From PLI’s Course Handbook
Going Private: Doing It Right 2009
#18768
13
Going private: Timelines & Checklists
Francis J. Aquila
Sullivan & Cromwell LLP
Copyright © 2008
All Rights Reserved.
Francis J. Aquila – Partner
Francis J. Aquila joined Sullivan & Cromwell in 1983 after graduating from Columbia University (B.A. 1979) and Brooklyn Law School (J.D. summa cum laude 1983). He became a partner of the Firm in 1992.
Frank Aquila has been a partner in Sullivan & Cromwell's Mergers & Acquisitions Group since 1992. He specializes in handling mergers and acquisitions, takeover defense, strategic alliances and corporate governance matters for a broad range of clients.
Mr. Aquila serves as regular advisor to global leaders such as Amgen, British Airways, Diageo and Anheuser-Busch InBev. He has represented Amgen, the world’s largest biotech, in its acquisitions of Abgenix, Alantos Pharmaceuticals, Avidia and Ilypsa and their collaborations with Kirin and Takeda. Over the last decade, he has represented Diageo, the top premium drinks company, in many significant transactions, including its sale of Burger King Corporation to an investor group led by Texas Pacific Group and the merger of Pillsbury with General Mills; its acquisitions of Seagram Wines and Spirits, The Chalone Wine Group and Rosenblum Cellars; the restructuring of its U.S. joint venture arrangements with Moët Hennessy, and their joint venture with respect to Ketel One Vodka, among many others. Mr. Aquila has represented British Airways in numerous transactions over the last 20 years, including its pending joint venture with American Airlines and Iberia andits proposed combinationwith Iberia. Mr. Aquila represented InBev in its unsolicited acquisition of Anheuser-Busch to form Anheuser-Busch InBev, the world's largest brewer.
Mr. Aquila's representations include: Collective Brands (formerly PayLess ShoeSource) in its acquisitions of Stride Rite and Collective International;J. Sainsbury in the sale of its U.S. supermarket businesses to Albertsons; Aames Investment Corp. in its merger with Accredited Home Lenders; Medtronic in its acquisitions of MiniMed and Medical Research Group; EchoStar in its attempted acquisition of Hughes Electronics from General Motors; Western Resources in its hostile bids for ADT and KCP&L; Pharmacia & Upjohn in its merger with Monsanto, and Upjohn in its earlier merger with Pharmacia; SITA S.C. in connection with Equant’s acquisition of GlobalOne and The SITA Foundation in selling its equity interest in Equant to France Telecom; The Earthgrains Company in its acquisition by Sara Lee; Newbridge Networks in its acquisition by Alcatel; and Grand Metropolitan in its merger with Guinness to form Diageo.
Mr. Aquila was recognized as "Dealmaker of the Week" by The American Lawyer in November 2008. He was also recognized as a leading M&A lawyer in The Lawyer Transatlantic Elite 2008 and is listed as one of the leading M&A lawyers in The World’s Leading Lawyers (Chambers Global), Guide to the World’s Leading Mergers and Acquisitions Lawyers (Euromoney Legal Media Group/International Financial Law Review), Mergers and Acquisitions Handbook (Practical Law Company/Global Counsel), Chambers USA: America’s Leading Lawyers for Business (Chambers and Partners) and The Definitive Guide to Europe’s Leading Advisers: Are Your Advisers Giving You the Edge? (Mergermarket). He was also cited in Seeing the World Through Clients’ Eyes (Nisus Consulting) as an advisor who had “really gone the extra mile and surpassed your expectations.”
Frank Aquila is a frequent author and lecturer on topics relating to M&A and corporate governance. He received a 2005 Burton Award for Legal Achievement for his article, “Back to the Future! Recent Hostile Bids Make Takeover Defenses Relevant” (The M&A Lawyer, April, 2004). He recently chaired a Practising Law Institute conference on “going private” transactions and Executive Enterprise Institute conferences on due diligence in M&A transactions and S-Ox Section 404 compliance. Mr. Aquila appears on CNBC TV, Bloomberg TV and Bloomberg Radio discussing current M&A activity and trends.
Mr. Aquila is Chair-elect for the Board of Trustees of the NALP Foundation for Law Career Research and Education and serves on the Board of Advisors of the Salvation Army of Greater New York.
