Often, the first legally binding undertaking in a merger negotiation is the execution of a “confidentiality agreement,” which is sometimes referred to as a “Non-Disclosure Agreement” or “NDA.” It is entirely understandable that a company providing its proprietary or nonpublic information to another company would want to protect its confidentiality; however, this seemingly innocuous document often includes important substantive agreements. For example, a confidentiality agreement will often contain an express “standstill” provision restricting the ability of the party (or parties, if it is mutual) receiving information from taking various actions with respect to the other party, including commencing a takeover bid, buying shares, participating in proxy contests and engaging in other acts considered “unfriendly” to the party providing the information. This standstill agreement will continue for a set period or until a specified “fall-away” event, such as the announcement of a transaction with a third party. Even in the absence of an explicit standstill provision, a confidentiality agreement may give rise to claims that the agreement acts as an implied “standstill” barring unsolicited bids. Such agreements should be carefully reviewed by counsel before execution.

As a result of both an acquiror’s need to conserve cash and the desire of shareholders of the target to have the opportunity for tax deferral (and/or to participate in future value creation by the combined company), the consideration paid by the acquiror in many mergers includes acquiror stock that is intended to be received on a tax-free basis by the target shareholders. For tax-free treatment to apply, a number of requirements must be met, as described below. The requirements vary depending on the form of the transaction. For all forms of transaction (other than the so-called “double-dummy” structure) a specified minimum portion of the consideration must consist of acquiror stock.

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Combinations between large companies of similar sizes are often referred to as “mergers of equals” or “MOEs.” MOEs can offer an attractive avenue for growth by allowing a company to enhance shareholder value through merger synergies at a lower cost than high-premium acquisitions (since MOEs are typically low- or no-premium-to-market transactions). They also provide an alternative to an outright sale of a company, which is often undesirable for a variety of business, economic and social reasons. Although there are no formal legal requirements for what qualifies as an MOE, MOEs are typically structured as tax-free, stock-for-stock transactions, with a fixed exchange ratio without collars or walk-aways, and with a balanced contract often containing matching representations, warranties and interim covenants from both parties. Recent examples include the combination of MeadWestvaco and Rock-Tenn, the merger of Willis Group Holdings and Towers Watson, and the recently announced merger of Johnson Controls and Tyco International plc. MOEs differ from other types of mergers in a number of important respects. Like many stock-for-stock mergers, MOEs usually do not involve a “sale of control” of either party within the meaning of the applicable case law on directors’ fiduciary duties; instead, control remains with the public shareholders as a group (absent a controlling shareholder of the post-merger entity). Accordingly, Revlon

review is generally not triggered and directors have broad discretion under the business judgment rule to pursue an MOE transaction that they deem to be in the best long-term interests of the company, its shareholders and its other important constituencies, even if they recognize that an alternative sale or merger transaction could deliver a higher premium over current market value. It is prudent, nonetheless, for a board, as part of its deliberative process, to consider what alternative business strategies might exist, including an analysis of what potential acquirors could pay in an acquisition context.

MOEs often provide little or no premium above market price for either company. Instead, an exchange ratio is set to reflect relative metrics, such as assets, earnings and capital contributions, and market capitalizations, of the two merging parties—typically, but not always, resulting in a market-to-market exchange. Assuming a proper exchange ratio is set, MOEs can provide a fair and efficient means for the shareholders of both companies to benefit from merger synergies.

Due to the absence or modesty of a premium to market, MOEs are particularly vulnerable to dissident-shareholder campaigns and competing bids. While no protection is iron-clad, steps can be taken to protect an MOE transaction. As a preliminary matter, it is important to recognize that the period of greatest vulnerability is the period before the transaction is signed and announced. Parties must be cognizant that leaks or premature disclosure of MOE negotiations can provide the perfect opening for a would-be acquiror to submit a competing proposal or pressure a party into a sale or auction. A run-up in the stock price of one of the companies— whether or not based on merger rumors—also can derail an MOE, because no company wants to announce a transaction with an exchange ratio that reflects a substantial discount to market. MOE agreements should generally include robust structural protections, such as break-up fees, support commitments, no-shops and agreements not to terminate the merger agreement in the face of a competing offer without giving the shareholders a fair opportunity to vote on the merger, and utilization of a rights plan may also be appropriate. Since an MOE generally does not involve a sale of control of the company, parties to an MOE should send a strong signal that they have no intention of engaging in a sale-of-control transaction, even if their MOE transaction is voted down by shareholders. Once the deal has been made public, it is critical to advance a strong business rationale for the MOE in order to obtain a positive stock market reaction and thus reduce both parties’ vulnerability to shareholder unrest and/or a competing offer. The appearance and reality of a true combination of equals, with shareholders sharing the benefits of the merger proportionately, are essential to winning shareholder support in the absence of a substantial premium.

