While business sales transactions can be completed using a variety of formats, including a merger or a sale of ownership interests, it is common for the parties to agree on an asset purchase structure. In that situation, the seller will need to deliver various transfer documents to complete the change of ownership including a bill of sale to transfer ownership of personal property, deeds of trust to transfer real property, and assignments for transfers of leases, contract rights, and intangible property. A separate assumption of liabilities also may be needed in appropriate cases.
Sale of a business often involves a transition period during which the seller will remain involved in certain aspects of the business. For example, the parties may use an assignment of the rights, obligations, interests and liabilities associated with an identified contract in the context of a purchase and sale of business with the caveat that the assignor (i.e., seller) will continue to provide invoice and collection services under the contract for the benefit of the assignee (i.e., the buyer) until such time as the assignee elects to terminate such services and take on those activities on its own. If necessary, the form should also include the consent of the beneficiary of the contract, the “customer”, to the assignment and to ongoing arrangement with respect to invoicing and collection.
A template for assigning contract rights in business sales transactions is available in Business Transactions Solutions (see Specialty Form § 291:242) for Westlaw Next users.
Section 7A of the Clayton Act, which was added by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), provides that certain mergers and acquisitions of voting securities or assets may not take place unless prior notification has been filed with the Department of Justice (DOJ) and the Federal Trade Commission (FTC) and the specified waiting period has expired. The waiting period ordinarily is 30 days (15 days for cash tender offers or bankruptcy sales) but may be either extended or shortened under certain circumstances by the agencies, which also have the right to request additional information or documents regarding the proposed transaction. If such a request is made, the waiting period is extended until 20 days following delivery of all of the supplemental information or documents to the appropriate agency. The HSR Act also applies to formation of certain joint ventures; acquisitions of intellectual property assets, including exclusive licenses; and formation and acquisitions of ownership interests in non-corporate entities (i.e., partnerships and limited liability companies). Cooperation between the participants in a prospective merger during the mandatory premerger waiting period may itself be a violation of the antitrust laws and it is important for the participants to continue operating as separate and independent businesses and competitors in order to avoid “gun jumping” liability.
Under the HSR Act, notification must be provided (unless there is an applicable exemption) if: (1) at least one of the parties (i.e., either the acquiring or the acquired person) is engaged in commerce or in any activity affecting interstate commerce (the “commerce” test”); (2) one party to the transaction has annual sales or assets of at least $100 million and the other party $10 million (the “size-of-person” test) (the $100 million and $10 million thresholds will increase as provided in the indexing procedures described below); and (3) as a result of such acquisition, the acquiring person will hold voting securities or assets worth in the aggregate more than $50 million (increased as provided in the indexing procedures described below) (the “size-of-transaction” test).
Regardless of whether the transaction falls within any of the above-listed requirements, notification is also mandated if the transaction meets the commerce test and, as a result of the acquisition, the acquiring person would hold voting securities or assets worth in the aggregate more than $200 million (increased as provided in the indexing procedures described below). On the other hand, $50 million (increased as provided in the indexing procedures described below) is an absolute floor on reporting — if an acquiring person would not hold voting securities or assets valued at greater than the than applicable threshold in the size-of-transaction test, the acquisition is not reportable.
All of the dollar-amount thresholds described above are subject to indexing commencing in 2005 based on annual changes in the gross national product. Accordingly, by 2015 the thresholds referred to above had increased as follows: $10 million to $15.3 million; $50 million to $76.3 million; $100 million to $152.5 million; and $200 million to $305.1 million. As general rule of thumb, unless a specific exemption applies, notification must be made for all acquisitions valued at more than $76.3 million if either party has at least $152.5 million in annual net sales or total assets and the other has at least $15.3 million in annual net sales or total assets. The size-of-person test is not applicable in cases where the value of the securities or assets being acquired equals or exceeds $305.1 million. A filing fee, ranging from $45,000 to $280,000, depending on the size of the transaction, must be paid in connection with filings under the HSR Act. The thresholds described above are effective for transactions on or after February 20, 2015.
For further discussion of Hart-Scott-Rodino Act filing requirements, including various exception that might apply to remove a transaction from those requirements, see Corporate Mergers Gutterman, Business Transactions Solutions §§ 297:47 et seq.).
I was involved in the creation and
publication of two articles for Business Law Currents during May. The first article, “Joint Ventures: Six Key
Questions for Successful Management and Operations”, built on early coverage of
various issues to discuss with clients contemplating a new joint venture
arrangement. The second article was the first of
what will hopefully be an ongoing bi-monthly series on major development
affecting mergers, acquisitions and divestitures.
The proposed terms of any merger transaction must be reviewed in light of the potential impact of federal and state antitrust laws and the two main federal regulatory bodies–the Federal Trade Commission and the U.S. Department of Justice–have periodically issued administrative guidance with respect to mergers and other transactions that might be covered by Section 7 of the Clayton Act and thus vulnerable to review and challenge under federal antitrust laws. The latest guidelines were just recently issued and are briefly summarized in this month's report.
In this post I pass along the latest issue of the newsletter on Recent Developments in Mergers and Acquisitions compiled by my colleague Robert Brown for Thomson Reuters—Westlaw. Several topics are covered including a summary of an interest recent empirical study that suggests that certain “go-shop” provisions may serve to satisfy a board’s Revlon duties.
Happy 2009! Let's hope it's a better year than the last.
Today we lead off with the latest edition of the regular monthly update on recent developments affecting mergers, acquisitions and divestitures prepared with my colleague Robert Brown for Thomson Reuters/Westlaw. In this issue we consider a variety of topics including the ability of a state to subpoena a company in a securities investigation even if the company has not solicited or sold to its residents, whether operating as a passive investment company and conducting limited business activities will justify judicial dissolution of a company under Delaware law, the emergence and availability of series LLCs, SEC expansion of the scope of primary liability under rule 10b-5 by redefining the term "make" to include an underwriter providing a prospectus containing terms that were not made by the underwriter, but which the underwriter knew or was reckless in not knowing were false, consequential damage waivers in acquisition agreements, and new credit card rules and proposed overdraft protection program designed to protect credit and banking consumers.
Today we begin presenting a regular monthly update on recent developments affecting M&A and divestiture transactions prepared with my colleague Robert Brown for Thomson Reuters/Westlaw.