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stock issued in the merger and will sell their shares, causing them to flow back into the
home country and negatively impact the price and, therefore, the deal value. However,
as demonstrated by BBVA’s $9.6 billion part-stock acquisition of Compass Bancshares and
HSBC’s $15 billion all-stock acquisition of Household International, both of which used
foreign shares in the form of American Depository Shares as a portion of the
consideration, non-U.S. acquirors with an established U.S. stock currency will be willing
to use that currency for the right transaction.
Flow back concerns continue to motivate parties considering cross-border
acquisitions to consider alternate structures, such as so-called "dual pillar" structures. In
a dual pillar structure, the merger partners remain legally distinct entities with separate
stocks that continue to trade in their respective home countries (and continue to be
eligible for inclusion in the major stock indices in those countries), instead becoming
bound together by contractual "equalization" arrangements and amendments to the
charter and by-laws of each institution that usually provide for, among other things,
identical boards of directors, a unified management structure, cross-guarantees of
indebtedness and ability of both sets of shareholders to vote on matters presented to
either company’s shareholders for a vote. While the antecedents of dual pillar structures
go back about a century, they remain relatively scarce, and only one U.S.-based company
(which was incorporated in Panama) has participated in such a structure (Carnival’s
merger with P&O Princess in 2003). Several non-U.S. financial institutions have used the
structure, but most have ultimately gone on to full legal unification and a single stock;
issues cited in collapsing the structures into fully unified entities have included pricing and
trading disparities that develop between the shares of each of the two companies as well
as difficulties in integrating the two businesses and making further acquisitions.
Companies considering a dual pillar structure also need to focus on a host of potential
issues, such as the need to reconcile regulatory, corporate and securities laws of different
jurisdictions, as well making sure they have a thorough understanding of the possible tax
treatment in each jurisdiction of the transaction, the entities involved and likely future
actions, such as dividends and distributions. Other novel structures that may address flow
back and related "sovereignty" issues are conceivable, but all need to be thoroughly
vetted with respect to governance, tax, regulatory, operational and other potential
concerns.
For non-U.S. acquirors whose stock does not trade in the U.S. and who do not
report results in the United States, timing may be an issue favoring cash consideration. In
its acquisition of Bankers Trust, for example, Deutsche Bank used an all-cash merger
structure, which enabled it to complete the acquisition without some of the complications
and delays that may have been involved in issuing its stock in the deal (such as listing on
a U.S. stock exchange and conforming its financial statements to GAAP — although recent
SEC rule changes eliminate U.S. GAAP reconciliation requirements for foreign companies
that comply with International Financial Reporting Standards). In many instances where
338
home country and negatively impact the price and, therefore, the deal value. However,
as demonstrated by BBVA’s $9.6 billion part-stock acquisition of Compass Bancshares and
HSBC’s $15 billion all-stock acquisition of Household International, both of which used
foreign shares in the form of American Depository Shares as a portion of the
consideration, non-U.S. acquirors with an established U.S. stock currency will be willing
to use that currency for the right transaction.
Flow back concerns continue to motivate parties considering cross-border
acquisitions to consider alternate structures, such as so-called "dual pillar" structures. In
a dual pillar structure, the merger partners remain legally distinct entities with separate
stocks that continue to trade in their respective home countries (and continue to be
eligible for inclusion in the major stock indices in those countries), instead becoming
bound together by contractual "equalization" arrangements and amendments to the
charter and by-laws of each institution that usually provide for, among other things,
identical boards of directors, a unified management structure, cross-guarantees of
indebtedness and ability of both sets of shareholders to vote on matters presented to
either company’s shareholders for a vote. While the antecedents of dual pillar structures
go back about a century, they remain relatively scarce, and only one U.S.-based company
(which was incorporated in Panama) has participated in such a structure (Carnival’s
merger with P&O Princess in 2003). Several non-U.S. financial institutions have used the
structure, but most have ultimately gone on to full legal unification and a single stock;
issues cited in collapsing the structures into fully unified entities have included pricing and
trading disparities that develop between the shares of each of the two companies as well
as difficulties in integrating the two businesses and making further acquisitions.
Companies considering a dual pillar structure also need to focus on a host of potential
issues, such as the need to reconcile regulatory, corporate and securities laws of different
jurisdictions, as well making sure they have a thorough understanding of the possible tax
treatment in each jurisdiction of the transaction, the entities involved and likely future
actions, such as dividends and distributions. Other novel structures that may address flow
back and related "sovereignty" issues are conceivable, but all need to be thoroughly
vetted with respect to governance, tax, regulatory, operational and other potential
concerns.
For non-U.S. acquirors whose stock does not trade in the U.S. and who do not
report results in the United States, timing may be an issue favoring cash consideration. In
its acquisition of Bankers Trust, for example, Deutsche Bank used an all-cash merger
structure, which enabled it to complete the acquisition without some of the complications
and delays that may have been involved in issuing its stock in the deal (such as listing on
a U.S. stock exchange and conforming its financial statements to GAAP — although recent
SEC rule changes eliminate U.S. GAAP reconciliation requirements for foreign companies
that comply with International Financial Reporting Standards). In many instances where
338