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Achieving the reality and perception of a true combination of equals presents an MOE transaction with unique structural and governance challenges. Structurally, the companies may choose to have both companies’ stock surrendered and a new company’s stock issued in their place to, among other possible benefits, promote the market’s understanding of the transaction as a true combination of equals, rather than a takeover of one company by the other. Similarly, parties to an MOE should carefully consider the post-merger governance and management of the combined company. Among the issues that will need to be addressed are the combined company’s name, the location of the combined company’s headquarters and key operations, the rationalization of the companies’ separate corporate cultures and the selection of officers and directors. In most of the larger MOEs there has been substantial balance, if not exact parity, in board representation and senior executive positions. This approach allows for a selection of the best people from both organizations to manage the combined company, thereby enhancing long-term shareholder value. Frequently, the CEO of one company becomes the Chairman of the combined company, with the other CEO continuing in his role, thus providing for representation at the helm from both constituent companies.

The popularity of stock as a form of consideration ebbs and flows with economic conditions. All-cash bids have the benefit of being of certain value and will gain quick attention from a target’s shareholders, particularly in the case of an unsolicited offer. In addition, the acquiror’s stock price is often less adversely affected by an all cash offer as compared to an all-stock offer because no shares of the buyer are being issued. Of course, some bidders may not have sufficient cash and financing sources to pursue an all-cash transaction. In such cases, the relative benefits and complexities of part-cash/part-stock and all-stock transactions must be considered.

In certain circumstances, the use of a mixture of stock and cash as consideration is appealing. Targets may find mixed consideration desirable because the cash component provides some downside protection to targets from a decline in the price of the acquiror’s stock. In addition, depending on the allocation procedure employed (e.g., whether each target shareholder is permitted to select his mix of consideration), both short-and long-term investors may be able to receive their preferred consideration in the form of all cash or all stock. Those who choose not to cash out may be able to retain the tax benefits of a tax-free exchange.

Even once the form of consideration is settled, targets are still confronted with the challenge of properly valuing the consideration offered in a proposed transaction. This valuation is a significant element in a board’s decision whether to approve a particular transaction. Even with diligence, the evaluation of a stock merger, regardless of whether it

involves a sale of control, can be quite complex. Directors may properly weigh a number of issues beyond the headline per share payment when evaluating a proposed transaction.

Even though non-U.S. investment in the U.S. remains generally well-received and rarely becomes a political issue, prospective non-U.S. acquirors of U.S. businesses or assets should undertake a comprehensive analysis of political and regulatory implications well in advance of making

an acquisition proposal, particularly if the target company operates in a sensitive industry or if the acquiror is controlled, sponsored or financed by a foreign governmental entity or organized in a jurisdiction where a high level of government involvement is generally understood to exist. Any weaknesses in the ability to clear regulatory hurdles could be used defensively by reluctant targets or offensively by competing bidders to frustrate or delay the completion of an acquisition.

In the U.S., many parties and stakeholders have potential leverage (economic, political, regulatory, public relations, etc.), and consequently it is important to develop a plan to address anticipated concerns that may be voiced by these stakeholders in response to the transaction. Moreover, it is essential that a comprehensive communications plan be in place prior to the announcement of a transaction so that all of the relevant constituencies can be targeted and addressed with the appropriate messages. It is often useful to involve local public relations firms in the planning process at an early stage. Planning for premature leaks is also critical. Similarly, potential regulatory hurdles require sophisticated advance planning. In addition to securities and antitrust regulations, acquisitions may be subject to review by the Committee on Foreign Investment in the United States (“CFIUS,” discussed below), and acquisitions in regulated industries (e.g., energy, public utilities, gaming, insurance, telecommunications and media, financial institutions, transportation and defense contracting) may be subject to additional layers of regulatory approvals. Regulation in these areas is often complex, and political opponents, reluctant targets and competitors may seize on any perceived weaknesses in an acquiror’s ability to clear regulatory obstacles. Most obstacles to a cross-border deal are best addressed in partnership with local players (including, in particular, the target company’s management where appropriate) whose interests are aligned with those of the acquiror, as local support reduces the appearance of a foreign threat.

