. Providing its reasons for the offer in a press release, Merizon explained that the acquisition would ‘help the company to better serve Yupee’s existing users’ and also ‘create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers’. Although Yupee’s board and shareholders would prefer a higher price, they generally support a negotiated transaction with Merizon. Following talks between the parties, on September 5, 2016 Merizon and Yupee signed an asset purchase agreement (the “APA”). Under the APA, Merizon acquires all assets and liabilities that are related to Yupee’s core search engine business. The parties plan to close the transaction in June 2017. On November 10, 2016, Yupee made a major announcement: the company confirmed a data breach that compromised more than 500 million user accounts. The company said a wide array of user information was taken from its network in 2014 by a “state-sponsored actor”, but it did not include unprotected passwords, payment card data or bank account information. Yupee’s CEO, Larissa, knew about this breach since March 2016. On September 4, 2016, a group of Yupee employees also learn that there had been another attack on Yupee’s servers, resulting in an unknown intruder gaining access to another 2 million users’ account data. They do not mention this to Larissa as they still need to investigate the incident. Given the unfortunate turn of events, Merizon’s board has called an urgent meeting to discuss the Yupee transaction today. Please advise the board on its options to deal with the data breach problem. Additionally, please (a) explain what the potential significance of the second (smaller) data breach is for the transaction and (b) comment on the transaction structure that the parties chose, focusing specifically on whether you think it was an adequate choice and discussing if there had been any suitable alternative structures. (Question 1 continues) TURN OVER LAWSG077 (2017) 2 (Question 1 continued) Your advice on the options to deal with the data breach should make up approximately 50% of your answer, your responses to the additional questions (a) and (b) should make up approximately 25% each. In answering all questions, you are allowed to make factual assumptions where you lack the necessary information but please make sure to indicate what these assumptions are and why they are relevant. 2. Tony Cash is the Chief Financial Officer (CFO) of Snappy Corp. (“Snappy”), a US company listed on the NASDAQ (an American stock exchange). Tony has recently become h
ighly stressed as a result of ongoing high pressure merger negotiations involving Snappy and several companies that are keen to acquire it. Tony begins seeing a psychologist for therapy. In the course of one of their sessions, Tony discloses to his psychologist, Betty, that his company will soon be taken over by a competitor. Betty writes down this information in her notebook. After Tony leaves, and unbeknownst to him, Betty purchases 200 Snappy shares. Later that day, Betty’s cleaner, Jim, not only cleans Betty’s office but – because he is bored – also goes through her notebook. He discovers the information regarding Snappy and also purchases a few Snappy shares. As a result of Betty’s therapy, Tony is already feeling much better. In fact, he is in such a good mood that, when a complete stranger (Evan) passes him on the street, he yells out “Buy Snappy shares and you’ll be rich! I should know, I’m the CFO!” Tony also tells his mother, Doris, about the impeding transaction involving his company. Doris is a retired medical doctor but has a long history of successfully trading with shares and options as one of her “hobbies”. Both Evan and Doris purchase Snappy shares. Two weeks later, Facepic, Inc. announces a bid for Snappy and the share price of the latter rises by 28%. What are the liabilities of Tony, Betty, Jim, Evan, and Doris under US insider trading law CONTINUED LAWSG077 (2017) 3 3. You have just received the email reproduced below from a prospective client. Please prepare detailed notes on what you will tell the client, Clive, in your telephone conversation regarding the proposed transaction, including any questions that you might have as well as the next steps that need to be taken. Moreover, advise on whether a letter of intent (LOI) should be used and, irrespective of whether or not you recommend an LOI, discuss and explain the main points that ought to be covered in this document. EMAIL From: Clive Client, in-house lawyer at Bidder, Inc. To: Stephen Student, corporate counsel at Billem Solicitors Subject: Proposed Acquisition of Target Group Dear Stephen, I have read your excellent article on ‘Current Challenges in Cross-Border M&A’ in the Journal of Business Law. Given your expertise in this area, I was wondering whether you could assist my company, US-based healthcare provider Bidder, Inc. (“Bidder”) in its latest transaction. Bidder is now considering acquiring the Target Group (“Target”), which is headquartered in the UK and is owned by a foreign majority shareholder. Negotiations have already been launched and I have been asked to provide a draft letter of intent for presentation to the board by the end of tomorrow. To be honest, I am not sure whether having a letter of intent will be beneficial for us. We would like to close as soon as possible and, in addition, would hate to trigger any unforeseen legal consequences. I am also unsure as to how we should proceed and what to consider at this stage of the transaction – can you please advise Nevertheless, as a heads up and if we should decide to have an LOI, I would like you to provide me with a draft first thing tomorrow morning. I appreciate that this is rather short notice but I am sure it will be a pretty standard document for Billem Solicitors. Please call me today to discuss. Kind regards, Clive