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HOME POLITICS & POLICIES METRO/COUNTRY VIEWS & REVIEWS EDITORIAL LETTER TO EDITOR

COMPANIES & FINANCE

VOL 18 NO 196 REGD NO DA 1589 | Dhaka, Wednesday May 26 2010
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Cross-border mergers and acquisitions:
Last page The new frontier
Politics &
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Metro/country Masud Khan and Anita Ghazi
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FE Archive expectations of the foreign
party or "acquirer" with the
local company or "target". As we believe that such acquisition transactions will
increase substantially in the near future, we wish to share with potential local
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parties some of the lessons learnt from our previous acquisition transactions, as
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Risk mitigation pre-closing -- due diligence and representations and warranties:
China Business
One of the key concerns of a foreign acquirer is the potential risk to doing
business in a foreign jurisdiction. Accordingly, a foreign acquirer will spend
Business Share
considerable time to understand not only the business of the local company, but
Bangladesh Dhaka
also to find out as much as possible about potential legal and business issues that
may arise. The foreign party and its advisers will also spend considerable time
and effort in conducting financial and legal due diligence on the local target,
which at times may frustrate the local party or target as such due diligence will
take time and management effort. However, without such due diligence, most
foreign acquirers will not be comfortable with negotiating and finalising the
business and legal terms of the transaction. If the local target is well prepared in
organising and presenting the financial and legal due diligence to the foreign
acquirer, the process will be smoother, quicker and the negotiations will
generally be more positive. With this in mind, the sooner the local target
engages advisers (legal and financial), the due diligence and negotiations process
will be more efficient and cost effective. Furthermore, if the advisers of the local
target conduct their own due diligence on the target, they may be able to
highlight potential issues which then can be resolved prior to the foreign
acquirer's advisery team uncovering such issues and presenting them as
potential pricing negotiation points. In addition to due diligence, the foreign
acquirer will look to the target's and its shareholders' representations and
warranties in the acquisition agreement to mitigate business and legal risks.

Risk mitigation post-closing -- shareholder agreement: In instances where the

foreign acquirer is taking a less than 100 per cent stake in the local target, the
foreign acquirer is likely to insist on a Shareholders Agreement between the
foreign acquirer and the existing shareholders of the target company. In addition
to the negotiations relating to business issues/pricing, due diligence and
representations and warranties in the acquisition agreement, the terms of the
Shareholders Agreement will be heavily negotiated as they will cover
post-closing issues related to board composition, restrictions on management
decisions, restrictions on share transfers and exit strategies. Many of these
issues should be highlighted and negotiated in the initial Term Sheet between the
acquirer and the target.

The legal and financial advisers of both the acquirer and target can assist in
negotiating and drafting such Term Sheet.

(Anita Ghazi Rahman, Barrister-at-Law, is advocate, Supreme Court of

Bangladesh, and Masud Khan is an international corporate attorney with a Juris
Doctorate in Law from the United States. They can be reached at
masud@legalcirclebd.com and anita@legalcirclebd.com)

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