Conclusion of a cross-border transaction may be subject to various regulatory approvals.
In some jurisdictions:
• Government approval must be obtained for all foreign acquisitions of domestic targets (for example, in China).
• Foreign investors must obtain an investment licence (for example, non-Gulf investors in Saudi Arabia).
• Foreign investors must obtain approval before acquiring shares in companies involved in certain restricted sectors (for example, in Russia and France).
• In an asset purchase, prior approval may also be needed for a foreign acquisition of land (for example, in Taiwan). Alternatively, a buyer may be required to incorporate a local company to acquire such assets or shares if ownership by a foreign entity is not permitted.
Regulatory approvals are commonly required in sectors such as financial services, health, telecoms and utilities.
Competition law and merger approvals
Cross-border acquisitions in the European Economic Area (EEA) may, subject to meeting certain turnover thresholds, be deemed to have a Community dimension, making it necessary to make a prior notification to the EU Merger Registry.
Regard should also be had to the anti-trust and merger control legislation in other relevant jurisdictions, particularly the US.
Shares as consideration
Whether on a transfer of assets or shares, if the consideration includes shares or other securities (for example, loan notes) of the buyer, local advice is needed to ensure that the issue of such securities does not breach local securities laws and that appropriate authorisations (for example, shareholder resolutions) are in place.
If the acquisition is to be conditional on regulatory approvals (or other conditions such as counterparty consent to the change of control), the buyer should seek protections in the sale agreement, including:
• A clear long-stop date, after which (if the condition is not satisfied) the buyer can withdraw from the transaction.
• The repetition of seller warranties on exchange and closing.
• The return of any deposit if the required approval is not obtained.
• Obligations on both parties (and, where relevant, the target) to co-operate in securing satisfaction of the condition(s).
• Restrictions on the conduct of business of the target between exchange and closing.
• Delays in obtaining required regulatory approvals need to be factored into the transaction timetable.
ANTI-BRIBERY AND CORRUPTION
If the business operates in countries with which the buyer is unfamiliar or corruption is perceived to be high, the buyer should undertake a thorough assessment of the local markets (including the use of local agents). Transparency International UK has published guidance for anti-bribery due diligence in the context of mergers and acquisitions.
The UK Bribery Act 2010 may also be relevant, for example certain offences in the Bribery Act, including the offence of bribing a foreign public official, capture bribery that takes place outside the UK where the person involved has a "close connection" with the UK. Further, the offence under the Bribery Act for commercial organisations that fail to have adequate measures in place to prevent bribery can apply to overseas companies whose presence in the UK is relatively small, if they operate part of their business in the UK.
This insight formed part of a larger article on "Structuring and managing cross-border private acquisitions", published in Practical Law.