Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate Acquisitions

James C. Freund

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"Magnificent ... An indispensable desk book for acquisition lawyers."
—Martin Lipton; Wachtell, Lipton Rosen & Katz, New York

Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate Acquisitions is a unique guide to handling a corporate acquisition negotiation successfully. Some of its advice is geared towards effectuating workable compromises that satisfy the interests of all parties; some is aimed at getting a leg up on your adversaries. One of the book's principal points is how these twin, seemingly antithetical goals can and should be attained.

At the outset, Mr. Freund explores the fencing for position that goes on during preliminary negotiations, when many of the basic issues vital to the deal are resolved. Later chapters analyze: the basic acquisition agreement; bargaining techniques applicable to substantive issues such as purchase price, representations and warranties, and indemnification; and employment contracts. The author also examines the period between signing and closing—a time when things can and do go wrong. Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate Acquisitions suggests tactics to use—and tactics to guard against. It contains analysis so shrewd, so insightful, so skillfully written, that once you begin reading it, you'll find yourself reluctant to put it down.

Book #10526; casebound, one volume, 559 pages; published in 1975. ISBN: 978-1-58852-000-5

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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 559
  • ISBN: 978-1-58852-000-5
  • Pub#/SKU#: 526
  • Volume(s): 1

Author Image
  • James C. Freund

Mr. Freund is of counsel to Skadden, Arps, Slate, Meagher & Flom LLP and is located in the New York office. He is also the author of Lawyering: A Realistic Approach to Legal Practice published by Law Journal Press.

Chapter 1
By Way Of Introduction

Chapter 2
Negotiating Techniques And Tactics

2.1.   Some Preliminary Observations
2.1.1.   Doin’ What Comes Naturally
2.1.2.  Practice What I Preach

2.2.  The Central Role of Compromise
2.2.1.  The Back of My Hand to the Non-Negotiable Demand
2.2.2.  How To Say “No” Without Seeming Negative
2.2.3.  Marshalling Arguments to Support Your Cause
2.2.4.  The Creative Discovery of Common Ground
2.2.5.  The Ultimate Solubility of Most Issues

2.3.  Getting A Leg Up
2.3.1.  The Twin Virtues of Persistence and Perspective
2.3.2.  Volunteering for the Draft
2.3.3.  Timing—of the Essence
2.3.4.  To Swap, Perchance to Cede
2.3.5.  Hoist On His Own Petard
2.3.6.  The Absurdity of It All
2.3.7.  Threats, Fits, and Other Adventures in Brinkmanship
2.3.8.  Staffing the Negotiations
2.3.9.  Clients are People, Too

2.4.  Some Closing Observations
2.4.1.  Freedom of Contact
2.4.2.  Creative Motivation
2.4.3.  Gamesmanship and Other Instruments of the Devil
2.4.4.  They’re Not Making Negotiators Like They Used to. . .

Chapter 3
Preliminary Negotiations

3.1.  The Lawyer’s Role in the Opening Rounds
3.2.  Sidling Up to the Purchase Price
3.2.1.  Alphonse and Gaston Revisited
3.2.2.  Digging That Well-known Hole
3.2.3.  A Deal Does Not Live by Price Alone

3.3.  The Agreement in Principle
3.3.1.  Is This Document Necessary?
3.3.2.  A Metter of Form
3.3.3.  To Bind or Not to Bind
3.3.4.  Points to be Covered
3.3.5.  Points to be Uncovered
3.3.6.  The Other Side of the Coin

3.4.  Federal Disclosure Requirements
3.4.1.  Some Guidelines for the Public Announcement
3.4.2.  Content of the Press Release
3.4.3.  Interaction with the Negotiating Process
3.4.4.  The Non-Agreement in Principle

Chapter 4
Structuring The Transaction

4.1.  An Ode to Structuring
4.2.  The Basic Forms of Acquisition Transactions
4.3.  As Between Them, Taxes are Less Certain Than Death
4.3.1.  Lawyers and Tax Experts
4.3.2.  The I-Hate-To-Learn-Tax-Law Handbook
4.3.3.  Putting Your New-Found Knowledge to Work
4.3.4.  The Tax Ruling Imprimatur

4.4.  The Merger Lawyer As Part-Time Accountant
4.4.1.  Lawyers and Accountants
4.4.2.  Pooling Is Not A New Form of Aquatics
4.4.3.  Accounting Principles at the Bargaining Table

4.5.   Considerations of Corporate Law
4.5.1.  The Requisites of Corporate Authorization
4.5.2.  Merger Mania; Appraising Appraisal Rights
4.5.3.  The Practical View of Corporate Mechanics

4.6.  Dealing With Assets and Liabilities
4.6.1.  Avoiding Unwanted Liabilities
4.6.2.  The Pros and Cons of Piecemeal Assets

