Introduction Purpose Role and Impact of DD Full Fledge DD vs Red Flag DD Antitrust Issues Case Studies Questions Content 2 Introduction Purpose Role and Impact ID: 285384
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Slide1
The Value in a Red Flag Due DiligenceSlide2
IntroductionPurpose, Role and Impact of DDFull Fledge
DD vs.
Red Flag DDAntitrust IssuesCase StudiesQuestions
Content
2Slide3
IntroductionPurpose, Role and Impact of DDFull
Fledge DD vs. Red Flag DDAntitrust IssuesCase Studies
Questions
Content
3Slide4
PanelistsMichael Belsley, Kirkland & Ellis, ChicagoDamian
Didden
, Wachtell, New YorkDavid G. Gibson, AmerisourceBergen Corporation, ChesterbrookGeorge Magera
, Federated Investors, Inc., PittsburghShaun
Rixon
,
Gategroup
,
ZurichModeratorUrs P. Gnos, Walder Wyss, Zurich
Introduction
4Slide5
IntroductionPurpose, Role and Impact of
DD
Full Fledge DD vs. Red Flag DDAntitrust Issues
Case StudiesQuestions
Content
5Slide6
Understanding the business of the targetIdentification of synergies, potentials, strengths and weaknessesIdentification of risks related to the target
Determination viability of the transaction
Determination of the ideal deal structure Determination of reps & warranties, covenants and indemnities Identification of third party consents and governmental approvals
(e.g. competition clearance)Evaluation of a fair price
Integration
Purpose
,
Role
and
Impact of DD
6Slide7
IntroductionPurpose, Role and Impact of DDFull
Fledge
DD vs. Red Flag DDAntitrust Issues
Case StudiesQuestions
Content
7Slide8
Full Fledge DD vs. Red Flag DDWhat
can/what cannot be achieved by a
Red Flag DDSignificant
regulatory
approvals
Significant customer consents
Financial statement accuracy
and
internal
controls
(e.g.,
revenue
/
expense confirmation, etc.)Significant liabilities (known, unknown, contingent, or other) (e.g., off-balance sheet items, guarantees, litigation, investigations, etc.)Significant integration concerns (e.g. labour law issues, integration issues)
Full Fledge DD vs. Red Flag DD (1)
8Slide9
Reasons to go for one or
the otherTime (trade-off against potential risks)
Deal structure (auction)
Public deal vs. private deal
Regulatory
approvals
/ third party
consentsCosts
(trade-off
against
potential
risks
)
Multiple
jurisdictions
DD
Scope
of DD (e.g. environmental, IP)Full Fledge DD vs. Red Flag DD (2)9Slide10
Reasons to go for one
or
the other (cont’)Target (e.g. regulated
enties)Limited Resources
New
business
line
vs. ancillary business
linePublic deal vs. private dealRisk
tolerance
Expectations
of
stakeholders
(e.g.
existing
private
equity investors)Trend?Full Fledge DD vs. Red Flag DD (3)10Slide11
IntroductionPurpose, Role and Impact of DDFull Fledge DD vs.
Red
Flag DDAntitrust IssuesCase StudiesQuestions
Content
11Slide12
Two facets regarding antitrust and diligence:Antitrust regulation of information sharing governs generally the kinds of information that can be shared during diligenceNeed
for information to discern antitrust-related regulatory concerns posed by the transaction
Antitrust
Issues
12Slide13
Agencies recognize that merger parties
reasonably need to exchange information for
valuation and
synergies
analysis
But,
Agencies are concerned
that competing
parties
’
activities
in
the
marketplace
become
tainted as a result.Hence limitations on information exchanged in diligence.Direction of information flow: Cash deal –one way, stock deal – two way.Non-public information such as pricing plans, customer lists
, nonpublic strategy, detailed product/vendor
costs
,
employee
comp.
can
pose
real
issues
When
this kind of information necessary, parties will use 3rd party (accounting or consulting firm) or clean teams
Antitrust and Information Sharing
13Slide14
Filings analysis: details on turnover, asset
info, and corporate structure to
determine where
filings
might
occurSubstantive analysis:
Does the
transaction
face
regulatory
intervention
,
and
what remedies? (Strategy documents, public documents, regulatory history, political sensitivity)Other risks: Beyond the transaction risk, for buyers, does the target
pose risk of cartel
enforcement
? (
Past
enforcement
,
industry
structure
,
other
sources
)Antitrust – Regulatory Risk Assessment14Slide15
IntroductionPurpose, Role and Impact
of
DDFull Fledge DD vs. Red Flag DDAntitrust
IssuesCase StudiesQuestions
Content
15Slide16
Issues:Can the Company use
the
information gained during the due diligence to
obtain a competitive advantage
over
its
competitors? Is it
the intention of
the
Company
to
simply
obtain
information
in an information gathering exercise or does it have a genuine desire to investigate the takeover (acting in good faith) and proceed (if no unacceptable risks arise)?Are there any
anti-trust issues? Any duty of care by
the
Company
or
by
the
Target
?
Is
this
exercise an efficient use of the Company’s ownership/resources?Does this extensive due diligence significantly reduce the risks for the
Company?Can the Company claim
that
the
Target
did
not
act in good faith and lied about its true position before the extensive due diligence unveiled the true position? Can the Target be compelled to pay the due diligence costs of the Company?Is a breakage fee possible? Would a red flag due diligence exercise have produced a more commercial solution?
Case Study 1 (see separate handout)
16Slide17
Issues:What facts might direct the Company to conduct a red flag diligence?What facts might direct the Company away from a red flag diligence toward a tradition in-depth diligence
review?
What other facts would be helpful to know before making a decision?How might a limited red flag diligence be helpful? In what subject matter areas might a full diligence be warranted?How would a red
flag diligence operate in practice under this fact scenario?
What important information about the Target can neither
a
red flag
diligence nor a
full fledge diligence determine?
Case Study 2 (
see
separate
handout
)
17Slide18
IntroductionPurpose, Role and I
mpact
of DDFull Fledge DD vs. Red Flag DDAntitrust
IssuesCase StudiesQuestions
Content
18Slide19Slide20