Table of Contents
Transaction: Cash Merger Without A First Step TenderOffer………………..….4
Transaction: Merger With A First Step Tender Offer……………………………15
Transaction: Reverse Stock Split……………………………………….…………..26
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ACQUISITION TIMETABLE CHECKLIST[1]
(Transaction: Cash Merger Without A First Step Tender Offer)
CERTAIN ABBREVIATIONS
Affiliate Bidding to Take Corporation Private.....Bidder
Board of Directors of Company...... Board
Corporation Being Taken Private...... Company
Financials Advisors to Special Committee...SC’s Bankers
Financial Advisors to Bidder...... B’s Bankers
Legal Counsel to Bidder...... B’s Counsel
Legal Counsel to Special Committee...... SC’s Counsel
Plaintiff’s Attorneys...... PA’s
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Date[2] / Event/Action Item / PartiesWeeks before Date X / Determination by Bidder to devote resources and time to potential going private transaction. Evaluation of reasons for going private, including but not limited to: (i) public market not ascribing appropriate value to Company, (ii) ability to make long-term strategic decisions at expense of short-term profitability, (iii) eliminate duty owed to Company’s minority stockholders, (iv) ability to be reposition Company when outside of publicly traded domain, (v) elimination of securities disclosure requirements and many Sarbanes-Oxley concerns. / Bidder
Weeks before Date X / Bidder engages B’s Bankers and B’s Counsel. / Bidder
Weeks before Date X / Various analyses (economic, strategic repositioning following acquisition, etc.) of Company by Bidder and B’s Bankers. / Bidder; B’s Bankers; B’s Counsel
Weeks before Date X / Planning for approach to Board; determine if any members of management of Company will be part of Bidder group. / Bidder; B’s Bankers; B’s Counsel
Weeks before Date X / Analysis of Delaware Section 203 concerns. Is Bidder a 15% or more stockholder on its own? What about other members of Bidder group? / Bidder; B’s Counsel
Shortly before Date X / Analysis of potential regulatory concerns including anti-trust review. (Note: due to Bidder’s percentage of beneficial ownership of Company, Bidder and Company may be the same “person” for purposes of the HSR Act and no filing or waiting period may be required in connection with the proposed transaction) / Bidder; B’s Counsel
Shortly before Date X / Preparation of initial draft of Merger Agreement and letter to Board. / Bidder; B’s Counsel
Date X / Bidder sends letter to Board informing Board of Bidder’s intentions with respect to the “going private” transaction (typically Bidder includes indication of price it would pay for the equity interests of the Company that Bidder does not already own). / Bidder
Shortly after Date X / As applicable, Bidder (group) files an amendment to Schedule13D (depends on ownership of Bidder (group) and what existing Schedule 13D on file discloses). / Bidder; B’s Counsel
Shortly after Date X / Board/Company publicly announce the receipt of the letter from Bidder and the basic facts contained therein. / Board; Company
Shortly after Date X / PA’s begin to file lawsuits (breach of fiduciary duty and lack of business purpose – usually seeking injunctive relief; complaints filed after the dissemination of disclosure materials, on the other hand, will tend to focus on material misstatements and omissions in those materials, usually claiming a violation of federal securities laws). The discovery process is very likely to lead to a turning over of all of Bidder’s internal documents and plans for the going private transaction. / PA’s
Shortly after Date X / Board forms a SC of disinterested and independent directors who are not representatives/members of the Bidder (group) or employees of the Company. It is important for SC to be given appropriate scope of authority so that its members may satisfy their fiduciary duties, but, depending on the circumstances, the Board may limit the scope of authority of the SC to a majority or controlling stockholder’s proposed transaction; the SC need not be authorized to solicit or consider other offers. / Board
Shortly after Date X / SC selects its own chairperson. / SC
Shortly after Date X / SC interviews and then selects SC’s Counsel and SC’s Bankers (important for record to show that neither Bidder nor anyone at the Company (whether management or other members of Board not on the SC) directed or influenced the SC in its selection of advisors). / SC; SC’s Counsel; SC’s Bankers
Shortly after Date X / Both SC and Bidder engage separate Delaware legal counsel in connection with the PA’s lawsuits. / SC; Bidder
Shortly after Date X / Respond to lawsuits - stockholder class action litigation is almost a certainty (The discovery process in this litigation will, subject to any available privileges, lead to a turning over of all internal documents of Bidder concerning Company, the Bidder’s plans for the Company and the Bidder’s planning for the going private transaction. This may also lead to discovery of documents relating to the Bidder’s broader strategic deliberations. Important for Bidder to be sensitive to this reality in preparing all written materials). / SC; Bidder
