Key terms: Opposing concepts in company law

2. The text contains several pairs of opposing concepts. Find the counterpart of each of these words.

1. acquiring company

2. hostile takeover

3. acquirer

4. compulsory winding-up

5. solvent

3. Work in pairs. Making use of the prepositions introduced in the previous unit ( as opposed to, unlike, in contrast to), take turns contrasting the pairs of opposing concepts listed in Exercise 2.

examples: In contrast to an acquiringcompany, which is a company that purchases another, an acquired company is onewhich is purchased and taken over by another company.

An acquired company is one which is purchased, and taken over by another company, unlike an acquiring company, which is a company that purchases another.

Explaining legal aspects of an acquisition

A lawyer's involvement in the mergers and acquisitions of companies often entails communicating with the parties concerned: a lawyer may explain to the owner of a company what procedures have to be completed in the course of an acquisition or inform shareholders how the changes resulting from a merger will affect them.

In the following reading exercise, you will read about a lawyer speaking to a group of business owners. Each of these business owners is considering acquiring another business.

4. Read the first part of the presentation and choose the correct answer to each of the questions.

Part I

Good evening, everyone. It’s good to see that so many of you were able to attend my presentation this evening. Some of you may know me already, but allow me to introduce myself. My name’s Adrian Crawford. I'm with the Mergers and Acquisitions department of our firm. Right. As you know, I'll be speaking about acquisitions this evening, specifically about a range of issues connected with acquisitions which are particularly relevant for business owners like yourselves. I'm going to tell you about the process you’re about to begin and what awaits you. Please feel free to interrupt me at any time, should you have any questions.

Right, at this point, I'd like to give you a short overview of my presentation. I'm going to start with a few comments on how to decide if your business is ready to undertake an acquisition. Then I'll deal with the issue of making the right choice, that is, choosing a target. After that, I'll discuss the process of assessing the target business, which involves gathering financial information, like looking at trends in sales and profit margins, for example. I think we’ll have time for a short break at that point. After the break, I'll move on to the legal aspects. At the end, I'll conclude with a look at how the deal itself is carried out and will provide you with an example of a case I handled, a rather interesting acquisition. There’ll be time for discussion at the end...

1. Which of these is the most likely entry for the talk in the programme?

a. Mr A.. Crawford of Corporate Restructuring (evening session)

b. Mr A.. Cranford of Mergers and Acquisitions (evening session)

c. Mr A. Crawford of Mergers and Acquisitions (evening session)

d. Mr A. Crawford of Mergers and Acquisitions (morning session)

2. What is the speaker's aim?

a. to provide the business owners with an overview of the law of mergers and acquisitions

b. to persuade the business owners that they should use this opportunity for their businesses to grow

c. to inform the business owners what they can expect if they decide to carry out an acquisition

d. to tell the business owners about the process of making their businesses more attractive as potential targets

3. Which of the following topics will not be included in the presentation?

a. factors involved in deciding on a company to acquire

b. staffing issues after an acquisition

c. evaluating the prospective acquired company

d. details of one specific deal the speaker has carried out

5 .Read the second part of the presentation, in which the speaker discusses legal aspects of acquisitions. Decide whether the statements are true or false.

Part II

There'll be time for discussion at the end. OK, then. In this section of my presentation, I'll be addressing the main legal issues which arise at different stages of the acquisition process, which require separate and sequential treatment. That’s to say, they have to be done in the proper order. First, I’ll tell you about the due diligence stage, and then we’ll look at the deal stage. Allow me to point out here that these are all matters that are best handled by a lawyer, which means of course that our firm can certainly handle these matters for you.

Right. Due diligence. What is due diligence? Generally, this term’s used to refer to the careful professional scrutiny of the assets and liabilities of a company, usually in preparation for an acquisition. It’s the process of uncovering all the liabilities associated with a firm. It's also the process of checking if the claims made by the seller of the target business are correct. You should know that directors of companies are answerable to their shareholders for ensuring that this process is properly carried out.

For legal purposes, there are several things that must be done in the course of due diligence. First, you have to obtain proof that the target business owns key assets such as property, equipment, intellectual property, copyright and patents. Another thing that you should do is to get the details of past, current or pending legal cases. Look at the contractual obligations that the business has with its employees (including pension obligations), as well as contractual obligations with customers and suppliers. Here, one has to think about any likely or future obligations. It's also important to consider the impact that a change in the ownership of the business may have on existing contracts. As I said, due diligence is routinely conducted by a lawyer.

Now let me move on to the deal stage. When you are considering general terms of a potential deal, you'll probably look for certain confirmations and commitments from the seller of the target business. These’ll provide a level of comfort about the deal. They're also indications of the seller's own confidence in their business.

A written statement from the seller or buyer that provides assurance of a key fact relevant to the deal is known as a warranty. You may require warranties with respect to the business's assets, the order book, debtors and creditors, employees, legal claims and the business's audited accounts. A commitment from the seller to reimburse you in full in certain situations is known as an indemnity. You might seek indemnities for unreported tax liabilities. Here again, our firm can assist you in reviewing the content and adequacy of warranties and indemnities.

1. The important legal steps that must be carried out in the course of the acquisition process can be completed in any sequence.

2. ‘Due diligence’ refers to the process of gathering and analysing financial information and other relevant information about a business before it is acquired.

3. One aspect of due diligence is verifying ownership of intellectual property.

4. In the course of due diligence, the acquirer should terminate all of the target company's contracts with suppliers.

5. A warranty is written statement by a party attesting that a fact relevant to the deal is true.

6. The target may provide indemnities to protect the acquirer against future liabilities.

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