Things get complicated when the target is a U.S. multinational company.
One of the deals we’re working on in my office concerns just that.
I was speaking to in-house counsel about the transaction and thought it would make for a great post someday.
The article discusses 8 key areas that in-house counsel should focus on when dealing with the acquisition of a U.S. company with a global presence.
While they are all great points, I’m going to list and comment on what I think are the 5 most important areas.
1. Merger Control. An early step in any planning process should be determining where pre-merger filings need to be made. Even if you think that the transaction will not cause substantive antitrust concerns, your transaction timeline (and budget) may be affected by required pre-merger filings and reviews. Target companies with European operations may be covered by the EC Merger Regulation; if the transaction does not have a sufficient “EU dimension” you may still fall within the ambit of the merger review laws of individual European countries. China’s merger control laws have become increasingly important given the number of U.S. companies with affiliates or joint ventures in the People’s Republic of China. There are also, however, a number of jurisdictions whose merger control laws appear to be addressed less to substantive concerns and more to raising revenue, as the thresholds which necessitate filings seem to be very low bars. Developing a matrix of required filings, built in part on data from the employee and real estate lists, is therefore a necessary exercise.
These are great points. I’d like to add another. Special consideration should also be given to the distinct contours of the target board’s fiduciary duties and decision-making obligations under U.S. law.
2. Sales Channels and Sensitive Payments. If the target has contracts with foreign government agencies or state-controlled industries, or if employees of its subsidiaries interact with foreign government officials, you need to familiarize yourself with the U.S. Foreign Corrupt Practices Act before beginning your due diligence. Ask to see the target’s compliance program and the procedures that implement it – including what training is given and how often – in order to make sure that the target’s senior management has a genuine commitment to preventing and detecting corruption. Violations of the anti-bribery provisions of the FCPA (or similar laws, such as the U.K.’s Anti-Bribery law if the target has operations there) can lead both to significant corporate fines and even to prison time. The DOJ published a Resource Guide to the FCPA in November 2012. It is available on the DOJ’s website, and a quick review of the guide will be time well spent.
Understanding FCPA and UK Anti-Bribery laws is critical. However, training must be implemented and geared to the most stringent standards that exist under any country’s law. For example, the UK Bribery Act covers corrupt payments involving private decision makers and government officials alike and has even a wider application than the FCPA. Therefore, it is critical for companies to well versed in the latest anti-corruption developments and adjust its training program accordingly.
Be sure to take a look at the articles below for additional details.
3. General Export Compliance Issues. Technology of a U.S. company which resides on servers located in the U.S. but which is accessed or downloaded outside the U.S. is deemed to have been exported. You need to understand if either some of the target’s technology or the overseas recipients of that technology are restricted under U.S. export laws. Also, consider that after the deal is done and the target’s IT systems are eventually integrated with your own existing IT system that your technology may be susceptible to being “exported” to those same overseas employees.
The place to start in determining whether a technology export license is needed from the Department of Commerce is knowing whether the item you intend to export has a specific Export Control Classification Number (ECCN). For this, you’ll need to consult the Commerce Control List (CCL).
If your item falls under U.S. Department of Commerce jurisdiction and is not listed on the CCL, it is designated as EAR99. EAR99 items generally consist of low-technology consumer goods and do not require a license in many situations. However, if you plan to export an EAR99 item to an embargoed country, to an end-user of concern, or in support of a prohibited end-use, you may be required to obtain a license.
4. Data Privacy. Europe is in the forefront in terms of protecting the privacy of personal information (including information relating to employees of the target). If the target has employees in the EU, your task is two-fold: to determine if the target’s policies and procedures, including those relating to IT systems, for handling protected personal data meet the EU adequacy standards, and to make sure that during the diligence process no protected personal data is transferred to your company.
Data privacy has become a huge issue. Anyone who has done business in the EU knows that complying with the data protection laws of 27 different countries can be a dizzying experience. One often overlooked mechanism to streamline issues concerning the exchange of data in the EU is the US-European Union Safe Harbor Framework. The Framework offers a more simple and efficient means of complying with the adequacy requirements of EU privacy laws, which should particularly benefit small and medium U.S. companies.
Be sure to take a look at the articles below for additional details on this.
5. Labor Relations. Employees of the target often have rights that are very different from those with which most U.S. corporate practitioners may be familiar. For example, under the EU’s Acquired Rights Directive the employment of any employees assigned to a business transfer with the sale of that business to the buyer. If the transaction involves a division or other operations that are less than all of the target’s subsidiary’s business, there may be some question as to which employees – like those working in corporate shared services such as IT, finance or HR – are assigned to the business being transferred. In addition, depending on the structure of the transaction, in the EU the target may have an obligation to “inform and consult” with its workers’ representatives prior to entering into a binding agreement relating to the transfer of the business (although this process can often be started immediately prior to signing). If there is such an obligation the closing date may be affected by the length of time required for the information and consultation process to run its course. While the obligation to inform and consult rests with the target, the timing issues must be understood by the acquirer, as well as any employee relations issues it might inherit after the closing if the process is not well managed.
If you’re thinking about terminating employees at the target’s local operation following the acquisition, make sure that you can. You may not be able to terminate employees for up to two year is in some countries. And if you do you may need to justify the termination.
In several recent decisions, courts have held that dismissed employees could challenge the economic rationale behind any downsizing initiative. If a company fails to present a valid economic motive for the initiative, the dismissal, along with all related dismissals will be reversed.
In such a case, employees will be entitled to reinstatement and/or damages, as well as back payment of wages and social security contributions since the termination date. U.S. multinational companies that are profitable at the global level will come under the most scrutiny.
Be sure to take a look at the articles below for additional details on this.
While there are just to many points to address in a short article, the comments raised above are a good starting point for navigating what I think are the most critical issues.