Shortly after Date X / Bidder and Company negotiate and enter into confidentiality agreement. / Bidder; B’s Counsel; SC; SC’s counsel; Company
Week two to week four after Date X / Bidder due diligence on Company; Company management presentations (length of time; degree of diligence depends in part on relationship of Bidder and Company). / Bidder; B’s Counsel; B’s Bankers (other advisors – e.g., accountants)
Week two to week four after Date X / SC’s Bankers to analyze value of Company; perhaps analyze other options (depends in part on whether Bidder has indicated that it is unwilling to consider any other transaction, sell to any third party and how much of Company the Bidder owns). / SC; SC’s Bankers
For an ongoing period of at least two months after Date X / Bidder and its advisors negotiate with SC and its advisors re Merger Agreement and price (and negotiation separately with plaintiffs counsel as well). This is a process which Bidder deliberately starts off with a price that does not represent what Bidder is prepared to pay. It is in interests of Bidder that SC says “no” at least twice to Bidder in process where record shows movement from Bidder on Merger Agreement and price as SC extracts more money and more favorable deal protection terms from Bidder. Multiple meetings of SC and its advisors occur as SC diligently considers Bidder proposal and negotiates hard with Bidder. / Bidder: SC; respective advisors
Two to three months (could be more) after Date X / Bidder and SC reach general agreement on price and other terms. / Bidder; SC; respective advisors
Two to three months (could be more) after Date X / SC/Board obtains fairness opinion from SC’s Bankers that consideration offered by Bidder is fair from a financial point of view to the stockholders of the Company other than the Bidder (in certain circumstances Bidder may also obtain a fairness opinion). / SC’s Bankers
Two to three months (could be more) after Date X / Bidder, SC and PA’s reach general agreement on price and other terms (Bidder will usually want to try to finalize settlement with PA’s at same time as reaching agreement with SC so as to have no further rounds of price negotiations and tie it all up at same time). / Bidder; SC; PA’s
Two to three months (could be more) after Date X / Depending on circumstances of transaction (e.g., Bidder to increase leverage in Company) Board might engage (early after Date X) independent valuation firm to render (around this time or possible just before closing) a solvency opinion in connection with the transaction. / Board
Two to three months (could be more) after Date X / SC recommends transaction to the Board and Board approves transaction and approves Bidder for purposes of Delaware Section 203 (if not seek vote of 66 2/3% of stock not owned by Bidder) (Depending on representation of Bidder individuals/non-independent individuals on Board, Board recommendation may be made by less than all members). / SC; Board
Just prior to Date Y / Organize Merger Sub – file Certificate of Incorporation, finalize Bylaws, prepare organizational board resolutions. / Bidder; B’s Counsel
In connection with action on Date Y / As applicable, Company amends its Stockholder Protection Rights Agreement so that Bidder does not become an “Acquiring Person”/rights separate as a result of execution of Merger Agreement or consummation of transactions thereunder (depending on amount of Company that Bidder owns, existing Rights Agreement may already have carve-out for certain circumstances). / Company
Date Y / Execute Merger Agreement and publicly announce transaction and price. / Bidder; Company
Shortly after Date Y / Company files Form 8-K with executed Merger Agreement attached as exhibit. / Company
Shortly after Date Y / Bidder (group) files an amendment to Schedule13D with executed Merger Agreement attached as an exhibit (depends on ownership of Bidder (group) and what existing Schedule 13D on file discloses). / Bidder; B’s Counsel
Begin prior to Date Y, but preparation typically after Date Y / Determine consents, waivers, amendments, if any required under contracts or other material documents and commence preparation of same. / Bidder; Company
Shortly after Date Y / Execute Memorandum of Understanding re Settlement with PA’s and commence procedures to have a Delaware court hearing with respect to fairness (after execution of the Merger Agreement). / Bidder; SC; Company; PA’s
In days/weeks after Date Y / File regulatory filings as necessary/appropriate (notification under HSR Act may or may not be necessary – see discussion above). / Bidder; Company
In days/weeks after Date Y / Preparation of Schedule 13E-3 transaction statement and Proxy Statement of the Company.Going private transactions are conducted under a microscope of securities disclosure requirements far more rigorous than in any other kind of transaction. The SEC has adopted rules making it illegal for an issuer or any affiliate of any issuer to effect a transaction that results in the delisting of any class of equity securities of the issuer unless certain specified disclosure requirements are satisfied. / Bidder; B’s Counsel; SC’s Counsel; Company