It is in most cases critical that the likely concerns of federal, state and local government agencies, employees, customers, suppliers, communities and other interested parties be thoroughly considered and, if possible, addressed prior to any acquisition or investment proposal becoming public. Flexibility in transaction structures, especially in strategic or politically sensitive situations, may be helpful in particular circumstances, such as no-governance or low-governance investments, minority positions or joint ventures, possibly with the right to increase to greater ownership or governance over time; when entering a non-domestic market, making an acquisition in partnership with a local company or management or in collaboration with a local source of financing or co-investor (such as a private equity firm); or utilizing a controlled or partly controlled local acquisition vehicle, possibly with a board of directors

having a substantial number of local citizens and a prominent local figure as a non-executive chairman. Use of preferred securities (rather than ordinary common stock) or structured debt securities should also be considered. While an acquisition of outright control of a target by a foreign entity in a sensitive industry may attract significant political attention and regulatory scrutiny, minority and non-controlling investments may be permitted (for example, CNOOC abandoned its attempt to acquire Unocal amid significant political controversy, but CNOOC’s $2.2 billion investment in oil and gas assets owned by Chesapeake Energy in 2010 was permitted by regulators).

In addition, local regulators and constituencies may seek to intervene in global transactions. Ostensibly modest social issues, such as the name of the continuing enterprise and its corporate seat, or the choice of the nominal acquiror in a merger, may affect the perspective of government and labor officials. Depending on the industry involved and the geographical distribution of the workforce, labor unions and “works councils” may be active and play a significant role in the current political environment, and as a result, demand concessions. In several recent transactions, the perspective of local constituencies influenced the transaction structure. For example, in its 2014 acquisition of Tim Hortons, Burger King agreed to list the new company on the Toronto Stock Exchange, reflecting the status of Tim Hortons as an iconic Canadian brand and local regulators’ desire to maintain a Canadian listing. Similarly, in its attempted hostile acquisition of Perrigo, Mylan committed to list itself on the Tel Aviv Stock Exchange, regardless of the outcome of its offer, in part to portray a commitment to a long-term presence in Israel and appease Israeli securities regulators and Perrigo’s Israeli shareholders. AB InBev also listed on the Johannesburg Stock Exchange in connection with its pending acquisition of SABMiller.

In the U.S., CFIUS is one of the key authorities to consider when seeking to clear U.S. acquisitions by non-U.S. acquirors. CFIUS is a multi-agency committee that reviews transactions for potential national security implications where non-U.S. acquirors could obtain “control” of a U.S. business or assets or transactions involving investments by non-U.S. governments or investments in U.S. critical infrastructure, technology or energy assets. In recent years, some high profile deals have failed due to CFIUS hurdles—including the January 2016 abandonment of GO Scale Capital’s acquisition of an 80.1% interest in Philip’s Lumileds Holding BV, and CFIUS’s 2013 order that India-based Polaris Financial Technology divest its 85% ownership stake in U.S. company IdenTrust Inc., a provider of digital identification authentication services to banks and U.S. government agencies. However, many other transactions that have faced significant CFIUS review—such as the 2013 acquisition by

Wanxiang Group, China’s biggest auto-parts maker, of most of the assets of U.S. battery-manufacturer A123 Systems Inc., and the 2013 acquisition by BGI-Shenzen, a Chinese operator of genome sequencing centers, of Complete Genomics, Inc., a publicly traded U.S. life sciences company— have been able to achieve approval. It is often prudent to make a voluntary filing with CFIUS if control of a U.S. business is to be acquired by a non-U.S. acquiror and the likelihood of an investigation is reasonably high or if competing bidders are likely to take advantage of the uncertainty of a potential investigation. National security implications are not limited to defense sectors; critical infrastructure and industrial base assets and technology transfers can provide a basis for CFIUS interest. Any filing typically should be preceded by discussions with U.S. Treasury officials and other relevant agencies. In some cases, it may even be prudent to make the initial contact prior to the public announcement of the transaction. Given the higher volume of filings that have occurred in the last few years, such discussions can be instrumental in minimizing the review period. Nonetheless, in today’s environment, in any transaction that may be of interest to CFIUS, the pre-filing consultation and review period is taking 75 days on average.