4.7.  Feeling Secure Under the Securities Law
4.7.1.  A Bit of History
4.7.2.  Dealing With Registered Transactions Today
4.7.3.  The Corporate Private Placement
4.7.4.  The New Game in Town

4.8.  A Wrap-up of the Subject
4.8.1.  Miscellaneous Structuring Considerations
4.8.2.  A Few More Examples

Chapter 5
An Overview Of The Acquisition Agreement

5.1.  A Brief Essay on Forms
5.1.1.   A Form in Every File Cabinet
5.1.2.  The Cardinal Sins of Form Abuse
5.1.3.  Riding the Coattails
5.1.4.  Cheaper by the Pound

5.2.  The Anatomy of the Agreement
5.2.1.  A Skeletal Outline
5.2.2.  Simultaneous vs. Deferred Closing
5.2.3.  The Simultaneous/Deferred Decision in the Negotiating Process

5.3.   The Intricate of the Various Articles
5.3.1.  The Four Horsemen: A Statement of Purpose
- Representations
- Covenants
- Conditions
- Indemnification
5.3.2.  The Case of the Late-Blooming Lawsuit
5.3.3.   The Neurotic Seller and the Pound of Flesh
5.3.4.  The Problem of the Tardy Financial
5.3.5.   Reacting to the Delayed Disclosure Schedule

5.4.  The Built-In Purchaser’s Bias

Chapter 6
Purchase Price Considerations

6.1.   The Principal Forms of Payment
6.1.1.  Cash: Color it Green
6.1.2.  Promissory Notes: the Deferred Reckoning
- Tax Treatment
- Interest
- Negotiability
6.1.3.   Equity Securities: Join the Team

6.2.  Negotiating Stock Valuation Provisions
6.2.1.  The Seller as Semi-Involuntary Investor
6.2.2.  Some Alternative Approaches to Pricing
6.2.3.   Surveying the Relevant Factors
6.2.4.   A Personal View of the Decision
6.2.5.   Pricing the Publicity-Held Seller

6.3.   Handling a Contingent Purchase Price
6.3.1.  Some General Observations
6.3.2.  Formulating the Earnout Formula
6.3.3.  Defending and Computing Earnings
6.3.4.  A Glance at Certain Purchase Price Components
6.3.5.  Who Runs the Show?
6.3.6.  The Kick-out Clause

6.4.  Tying the Purchase Price to Asset Values
6.4.1.  A Statement of the Problems
6.4.2.  A Proposed Solution

Chapter 7
Representations and Warranties

7.1.  An Analytical Framework for Negotiating Representations
7.1.1.   Discerning the Purchaser’s Purposes
7.1.2.  Evaluating Objections in Terms of Purpose
7.1.3.  Helping Seller Over the Hump

7.2.  The Ubiquitous Disclosure Schedule
7.2.1.  Backbone of the Representation Process
7.2.2.  From the Seller’s Viewpoint
7.2.3.  The Schedule-less Acquisition

7.3.   Every Seller’s Favorite Caveats
7.3.1.  Materiality is in the Eye of the Beholder
7.3.2.  A Little Knowledge is a Dangerous Thing

7.4.  Specific Representations of the Seller
7.4.1.   Corporate and Stock Matters
7.4.2.  Financial Statement and Bring-Down
7.4.3.  Liabilities and Taxes
7.4.4.  Asset Representations
7.4.5.   Leases, Contracts and Other Commitments
7.4.6.  Representations Concerning Employees
7.4.7.   Litigation and Compliance With Law, Etc.
7.4.8.  A Mixed Bag of Warranties

7.5.  The Purchaser’s Representations
7.5.1.  Negotiating on the Seller’s Behalf
7.5.2.  Symmetrical Schizophrenia

Chapter 8
Covenants, Conditions And Closings

8.1.   Is This Chapter Necessary?
8.1.1.  Yes—And the Culprit is the Deferred Closing
8.1.2.  Still Need Convincing? Check These Examples

8.2.  Covenants Pending the Closing
8.2.1.  The Elusive Concept of “Best Efforts”
8.2.2.  The Non-Negotiated Article
8.2.3.  Specific Covenants

8.3.  Conditions of the Closing
8.3.1.   Some Random Thoughts
8.3.2.   Specific Conditions
8.3.3.   The Disquieting Comfort Letter

8.4.  Legal Opinions
8.4.1.  Exquisite Sensitivities and Popular Sidesteps
8.4.2.  Facing Up to Disclaimers
8.4.3.  The Litigation Advisory
8.4.4.  The Proper Subject Matter of Opinions

8.5.  Providing For the Closing (Or Lack Thereof)
8.5.1.  Pinning Down A Closing Date
8.5.2.  Letms Call the Whole Thing Off

Chapter 9
Registration Rights

9.1.  The Legal Backdrop for Negotiating Registration Rights
9.1.1.   Restricted Stock Under Rule 144
9.1.2.  Contractual Provisions Regarding Restricted Securities
9.1.3.  The Concept and Consequences of Registration
9.1.4.   Preparing for the Negotiation

