Page 350 - מיזוגים ורכישות - פרופ' אהוד קמר 2022
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Where a target is a subsidiary of the seller and the consideration consists in whole
or in part of acquiror stock, then the potential exists for the seller to become a significant
shareholder of the acquiror, potentially on a long-term basis, as the acquiror wi111ikely
not want the seller to attempt to dispose of a large amount of acquiror stock rapidly after
the transaction closes. The possibility that a seller may acquire a significant equity stake
in the acquiror raises a number of complex issues, including board representation and
other governance issues, and, when one or both of the parties is a financial institution,
potentially complicated regulatory issues. Such structures give rise not only to complex
governance issues that must be resolved, but also to a number of regulatory
considerations that arise when two bank holding companies and their respective
subsidiary banks are affiliated.
The acquisition of Allfirst Financial from Allied Irish Banks by M&T Bank
Corporation illustrates these issues. Allfirst was a wholly-owned subsidiary of Allied Irish
Banks (AIB), an Irish company registered as a bank holding company in the United States.
The consideration to AIB in the merger consisted of approximately $800 million in cash
and M&T common stock representing about 22.5 percent of M&T’s outstanding common
stock on a pro forma basis. Because AIB wished to continue to be an active participant in
the operation of the combined company after the merger, the parties negotiated board
representation, committee representation and specific consent rights in favor of AIB. It
was also necessary to negotiate other provisions relating to AIB’s status as a major
shareholder, including standstill provisions, provisions governing its right to sell its M&T
common stock and antidilution/preemption mechanisms. Similar situations may arise
when a foreign bank merges its wholly-owned U.S. bank holding company subsidiary with
another U.S. public bank holding company of comparable size, as occurred when BNP’s
subsidiary, BancWest, merged with First Hawaiian in 1998.
In structures involving the acquisition of a considerable equity interest in the
acquiror, the seller will need to be satisfied that its governance and other rights are
adequate to give it sufficient input into the affairs of the acquiror, not only to protect its
investment, but also in light of the fact that it will likely be deemed to control the
acquiror’s subsidiary banks for purposes of the Bank Holding Company Act, and thus have
potentially onerous responsibilities under federal banking laws, including the Federal
Reserve’s "source of strength" doctrine. This doctrine requires that a parent bank holding
company act as a source of financial and managerial strength to its subsidiary banks. Such
control also gives rise to potential "prompt corrective action" obligations under the
Federal Deposit Insurance Corporation Improvements Act (FDICIA) in the form of
guarantees (subject to certain limits) of any capital restoration plan required to be
submitted by a controlled bank. Accordingly, it may be appropriate to relax certain
customary contractual limitations on significant shareholders (e.g., standstill and/or sell-
down provisions) should the controlled bank experience capital or other regulatory
difficulties. Control by a significant, but minority, shareholder also raises other regulatory
346
or in part of acquiror stock, then the potential exists for the seller to become a significant
shareholder of the acquiror, potentially on a long-term basis, as the acquiror wi111ikely
not want the seller to attempt to dispose of a large amount of acquiror stock rapidly after
the transaction closes. The possibility that a seller may acquire a significant equity stake
in the acquiror raises a number of complex issues, including board representation and
other governance issues, and, when one or both of the parties is a financial institution,
potentially complicated regulatory issues. Such structures give rise not only to complex
governance issues that must be resolved, but also to a number of regulatory
considerations that arise when two bank holding companies and their respective
subsidiary banks are affiliated.
The acquisition of Allfirst Financial from Allied Irish Banks by M&T Bank
Corporation illustrates these issues. Allfirst was a wholly-owned subsidiary of Allied Irish
Banks (AIB), an Irish company registered as a bank holding company in the United States.
The consideration to AIB in the merger consisted of approximately $800 million in cash
and M&T common stock representing about 22.5 percent of M&T’s outstanding common
stock on a pro forma basis. Because AIB wished to continue to be an active participant in
the operation of the combined company after the merger, the parties negotiated board
representation, committee representation and specific consent rights in favor of AIB. It
was also necessary to negotiate other provisions relating to AIB’s status as a major
shareholder, including standstill provisions, provisions governing its right to sell its M&T
common stock and antidilution/preemption mechanisms. Similar situations may arise
when a foreign bank merges its wholly-owned U.S. bank holding company subsidiary with
another U.S. public bank holding company of comparable size, as occurred when BNP’s
subsidiary, BancWest, merged with First Hawaiian in 1998.
In structures involving the acquisition of a considerable equity interest in the
acquiror, the seller will need to be satisfied that its governance and other rights are
adequate to give it sufficient input into the affairs of the acquiror, not only to protect its
investment, but also in light of the fact that it will likely be deemed to control the
acquiror’s subsidiary banks for purposes of the Bank Holding Company Act, and thus have
potentially onerous responsibilities under federal banking laws, including the Federal
Reserve’s "source of strength" doctrine. This doctrine requires that a parent bank holding
company act as a source of financial and managerial strength to its subsidiary banks. Such
control also gives rise to potential "prompt corrective action" obligations under the
Federal Deposit Insurance Corporation Improvements Act (FDICIA) in the form of
guarantees (subject to certain limits) of any capital restoration plan required to be
submitted by a controlled bank. Accordingly, it may be appropriate to relax certain
customary contractual limitations on significant shareholders (e.g., standstill and/or sell-
down provisions) should the controlled bank experience capital or other regulatory
difficulties. Control by a significant, but minority, shareholder also raises other regulatory
346
