Mergers & Acquisitions Comparative Guide

• Published date: 31 January 2023
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity
• Law Firm: Carey Olsen
• Author: Mr James Willmott and Katherine Tresca

1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

Private M&A transactions are generally structured in Jersey by way of a private agreement, which involves the sale of a company or business where the seller and buyer agree the terms of sale between themselves. The terms of sale will be recorded in a private contract. The sale may be structured either:

• by way of a share sale (which involves the transfer of ownership of the target); or
• by way of a business transfer (which involves the transfer of specific target business and assets of the seller).

Public M&A transactions are generally structured in Jersey by way of one of the following methods.

Takeover offer: This is a statutory process that involves the bidder making an offer to the target's shareholders to acquire their shares in the target. After the takeover is complete, the bidder and the target remain separate companies and the target becomes a subsidiary of the bidder. The bidder may compulsorily acquire the remaining shares if it acquires at least 90% of the shares to which the offer relates.

Scheme of arrangement: This is a statutory court process, involving a compromise or arrangement between a company and its members. It results in the bidder holding all of the target's shares.

Statutory merger: Jersey has a merger regime, which can potentially be used in the context of both public and private M&A, whether for cash or equity (and including cross-border mergers, if the other relevant jurisdictions permit this). In addition to board approvals, it requires shareholders to approve the transaction by way of special resolution (ie, a two-thirds majority or such higher threshold as the company's constitutional documents require).

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

The key differences and potential advantages and disadvantages in the context of private M&A structures may be summarised as follows:

• Share sale:
• • The transaction structure is often simpler than an asset purchase, as the buyer is acquiring a single asset (ie, the target shares).
  • The seller makes a clean break from the target business, as the buyer takes the target subject to all its historic and current liabilities.
  • The transaction may be frustrated if not all sellers are prepared to sell their shares to the buyer on the terms proposed (unless there is some means of forcing a sale, such as a drag-along right).
• Business transfer:
• • The buyer can choose which assets and liabilities (if any) it acquires.
  • The seller may be left with problem assets or liabilities that the buyer is not prepared to take on.
  • The transaction process and documentation are more complex.

The key differences and potential advantages and disadvantages in the context of public M&A structures may be summarised as follows:

• Takeover offer:
• • This requires 90% acceptances by reference to the nominal value (par value companies) or the number of shares (no par value companies) to which the offer relates, on a share class basis, in order to undertake a statutory squeeze-out to achieve 100% ownership.
  • The process itself requires no third-party approvals.
  • The structure can be used in a hostile situation.
• Scheme of arrangement:
• • This requires the approval of 75% of the voting rights and a majority in number of the target shareholders voting on the scheme that are present and voting at a court-convened meeting.
  • Where more than one scheme class of shareholder is involved each class must consent (note, a scheme class is not necessarily the same as a share class) on the above basis.
  • The structure is subject to sanction by the Jersey court.
  • The structure is 'all or nothing' - that is either the scheme is approved or it fails.
  • The structure is very difficult to use in a hostile situation.
• Statutory merger:
• • This requires a special resolution of the target on a share class basis to approve the merger agreement; the approval threshold may be as low as a two-thirds majority.
  • Target shareholders that do not accept may apply to the Jersey court to object on an unfair prejudice basis within 21 days of shareholder approval and creditors also have a right to object.
  • The structure is 'all or nothing' - that is either the merger is approved or it fails.
  • Jersey Financial Services Commission approval may be required where the transaction is structured as a cross-border merger (ie not a merger of two Jersey companies).
  • The structure is very difficult to use in a hostile situation.

Jersey companies are listed on various global markets, including:

• the main board of the London Stock Exchange;
• the Alternative Investment Market of the London Stock Exchange;
• the New York Stock Exchange;
• NASDAQ; and
• the Toronto Stock Exchange.

Market rules or codes may therefore also apply in the context of public M&A transactions. In addition, the UK Takeover Code may apply to a Jersey public M&A transaction.

1.3 What factors commonly influence the choice of sale process/transaction structure?

The advantages and disadvantages listed in question 1.2 tend to be the most influential matters in terms of choice of sale process/transaction structure.

For public M&A transactions, the level of support and whether the transaction is recommended or hostile tend to be key factors in deciding which structure to use.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

It is common to see heads of terms and non-binding offer letters drafted to outline the basic terms of a proposed M&A transaction. It is also common to see exclusivity and non-disclosure or similar confidentiality-type agreements prepared and entered into at the start of an M&A transaction in Jersey.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

Break fees were traditionally commonplace in larger cross-border public M&A transactions. However, the general prohibition on deal protection measures, including inducement fee agreements, which took effect in the UK Takeover Code in September 2011 apply to transactions involving Jersey companies, where the code applies to such transactions.

Otherwise, deal protection measures have not historically featured as a significant part of local M&A transactions in Jersey. If the transaction documents are Jersey law governed, any such measures must comply with local contract law restrictions on penalty clauses.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

There are generally no restrictions in respect of the financing a transaction under Jersey law. A transaction may be...