Cross Border Acquisitions

Vijaya Sampath Group General Counsel Bharti Enterprises

ASSOCHAM National Conference 6 April 2011

Objectives of international M&A

Access to new markets : global footprint
Existing products in new markets, new products in existing markets

Access to finance in international markets Competitive advantage - mining rights, agriculture, power
Stretching natural resources across geographies Acquisition of consumer or supplier; vertical and horizontal integration

Cannibalizing the competitor Cost savings and tax efficiencies: tax friendly jurisdictions Mauritius, Netherlands, Singapore, Cyprus Classic economics: land, labor, capital, environment Regulatory and political risk mitigation

Transaction process
Initial expression of interest Appointment of advisors: Legal, Investment bankers, consultants Non disclosure agreement Information memorandum and non binding offer Negotiations and term sheet Due diligence: Legal, technical, commercial, financial Documentation: Agreements, filing Approvals: Internal and external

Closing and disclosures in public domain

Integration

Consideration for deal structure

Due diligence: local lawyers in various countries Tax regime and compliance
- Structuring for tax efficiency - Compliance with laws of multiple regulators and jurisdictions

Governing law and enforcement

- Governing law of contract - Dispute resolution mechanics

Restrictions on foreign exchange outflow and investment

Enforcement mechanisms
- Time for redressal - Effectiveness of judicial system - Neutrality - Appeal process - Formality of order and implementation

Language and culture

Fund flow mechanics: currency fluctuation and moving across frontiers

Transaction issues
Due Diligence Report:
Approvals & permissions Impact of material commercial agreements Shareholder agreements: rights & restrictions Control and management issues Lender and creditor agreement & arrangements Listing, disclosures and filing Evaluation of assets: Title, value, insurance Financial numbers and strength of company Markets and global reach Human Resources: leadership, employee contracts, ESOP Intellectual Property Litigation Regulatory issues and compliances (anti trust, sector regulator) Governance and compliance mechanism

Transaction documents
Due diligence reports: legal, financial, technical Valuation reports Shareholder / subscription agreements, put and call options Tax deed of covenant Financing documents Transition arrangements Intellectual property, HR, service contracts: operational Open offer, acquisition of securities, subscription, global regulations Court related documents: mergers, bankruptcy, settlement Closing and post closing obligations Filings and disclosures

Shareholder / Acquisition Agreement

Definitions Consideration, ownership and control

Representations, Warranties, indemnities

Rights and Obligations of parties

Exit Mechanisms

Conditions for Closing

Default & Remedial provisions Definitions

Dispute resolution

Boilerplate

Challenges
Inconsistencies and conflict
- Regulatory framework - Environment - Governance - Listing requirements & securities law - Employment laws - Data privacy and confidentiality - Indemnities and warranties

Intellectual property
- Registration of IP - Protection against infringement

Consents and approvals

- Multiple authorities - Differing time schedules - Conflicting approvals

Challenges
Different strokes for different folks: anti trust
Presence of both parties Varying threshold limits Same or differing business; merging technologies Timing of approvals

Market asymmetries Submission of data and information Public policy Unclear legislation and regulations Conflicting laws and regulations Timing: open offer in one and regulatory approvals in another State of the legal system and judiciary Closing of transaction

Border issues
Issues of national security: political sensitivity Trade boycotts and sanctions State of the markets: level of sophistication Economic nationalism: political backlash Opposition from regional players Cultural issues: Family owned Vs Widely held Financing mechanisms Legal systems
Enforcement of contracts Corporate and commercial laws : level of sophistication Bankruptcy laws and protection Title to property: Restrictions on ownership, usage and transfer Employee arrangements: Share options, severance, remuneration Environment laws: Different standards and compliance levels Dispute resolution: Speed, process and efficacy

Integration: Success Factors

Define strategy and key objectives Nominate a steering committee and integration leader with authority & responsibility Employee engagement and acceptance Appreciation of cultural differences and working around it

Effective communication process and system

Periodic reviews to assess progress Course correction if required Evaluate risk and benefit analysis

Managing differences
Adapt
- Use global standards & formats but adapted to local requirements

Aggregate
- Standardization of best practices to deliver economics of scale

Arbitrage
- Exploitation of differences between various jurisdictions for optimal structuring & tax efficiency

Configure
- New identity and branding: Planning and execution of project

Co-ordinate
- Multitude of service providers in multiple jurisdictions

Competitive advantage
- Strategic legal planning and cross border staffing

Thank you