As a CFIUS review is only applicable when the foreign person is acquiring “control” over a “U.S.” business (which can include the assets, intellectual property, or operations located in the U.S. of a non-U.S. business), such review may be avoided by structuring a transaction so that the investor is not acquiring “control.” CFIUS regulations issued by the U.S. Department of the Treasury provide an exemption for non-U.S. investments of 10% or less in the voting securities of a U.S. business if made “solely for the purpose of passive investment,” although this exclusion does not apply if the non-U.S. person intends to exercise control over the U.S. business or takes other actions inconsistent with passive intent. If the foreign acquiror’s intent later changes, CFIUS may review the investment retroactively. Control status is fact-specific and subject to a number of guidelines, including with respect to implications of possession of a board seat or the exercise of pro rata voting rights, and whether the investor wields a degree of influence sufficient to determine, direct or decide “important” matters. Certain minority shareholder protections and negative rights may be held by non-U.S. investors without rendering such investors in control of an entity.

For acquisitions of control by U.S. or other acquirors of non-U.S. domiciled companies, similar provisions exist under the laws of other jurisdictions, including most notably in Canada, Australia and China as well as some European nations. Some countries that have traditionally been hospitable to off-shore investors have focused more attention recently on acquisitions by state-owned or state-connected enterprises.

For example, Canada’s government initially blocked the $5.2 billion bid by Malaysia’s Petronas for Progress Energy Resources on the grounds that it would not create a net benefit for Canada before approving a revised bid, and CNOOC’s $15.1 billion acquisition of Canadian oil company Nexen was also subject to significant review by Canadian regulators. On the same day that the Canadian government approved the acquisitions of Progress Energy and Nexen, it announced changes to Canadian policy in reviewing investments in Canada by state-owned enterprises, which changes would increase the scrutiny applied to acquisitions by foreign-owned or influenced enterprises of control over Canadian enterprises, particularly in the oil-sands business, where such acquisitions would be approved only in exceptional circumstances. In 2013, the Australian Treasurer blocked the $3.1 billion takeover bid of GrainCorp by the American-listed Archer Daniels Midland, after the Australian Foreign Investment Review Board could not reach a consensus on whether to allow the deal to proceed.

Besides the CFIUS filing, foreign investors have to keep in mind that the U.S. Department of Commerce, Bureau of Economic Analysis (BEA), has reinstated in March 2015 the mandatory filing of “BE-13” survey forms as to foreign direct investment in the U.S., including in respect of the acquisition of all or an interest in U.S. public or private companies, and of U.S. real estate, among other things. In particular, a report is required by the U.S. entity if (i) a foreign direct investment in the United States relationship is created or (ii) an existing U.S. affiliate of a foreign parent establishes a new U.S. legal entity, expands its U.S. operations, or acquires a U.S. business enterprise. Foreign direct investment is defined as the ownership or control, directly or indirectly, by one foreign person of 10% or more of the voting securities of an incorporated U.S. business enterprise, or an equivalent interest of an unincorporated U.S. business enterprise, including a branch. The form is to be submitted within 45 days of closing. The failure to report can be subject to a civil penalty of between $2,500 and $32,500. Willful failure to report can result in additional fines and potentially criminal penalties.

Integration planning and due diligence also warrant special attention in the cross-border context. Wholesale application of the acquiror’s domestic due diligence standards to the target’s jurisdiction can cause delay, wasted time and resources, or result in missing issues. Making due diligence requests that appear to the target as particularly unusual or unreasonable (a not uncommon occurrence in cross-border deals, where custom on the type and scope of diligence may vary) can easily cause a bidder to lose credibility. At the same time, missing a

significant local issue for lack of local knowledge can be highly problematic and costly. The $10.3 billion acquisition of Autonomy by Hewlett-Packard and subsequent $8.8 billion write-down, and the $653 million acquisition of Zhengzhou Siwei Mechanical and Electrical Engineering by Caterpillar and subsequent $580 million write-down, each underscore the importance of effective due diligence in the cross-border acquisition context.

