Crossborder M&A in China – A Comparative Analysis.ppt
Cross-border M&A in China A Comparative Analysis,Robert D.LewisAmCham China M&A PresentationManaging Partner28 February 2007Lovells BeijingBeijing,China,Cross-border M&A in China,Looking at both sides,Foreign Buyer,Domestic Seller,New Regulations,Old Regulations,vs,FIETarget,PrivateTarget,SOETarget,ListcoTarget,VS,VS,VS,vs,The New Market Realities in China,Other Factors:Company Law revisionsShare reformDomestic industry consolidationOut-bound investment,Old vs.New Regulations Cross-border M&A Regulations,Old vs.New Regulations Public Company Takeover Regulations,Old vs.New Regulations Public Company Takeover Regulations,Harmonization of New Regulations,Foreign Acquisitions of Domestic Listed Targets in ChinaGeneral Rule:both the 2006 Takeover Regs and the 2006 M&A Regs are applicable,National Economic Security(“NES”)Review,Central MOFCOM NES approval required for following categories of acquisitions:“important industries”(not defined)“elements that may affect national economic security”(not defined)“famous trademarks”and“old established Chinese tradenames/companies”(not defined)If application for NES review not submitted,MOFCOM may unwind any transaction which“has or may have”material adverse effect on NES or take other measures to eliminate adverse NES impact.,Foreign Shares as Consideration Qualification Requirements,Foreign Shares as Consideration Approvals,China,Off-shore,Seller,Buyer,Target,Initial Approval:in-bound investment and conversion of Target into FIE approved with 6 mos validity(MOFCOM and possibly NDRC)Final Approval:out-bound investment verification and registration(MOFCOM and SAFE);upon issuance of Overseas Investment Approval Certificate,final in-bound investment approvals issued(MOFCOM),New Obstacles for“Red Chips”,2006 M&A Regs:CSRC approval requiredClear ownershipComplete business operation structureCorporate governance and internal management systemNo violations in past 3 yearsIPO proceeds valuationIPO to launch within 1 year of round-trip acquisition by SPVIPO proceeds to be repatriated to China,e.g.Commercial loan to domestic companiesEstablishment of new FIEs in ChinaAcquisition of domestic enterprises,Governing Law for Cross-border Acquisitions,Practical Aspects of Cross-border M&A in China:Know Your Counterparty,LegendTakeover:2006 Takeover RegsNES:National economic security reviewM&A:2006 M&A RegsPRE:Property Rights ExchangeSAV:State-Asset Valuation,Practical Aspects of Cross-Border M&A in China,Seller,Buyer,China,Off-shore,Advisors:prior intl deal experience?,Advisors:prior China deal experience?,SPA Negotiations Due DiligenceCPsPaymentEscrowClosing ConditionsReps&WarrantiesIndemnitiesPre-closing covenants,Cross-border M&A in China:a Case Study,WFOEHoldco,Foreign Parent,SOESeller,B-shareListcoTarget,Public Shareholders,InternationalHoldco,Mandatory offer,40%,60%,SPA,Key terms:Buyer wishes to acquire 51%but 60%;seller wishes to sell down 45%but 55%;both wish Seller to retain 5-9%;public shares have traded at 15%above Buyers target offer price,