Regulatory Changes regarding Cross-border M&A

Regulatory Changes regarding Cross-border M&A and International Investments after the Pandemic Presented by: Prof. Rodrigo Olivares-Caminal Date: 2021 Legal Enforcement - Legal system ensures that the performance of payment obligations can be enforced by law. - In most countries, the enforcement of payment obligations is achieved by a sequential legal process: 1. The lender must obtain legal judgment which confirms the nature and amount of the payment obligation. 2. Having obtained a court judgment, the lender will now seek to enforce the judgment. 3. In most countries the principle of law that the totality of the borrower's assets are subject to law enforcement of payment obligations apply (usually a specifically appointed public officer will seize any available asset belonging to the borrower, sell them-privately in the market or by way of a public auction-and se the proceeds towards satisfying the claim. - There are many differences in common-law and civil-law jurisdictions but the underlying Foundations are identical. - More often than not the borrower has no worthwhile assets available for legal enforcement or the existing assets do not suffice to cover the totality of the borrower's obligations if sold. The Economic Rationale Of Secured Finance • The essence of security is the reversal of the principle that in bankruptcy all creditors are on an equal footing. • The existence of security interest places the secured creditors in a position of privilege vis-à-vis unsecured creditors. • When the debtor's assets are taken by force, are sold and the proceeds distributed to the creditors, the secured creditors "jump" the queue and receive most of what is owed to them. • The unsecured creditors receive nothing or almost nothing justified under the values that a liberal legal system, based on contractual freedom. • Banks, rather than focusing on: 1. The merits of the proposed project; or, 2. The real ability of the borrower to repay the loan, Are primarily interested in a) Those borrowers who are most likely to offer adequate security; and, b) The security of their claims in the event of non-performance. • In the absence of security banks would be more proactive, prudent and robust in assessing the creditworthiness of the applicant and more closely involved in the ongoing monitoring. • Co.'s need $ ⇨ Banks & others want to lend ⇨ Money is lent + inter-creditor agreement ⇨ Trouble happens = distress scenario Corporate Rescue ⇨ Restructuring Arrangement? ⇨ Out-of-Court? ... or ... Court-Supervised? Uncertain Times? - We live in very uncertain tines > Covid will dictate length and severity of global recession > devastating consequences in the economy and its players - Crisis is expected to have a long lasting effect - Emerging markets have more limited resources to deal with the crisis > a drop in FDIs as advanced economies turn inwards) - - Which businesses should we support? • SMEs are recognized as especially vulnerable • Some industries are more vulnerable than others (tourism, amenities, etc.) Crisis highlights existing weaknesses. particularly lack of formal and informal "expedited" restructuring tools - Evidence that solvency of majority of companies is severely affected - Predicted transition of crisis from real sector to banking sector > NPL - As result of this crisis, many businesses will need to restructure, both operationally and financially. - A modern reorganization law should: • Facilitate the access to business restructuring • Provide for a plan to bind dissenting creditors • Impose a minimum stay on execution over assets by creditors (facilitate the restrict.) • Preserve the rights of creditors and the value of the assets Out-of-Court Court Supervised Positive - Privacy - Flexibility - Speed - Predictability - Binding - Moratorium - Pre-established procedure Negative - Non-Binding - No-moratorium - Bad publicity (stigma) Slower Risk Assessment Of National Security Concerns In The Acquisition Of US And UK Assets Presented by: Professor Ioannis Kokkoris Foreign Direct Investments (FDIS) Competition Law Scrutiny - The United Kingdom • - The United States • - Competition and Markets Authority (CMA) Federal Trade Commission or Department of Justice. Public Interest Considerations • General • Economic • Specific • Non-economic • National security The United States - FIRRMA (2018) • Expansion of CFIUS's review: controlling and noncontrolling investments (27 industries). • - Clarity about the scope of the national security concept (Exon-Florio). CFIUS • Established 1975 • Integrated by nine cabinet members • Review Process:  Voluntary notice  Review (30 days)  Investigation (45 days extended 15 days extraordinary circumstances)  If CFIUS believes that the transaction should be blocked refers the case to the U.S. President who makes the decision (15 days) • Increased authority: Why?  