Due diligence methods must take account of the target jurisdiction’s legal regime and local norms, including what steps a publicly traded company can take with respect to disclosing material non-public confirmation to potential bidders and implications for disclosure obligations. Many due diligence requests are best funneled through legal or financial intermediaries as opposed to being made directly to the target company. Due diligence with respect to risks related to the Foreign Corrupt Practices Act (“FCPA”)—and understanding the U.S. Department of Justice’s guidance for minimizing the risk of inheriting FCPA liability—is critical for U.S. buyers acquiring a company with non-U.S. business activities; even acquisitions of foreign companies that do business in the U.S. may be scrutinized with respect to FCPA compliance. Diligence relating to compliance with the sanction regulations overseen by the Treasury Department’s Office of Foreign Asset Control can also be important for U.S. entities acquiring non-U.S. businesses.

Careful attention must also be paid to foreign operations of domestic companies, including joint ventures with foreign parties. The importance of this issue was dramatically illustrated in the failed attempt by Apollo Tyre, an Indian company, to acquire Cooper Tire and Rubber, which is a U.S.-based company with a significant joint venture in China. During the pendency of the deal, the Chinese minority partner locked Cooper out of the Chinese factory and made demands about a higher price and the potential clash between Indian and Chinese culture at the plant, contributing in part to the termination of the merger agreement with Apollo.

Cross-border deals sometimes fail due to poor post-acquisition integration where multiple cultures, languages, historic business methods and distance may create friction. If possible, the executives and consultants who will be responsible for integration should be involved in the early stages of the deal so that they can help formulate and “own” the plans that they will be expected to execute. Too often, a separation between the deal team and the integration/execution teams invites slippage in execution of a plan that in hindsight is labeled by the new team as unrealistic or overly ambitious. However, integration planning needs to be carefully phased-in, as implementation cannot occur prior to the time most

regulatory approvals are obtained and merging parties must exercise care not to engage in conduct that antitrust agencies perceive as a premature transfer of beneficial ownership or conspiracy in restraint of trade. Investigations into potential “gun-jumping” present costly and delaying distractions during substantive merger review.

Cross-border M&A activity is subject to careful review by competition authorities, and parties should prepare for multi-jurisdictional review and notifications. Nearly 100 jurisdictions have pre-merger notification regimes, and the list continues to grow; multinational transactions (including minority investments) may require over a dozen notifications. For example, the Dell/EMC transaction required approval from approximately 20 jurisdictions, while the Siemens/Dresser-Rand transaction required filings in almost a dozen countries. In recent years, the FTC, DOJ and the European Commission have not been hesitant to challenge and block cross-border mergers and other cross-border transactions, even, in rare cases, post-consummation. Notably, United Parcel Service’s $6.9 billion bid for TNT Express was withdrawn in 2013 due to concerns of European antitrust regulators, and in early 2012 the European Commission blocked the proposed merger of NYSE Euronext and Deutsche Börse.

Competition authorities (particularly those in the U.S., Europe and Canada) often, though not always, coordinate their investigations of significant transactions. To the extent that a non-U.S. acquiror directly or indirectly competes or holds an interest in a company that competes in the same industry as the target company, antitrust concerns may arise either at the federal agency- or state attorneys general-level in the U.S., as well as in the home country. Although less typical, concerns can also arise if the foreign acquirer of a U.S. target participates in a market either upstream or downstream of the target. Competition analyses will need to consider variations in market conditions and competition law across relevant jurisdictions. How conglomerate relationships are treated (and views as to required relief) is one area of meaningful variation among competition authorities.

China also now has a robust pre-merger notification system and has been active in its review and enforcement activities. In June 2014, the Anti-Monopoly Bureau of the Ministry of Commerce in China (“MOFCOM”) issued a decision prohibiting the formation of the P3 Network, a long-term container shipping alliance among A.P. Møller-Maersk, Mediterranean Shipping Company and CMA CGM, which are Danish, Swiss and French companies, respectively. In the seven years since the adoption of a pre-merger notification law in China, MOFCOM

