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Flashcards in Acquisitions Deck (11):

Do buyers generally prefer asset or sale shares? Why?

Asset shares

Because: can cherry pick

May be quicker and cheaper - less DD and negotiation on warranties and indemnities


Do buyers or sellers generally prefer sale shares? Why?


Because other than warranties / indemnities / escrow account, can walk away post transaction

However asset sale also good for seller as can sell off non-profitable divisions of business whilst retaining profitable


Advantages to buyer of asset sale?

May be quicker as not so much negotiating over what to buy

But more time spent on DD

Less disruption to business - pretty much carries on as normal


Disadvantage for seller of asset sale?

Are unable to transfer liabilities (presuming buyer doesn't take them).


Purpose of disclosure letter?

Discloses all ways seller knows that they do not comply with warranties.

Front end - stuff that should be available in public anyway i.e through searches


Main elements of financial assistance?

1) acquisition of shares
2) company prohibited
3) financial assistance - direct or indirect either;
4) before or at same time for purpose of acquisition; OR
5) after for purpose of reducing liabilities


If there is a breach of the financial assistance regulations?

Fine / imprisonment
Transaction may be void / unenforceable
Court will try and sever the unlawful assistance so that the transaction is legal


Exceptions to financial assistance rules?

Not for purpose of acquisition
(But for)

Purpose was incidental, part of a bigger reason

S681 - assistance via dividends and share buy back

S682 - lending money in ordinary course (provided net assets not reduced)


If the target is private company, what assistance is prohibited?

Public subsidiary giving assistance for purchase IS prohibited

Public holding company giving assistance is not


What is classed as financial assistance?

Gift, providing guarantee, providing security, loan, anything which reduces net assets of assister


Is there a way round the financial assistance provisions?

Under S97, can re-register the public company as private, subject to requirements.