In days/weeks after Date Y / Engage proxy solicitation firm. / Company; Bidder
In days/weeks after Date Y / Engage payment agent. / Bidder
Three to four weeks after Date Y / File Schedule 13E-3 and Proxy Statement with the Securities and Exchange Commission (which will include the Proxy Statement of the Company as an exhibit thereto). / Bidder
Seven to Eight weeks after Date Y / SEC will very likely review and comment on the Schedule 13E-3 and Proxy Statement. / - - - - -
Nine to Twelve weeks after Date Y / Resolution of SEC comments on Schedule 13E-3 and Proxy Statement. / B’s Counsel and SC’s Counsel
Two to three months after Date Y / Mail Proxy Statement to stockholders of Company and solicit proxies (period between mailing and meeting date of typically at least 20 business days). / Company
Three to Four months after Date Y / Company Stockholders adopt Merger Agreement at special meeting (approve Bidder if needed for Delaware Section 203 – see discussion above). / Company
Three to Four months after Date Y / File certificate of merger; merger then becomes effective; close transaction. / Bidder; B’s Counsel; Company
Shortly after closing / Final amendment to Schedule 13E-3 reporting the results of the Rule 13E-3 transaction (as per Rule 13e-3(d)(3)). / Bidder
Shortly after closing / Letter of transmittal and instructions sent out to stockholders of Company re surrender of Company share certificates. / Bidder; Company
Shortly after closing / De-list Company shares from NYSE if Company is traded on NYSE. Coordinate with NYSE so it files Form 25 at appropriate time (see note below). / Bidder; Company
Shortly after closing / Deregister (file Form 15) Company shares. For a former NASDAQ quoted company, the Form 15 can be filed directly after the merger. However, for a NYSE-listed company a Form 15 may not be filed prior to the effective date of the Form 25 (delisting on NYSE) since Section 12(g) and 15(d) are suspended during the period in which Section 12(b) applies. Therefore, Bidder/Company need to work timing with NYSE so NYSE files the Form 25 soon after closing so that 10 days later a Form 15 can be filed to deregister the Company shares. / Bidder; B’s Counsel; Company
Shortly after closing / Delaware Chancery Court approval of the settlement of lawsuits (can be done pre-merger, but likelihood is that this will occur post-merger). / - - - - -
Shortly after closing / As applicable, Bidder files Forms S-8 for assumed stock option plans of Company, if any. / Bidder
Shortly after closing / Statutory process re appraisal rights under Delaware law (only relevant to the extent any stockholders of Company perfect their dissenters’ rights with respect to the merger - likelihood of a significant number of dissenters is typically very small). Notice of appraisal rights will be sent out to stockholders along with the Proxy Statement. / Bidder; Company
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ACQUISITION TIMETABLE CHECKLIST[3]
(Transaction: Merger With A First Step Tender Offer)
CERTAIN ABBREVIATIONS
Affiliate Bidding to Take Corporation Private.....Bidder
Board of Directors of Company...... Board
Corporation Being Taken Private...... Company
Financials Advisors to Special Committee...SC’s Bankers
Financial Advisors to Bidder...... B’s Bankers
Legal Counsel to Bidder...... B’s Counsel
Legal Counsel to Special Committee...... SC’s Counsel
Plaintiff’s Attorneys...... PA’s
Special Committee...... SC
–1–
NY12528:183658.7
Date[4] / Event/Action Item / PartiesWeeks before Date X / Determination by Bidder to devote resources and time to potential going private transaction. Evaluation of reasons for going private, including but not limited to: (i) public market not ascribing appropriate value to Company, (ii) ability to make long-term strategic decisions at expense of short-term profitability, (iii) eliminate duty owed to Company’s minority stockholders, (iv) ability to be reposition Company when outside of publicly traded domain, (v) elimination of securities disclosure requirements and many Sarbanes-Oxley concerns. / Bidder
Weeks before Date X / Bidder engages B’s Bankers and B’s Counsel. / Bidder
Weeks before Date X / Various analyses (economic, strategic repositioning following acquisition, etc.) of Company by Bidder and B’s Bankers. / Bidder; B’s Bankers; B’s Counsel
Weeks before Date X / Planning for approach to Board; determine if any members of management of Company will be part of Bidder group. / Bidder; B’s Bankers; B’s Counsel
Weeks before Date X / Analysis of Delaware Section 203 concerns. Is Bidder a 15% or more stockholder on its own? What about other members of Bidder group? / Bidder; B’s Counsel
Shortly before Date X / Analysis of potential regulatory concerns including anti-trust review. (Note: due to Bidder’s percentage of beneficial ownership of Company, Bidder and Company may be the same “person” for purposes of the HSR Act and no filing or waiting period may be required in connection with the proposed transaction) / Bidder; B’s Counsel