had previously imposed restrictive conditions in 27 cases and rejected only one transaction (Coca-Cola’s proposed acquisition of China Huiyuan Juice Group, a leading Chinese juice maker back in 2009). Transactions upon which MOFCOM imposed restrictions included Google’s $12.5 billion acquisition of Motorola Mobility (conditioned on Google’s commitment to keep the Android operating system free for five years), and United Technologies’ acquisition of Goodrich (conditioned on a divestiture). China’s antitrust laws require that MOFCOM review any acquisition where aggregate global sales of all parties exceed $1.5 billion and sales in China for each of at least two parties exceed $62 million. This low threshold for Chinese sales puts many U.S. or European deals squarely within MOFCOM’s jurisdiction. China’s laws also give MOFCOM broad latitude in selecting remedies and the timing of review. The review clock in China only starts ticking after MOFCOM accepts the filing, which can take weeks or months at MOFCOM’s discretion. The review process itself can take a long time (longer than most jurisdictions). For example, FedEx’s ongoing acquisition of TNT Express, which was announced in April of 2015, received clearance from U.S., EU and Brazilian regulatory authorities by early February in 2016, yet, as of mid-March 2016, the deal is still under ongoing review in China.

Additionally, India’s merger control regime, which came into force in 2011 with the creation of the Competition Commission of India (“CCI”), and is now in full swing. Since then, the CCI has received 250 notices of a combination of enterprises and approved 234 of them without modification, two involved modifications and the remainder were still being reviewed as of the reporting year-end (May 2015). According to the CCI’s last annual report, it has not prohibited any transaction. An extensive amount of information about the parties and the transaction is required to be included in the notification, and India is one of very few jurisdictions that require notification to be filed within 30 days of either the boards of directors’ approval of the combination or the execution of any binding documents related to the combination. The CCI has 30 to 210 days from the date of filing to issue a decision but the clock stops whenever the CCI issues a request for supplemental information. Parties should expect at least one or two supplemental requests for information to stop the clock. Consequently, the review period will generally be at least two to three months and depending upon the complexity of the matter can be longer.

Understanding the custom and practice of M&A in the jurisdiction of the target is essential. Successful execution is more art than science, and will benefit from early involvement by experienced local advisors.

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For example, understanding when to respect—and when to challenge—a target’s sale “process” may be critical. Knowing how and at what price level to enter the discussions will often determine the success or failure of a proposal. In some situations it is prudent to start with an offer on the low side, while in other situations offering a full price at the outset may be essential to achieving a negotiated deal and discouraging competitors, including those who might raise political or regulatory issues. In strategically or politically sensitive transactions, hostile maneuvers may be imprudent; in other cases, unsolicited pressure may be the only way to force a transaction. Similarly, understanding in advance the roles of arbitrageurs, hedge funds, institutional investors, private equity funds, proxy voting advisors and other important market players in the target’s market—and their likely views of the anticipated acquisition attempt as well as when they appear and disappear from the scene—can be pivotal to the outcome of the contemplated transaction.

Where the target is a U.S. public company, the customs and formalities surrounding board of director participation in the M&A process, including the participation of legal and financial advisors, the provision of customary fairness opinions, and the inquiry and analysis surrounding the activities of the board and the financial advisors, can be unfamiliar and potentially confusing to non-U.S. transaction participants and can lead to misunderstandings that threaten to upset delicate transaction negotiations. Non-U.S. participants need to be well-advised as to the role of U.S. public company boards and the legal, regulatory and litigation framework and risks that can constrain or prescribe board action. In particular, the litigation framework—which, as discussed in Part I.B.5, has recently been shifting—should be kept in mind as shareholder litigation often accompanies M&A transactions involving U.S. public companies. The acquiror, its directors, shareholders and offshore reporters and regulators should be conditioned in advance (to the extent possible) to expect litigation and not to necessarily view it as a sign of trouble. The litigation risk and the other factors mentioned above can impact both tactics and timing of M&A processes and the nature of communications with the target company. Additionally, local takeover regulations often differ from those in the acquiror’s home jurisdiction. For example, the mandatory offer concept common in Europe, India and other countries—in which an acquisition of a certain percentage of securities requires the bidder to make an offer for either the balance of the outstanding shares or for an additional percentage—is very different from U.S. practice. Permissible deal protection structures, pricing requirements and defensive measures available to targets also differ. Sensitivity also must be given to the contours of the target board’s fiduciary duties and decision-making obligations in home jurisdictions, particularly with respect to

consideration of stakeholder interests other than those of shareholders and nonfinancial criteria.