Concerns about: o Increased FDI activity by certain countries of interest. o Perception that such investments serve strategic purposes. o Unfair competition - State Owned Enterprises.  Additional concerns: o Potential disclosure of substantial pools of personal information. o Potential loss of one or only few U.S. suppliers. o Potential loss of U.S. technology advantages. • Most significant changes:  Scope: broadened.  Current review: mandatory.  Leverage access to the U.S. market to gain reciprocal treatment abroad.  Penalties to foreign firms that receive subsidized financing or preferential domestic regulation.  Discrimination among foreign investors based on membership in certain organizations.  Four new types of covered transactions. - U.S.: FDIs • COVID-19: U.S. Legislative initiatives  Senator Banks: bill seeking to expand the scope of CFIUS to protect U.S. companies from "predatory investment" by other governments.  Senator Green: SOS ACT provides that the U.S. government will dedicate $10 billion from the virus-related relief package (CARES ACT) to encourage U.S. investors to spend their capital in weak U.S. companies that are crucial for the national security. - Presidents Bush, Obama And Trump • President George H. W. Bush  Blocked (first time ever) the acquisition of Manufacturing Co (MAMCO) by China National Aero-Technology Import and Export Corp. (CATIC). • President Barack H. Obama  Acquisition of Aixtron by FGC: Called off. SOE Ralls Corp: divestiture of wind farm assets located near a defense facility.  Acquisition of AIXTRON SE by Grand Chip Investment GmbH: Prohibited.  Acquisition of Philips NV's Lumi leds by a consortium: called off.  Two deals in the semiconductor sector: Abandoned. • President Donald Trump  Acquisition of Lattice Semiconductor Corp. by Canyon Bridge Capital Partners LLC: Blocked.  Acquisition of MoneyGram by Ant Financial: Blocked.  Acquisition of Qualcomm by Broadcom: Blocked. UK: Public Interest 1. Statutory public interest considerations that are specified in the Enterprise Act. 2. New or additional public interest considerations that may be decided by the Secretary of State, subject to subsequent parliamentary approval. - Grounds And Types Of Intervention • Prior to the Enterprise Act 2002  Broad and imprecise public interest test. • Enterprise Act 2002  National security.  Newspaper and media plurality.  Stability of The UK financial system. - Secretary Of State Intervention: National Security Considerations • Special Public Interest Notice (SPIN)  A transaction involves a government contractor + In the defense sector or newspaper/media companies (it supplies 25%) +  It does not meet the threshold to be reviewed by a competition authority.  A relevant merger situation" • Public Interest Intervention Notice (PIIN)  The CMA or the European Commission are already investigating a merger.  "Concentration with an EU dimension" Foreign Direct Investments (FDIs) National Security Concerns - The United Kingdom (Integrated Model) • Competition and Markets Authority (CMA): assesses competition and national security aspects. • - Secretary of State decides on the approval of the transaction. The United States (Dualist Model) • Federal Trade Commission or Department of Justice: assess competition aspects. • Committee on Foreign Investment in the United States (CFIUS): assesses national security aspects, refers the case to the President who can block the transaction. UK: National Security Merger Intervention Proposed Changes - - - Institutional design • CMA would not be involved. • Decision-maker: Cabinet-level Minister • (Similar to the dualist model in the U.S.). National security risks • Nature of the activities. • Nature of the assets. • Acts of terrorism. • National infrastructure sectors. • Advanced technologies • (Similar to CFIUS). Others • More transactions would be reviewed on national security grounds. • There would be a new procedure US & UK National Security Concerns General Recommendations: 1. More transparency. 2. Well defined concepts. 3. Clear structure of the reviews. 4. Accountability. 5. Speed.