9.2.  The Negotiating Variables
9.2.1.  Demand vs. Piggy-back Rights
9.2.2.   Some Matters of Timing
9.2.3.  The Numbers Game—Shares and Registrations
9.2.4.  Mind Your Manners of Sale
9.2.5.  Effective for the Duration
9.2.6.  Paying the Piper—Expenses and Indemnification
9.2.7.  Mostly Mechanical Provisions

9.3.  A Keyhole View of Two Sample Negotiations
9.3.1.  Representing the Purchaser
9.3.2.   Representing the Selling Stockholders

9.4.  Registration Provisions In A Rule 145 Transactions

Chapter 10

10.1.  Holding the Purchaser Harmless
10.1.1.  The Scope of the Indemnity
10.1.2.  The Indemnifiable Amount

10.2.  The Seller Strikes Back
10.2.1.  The Age-Old Craft of Basketry
10.2.2.  Cut-off On Claims
10.2.3.  Seeking Fulfillment-With Stock
10.2.4.  Additional Seller Gimmickry
10.2.5.  Control of Third Party Proceedings
10.2.6.   Joint or Several Liability

10.3.   Escrow and Other Collection Devices
10.3.1.  Holdbacks and Set-offs
10.3.2.  The Care and Feeding of Escrows

Chapter 11
Employment Contracts And Miscellany

11.1.  Miscellaneous Contractual Provisions and Exhibits
11.1.1.   Finders’ Fees and Other Expenses
11.1.2.  A Glance at Some Boilerplate
11.1.3.  Exhibits to the Agreement

11.2.  Employment Contracts
11.2.1.  ARE employment Contracts Necessary or Desirable?
11.2.2.  When Should the Employment Contract be Negotiated?
11.2.3.  What Tone Should You Adopt?
11.2.4.  How Long Should the Contract Run?
11.2.5.  What About the Money Terms?
11.2.6.   Under What Circumstances Does the Contract Terminate?
11.2.7.  What About the Non-Competition Covenant?

Chapter 12
From Signing to Closing

12.1.  Investigation and Monitoring
12.1.1.  Coordinating the Investigation
12.1.2.   Unearthing a Skeleton
12.1.3.  Monitoring the Client’s Affairs

12.2.  Proxy Statements
12.2.1.  The Legal Requisites
12.2.2.  The Virtues of Early Preparation
12.2.3.  Some Notes on Disclosure Problems

12.3.  Dealing with Third Parties
12.3.1.   Financial Institutions
12.3.2.  Other Consents

12.4.   Problem at the Closing
12.4.1.  Disclosing the Missing Consent
12.4.2.  The Purchaser’s Reaction
12.4.3.  Exploring the Unwaivable Condition

Chapter 13
Three Special Situations

13.1.  Purchase of a Division
13.1.1.   The Jaundiced Eye Meets Deep Throat
13.1.2.  Some Divestiture Nuances
13.1.3.  Gauging the Operating Results

13.2.  Buying A Controlling Interest
13.2.1.   A Brief Survey of the Problem Area
13.2.2.   Protective Provisions for the Seller
13.2.3.   The Purchaser’s Concerns

13.3.   Merger of A Controlled Company
13.3.1.   The Key Themes of Fairness and Full Disclosure
13.3.2.   The Use of Independent Professionals
13.3.3.  Style as Well as Substance

Chapter 14
A Guided Tour

A Melodrama in Three Acts

Let’s Make A Deal: The Journey From Initial Negotiations Through The Letter Of Intent

Scene 1—The Germ of an Idea
Scene 2—Fencing for Position
Scene 3—Getting Down to Brass Tacks
Scene 4—Putting it in Black and White
Scene 5—Buttoning it Up

Signed, Sealed And Delivered: Taking Us From Contract Negotiations To The Signing Of The Acquisition Agreement

Scene 1—Who is this Masked Man?
Scene 2—Baiting the Trap
Scene 3— What Do they Teach These Kids in Law School Nowadays?
SCene 4—Oil on the Troubled Waters
Scene 5— Laying the Groundwork
Scene 6—The Stage is Set
Scene 7— St. Crispin’s Day
Scene 8—What Can We Give Them?
Scene 9—What Can We Get Them?
Scene 10—They Laying-on of Hands
Scene 11—Between us Professionals . . .
Scene 12—Never Leave Well Enough Alone
Scene 13—Get Cracking
Scene 14—Congratulations

Here’s The Key To Planet: A View Of The Period After The Signing Through The Closing

Scene 1—The Gathering Clouds
Scene 2—Consorting with the Enemy
Scene 3—Seeds of the Cover-up
Scene 4—Reason Prevails
Scene 5—In the Nick of Time
Scene 6—The Moment of Trust
Scene 7—The Big Stall
Scene 8—The Main Event