This multifaceted overlay of foreign takeover laws and the legal and tactical considerations they present can be particularly complex when a bid for a non-U.S. company may be unwelcome. Careful planning and coordination with foreign counsel are critical in hostile and unsolicited transactions, on both the bidder and target sides. For example, Italy’s “passivity” rule that limits defensive measures a target can take without shareholder approval is suspended unless the hostile bidder is itself subject to equivalent rules. A French company’s organizational documents can provide for a similar rule, and as of April, 2016, France’s Florange Law will make it the default that a French company’s long-term shareholders are granted double voting rights, which would reduce the influence of toehold acquisitions or merger arbitrageurs. Dutch law and practice allow for the target’s use of an independent “foundation” or stichting to at least temporarily defend against hostile offers. The foundation, which is controlled by independent directors appointed by the target and has a broad defensive mandate, is issued high-vote preferred shares at a nominal cost, which allow it to control the voting outcome of any matter put to target shareholders. The recent three-way battle among Mylan, Perrigo and Teva illustrates how the applicable takeover regime can have significant impact. Perrigo (which had inverted from Michigan to Ireland) was subject to the “frustrating action” rule and other Irish Takeover Rules, which made it more difficult to defend against Mylan’s hostile bid— though Perrigo ultimately succeeded in convincing shareholders not to accept the bid. By contrast, Mylan (which had inverted from Pennsylvania to the Netherlands) used a potent combination of takeover defenses facilitated by Dutch law and its own governance documents, including the use of a foundation, to take a resist-at-all-costs approach to Teva’s bid.

In many ways, the acquisition financing markets in 2015 experienced a continuation of trends that began in 2014, with increasing volatility constraining the availability and increasing the cost of committed acquisition financing for leveraged issuers and for transactions with long closing periods. Given this environment, in the context of cross-border transactions, potential acquirors should consider whether this volatility has created inefficiencies and opportunities in different geographic credit markets such that financing is cheaper or otherwise available on more favorable terms in one local market as opposed to another; how committed acquisition financing is required to be under local regulation (e.g., the “funds certain” requirement in certain European jurisdictions) and whether a transaction with a financing contingency or other non-certain funds structure might be feasible; whether to explore

alternative, non-traditional financing sources and structures, including seller paper; whether there are transaction structures that can minimize refinancing requirements; and how comfortable the target will feel with the terms and conditions of the financing. Under U.S. law, unlike the laws of some other jurisdictions, non-U.S. acquirors are not prohibited from borrowing from U.S. lenders, and they generally may use the assets of U.S. targets as collateral (although there are some important limitations on using stock of U.S. targets as collateral).

As the U.S. continues to be a popular destination for restructuring of multinational corporations, including those with few assets or operations in the country, firms evaluating a potential acquisition of a distressed U.S. target should consider the full array of tools that may be available. This might include acquisition of the target’s fulcrum debt securities that are expected to become the equity through an out-of-court restructuring or plan of reorganization, acting as a plan investor or sponsor in connection with a plan, backstopping a plan-related rights offering, or participating as a bidder in a court-supervised “Section 363” auction process, among others. Transaction certainty is of critical importance to success in a “Section 363” sale process or confirmation of a Chapter 11 plan, and non-U.S. participants accordingly need to plan carefully for transaction structures that will result in a relatively level playing field with U.S. participants. Acquirors also need to consider the differing interests and sometimes conflicting agendas of the various constituencies, including bank lenders, bondholders, distressed-focused hedge funds and holders of structured debt securities and credit default protection.

Disclosure obligations may also vary across jurisdictions. How and when an acquiror’s interest in the target is publicly disclosed should be carefully controlled to the extent possible, keeping in mind the various ownership thresholds or other triggers for mandatory disclosure under the law of the jurisdiction of the company being acquired. Treatment of derivative securities and other pecuniary interests in a target other than equity holdings also vary by jurisdiction and have received heightened regulatory focus in recent periods.

U.S. securities regulations apply to acquisitions and other business combination activities involving non-U.S. companies with U.S. security holders unless bidders can avoid a jurisdictional nexus with the U.S. and exclude U.S. security holders. Where a transaction cannot escape U.S. securities regulations in this manner, exemptive relief may be available. Under the current two-tiered exemptive regime, relief from certain U.S. regulatory obligations is available for tender offers that qualify for one of two exemptions—the “Tier I” exemption where U.S. security holders

comprise less than 10% of a security subject to a tender offer, and the “Tier II” exemption, where the U.S. shareholder base does not exceed 40%. Tier I transactions are exempt from almost all of the disclosure, filing and procedural requirements of the U.S. federal tender offer rules, and securities issued in Tier I exchange offers, business combination transactions and rights offerings need not be registered under the Securities Act. Tier II provides narrow relief from specified U.S. tender offer rules that often conflict with non-U.S. law and market practice (such as with respect to prompt payment, withdrawal rights, subsequent offering periods, extension of offers, notice of extension and certain equal treatment requirements) but does not exempt the transaction from most of the procedural, disclosure, filing and registration obligations applicable to U.S. transactions or from the registration obligations of the Securities Act. Non-U.S. transactions where U.S. ownership in the target company exceeds 40% are subject to U.S. regulation as if the transaction were entirely domestic.

All-cash transactions are easy for all constituencies to understand and do not present flowback concerns. The cash used in the transaction frequently must be financed through equity or debt issuances that will require careful coordination with the M&A transaction. Where cash constitutes all or part of the acquisition currency, appropriate currency hedging should be considered, given the time necessary to complete a cross-border transaction. In addition, parties should be cognizant of financial assistance rules in certain non-U.S. jurisdictions that may limit the ability to use debt financing for an acquisition.

U.S. securities and corporate governance rules can be problematic for non-U.S. acquirors who will be issuing securities that will become publicly traded in the U.S. as a result of an acquisition. SEC rules, the Sarbanes-Oxley and Dodd-Frank Acts and stock exchange requirements should be evaluated to ensure compatibility with home country rules and to be certain that the non-U.S. acquiror will be able to comply. Rules relating to director independence, internal control reports, and loans to officers and directors, among others, can frequently raise issues for non-U.S. companies listing in the U.S. Similar considerations must be addressed for U.S. acquirors seeking to acquire non-U.S. targets. Structures involving the issuance of non-voting stock or other special securities of a non-U.S. acquiror may serve to mitigate some of the issues raised by U.S. corporate governance concerns. Governance practices can be particularly relevant when equity consideration is used in a hostile acquisition. For example, in Mylan’s hostile cash and stock offer for Perrigo, Mylan’s shareholder-unfriendly governance regime, which was permissible in the Netherlands, was a sticking point for many Perrigo

investors, and was a significant driver in Mylan’s inability to generate sufficient support for its offer among Perrigo shareholders.

All-stock transactions provide a straightforward structure for a cross-border transaction but may be susceptible to flowback. A depositary receipt approach carries many of the same advantages as an all-stock transaction but may mitigate flowback, as local institutional investors may be willing to hold the depositary receipts instead of the underlying nonlocal shares, easing the rate at which shares are sold back into the acquiror’s home country market. However, in the typical depositary receipt program, the depositary receipt holders are free to surrender their receipts to the depositary in exchange for the underlying shares. Once the underlying shares are received, the non-U.S. shareholder is free to trade them back into the acquiror’s home market.

A more complex structure for a cross-border combination is known as the dual listed company (“DLC”) structure. In a DLC structure, each of the publicly traded parent corporations retains its separate corporate existence and stock exchange listing. Management integration typically is achieved through overlapping boards of directors. Broadly speaking, DLC structures can be divided into two categories: “downstream” DLCs and “synthetic” DLCs. In a downstream DLC, the merged businesses are combined under one or more holding companies that are jointly owned by the two publicly traded parent companies. In a synthetic DLC, the merged businesses typically are not jointly owned, and economic integration is achieved solely through contractual “equalization” arrangements.

Examples of downstream DLC structures include ABB Asea Brown Boveri and Reed-Elsevier. Royal Dutch/Shell, which had utilized such a structure for several decades, restructured into a single holding company a number of years ago. Examples of synthetic DLCs include RTZ-CRA and BHP-Billiton.

Because DLC structures raise novel and complex tax, accounting, governance and other issues as applied to the U.S., to date, these structures have not been successfully employed in cross-border combinations involving a U.S. parent corporation.