Page 353 - מיזוגים ורכישות - פרופ' אהוד קמר 2022
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more to complete. While the Gramm-Leach-Bliley Act generally eliminated the need for
prior Federal Reserve approval of domestic nonbank acquisitions by bank holding
companies that have elected to become financial holding companies, bank acquisitions
still require prior regulatory approval, the SEC proxy process is still time consuming and
regulatory reform and the global reach of today’s larger, more complex financial
institutions have increased the possibility of delays due to U.S. and foreign antitrust
review. Federal Reserve public hearings are still possible when particular issues are raised
by a transaction and are often granted in the largest transactions. Even when their legal
standing is less than clear, state politicians, attorneys general and regulators often make
their presence known.
This necessary period of delay between signing and closing, combined with the
fact that stock remains a significant component of the consideration in many financial
institutions acquisitions, means that the typical financial institution acquisition is subject
to pricing market risks over a lengthy period of time. A drop in the price of an acquiror’s
stock between execution of the acquisition agreement and the closing of the transaction
results in the seller’s shareholders receiving less value (at least in the short term) for their
exchanged shares or, under some structures, increases the transaction’s potentially
dilutive effect on the acquiror’s shares. Such market risk can be dealt with by a pricing
structure that uses a valuation formula (instead of a fixed exchange ratio) and,
‘frequently, a collar. In addition to, or in lieu of, a collar pricing mechanism, transactions
have also included so-called "walk-away" provisions permitting unilateral termination in
the event the acquiror’s share price falls below a certain level (either on an absolute or
an indexed basis or, more commonly, both). Of course, inclusion of cash as part of the
merger consideration also acts as an inherent partial hedge against market risk in the
acquiror’s stock.
In addition to contractual protections, it should be emphasized that since market
risks can manifest at any time, as evidenced by the subprime turmoil in 2007, the parties
should move forward quickly to satisfy the applicable merger conditions and not add
unnecessary delay to what can already be a lengthy period between signing and closing.
Most agreements contain provisions that require the parties to try to move as quickly as
possible to get to closing.
1. Fixed Exchange Ratios
The pricing structure used in a stock-for-stock transaction can take various forms.
The simplest, and by far the most common, structure (especially in the context of larger
transactions) is a fixed exchange ratio set at the time an agreement is signed. A fixed
exchange ratio calls for each target share to be converted into a specific number of
acquiror shares at closing, without adjustment to reflect intervening trading levels or
other factors. The advantage of a fixed exchange ratio for the acquiror is that it is able to
349
prior Federal Reserve approval of domestic nonbank acquisitions by bank holding
companies that have elected to become financial holding companies, bank acquisitions
still require prior regulatory approval, the SEC proxy process is still time consuming and
regulatory reform and the global reach of today’s larger, more complex financial
institutions have increased the possibility of delays due to U.S. and foreign antitrust
review. Federal Reserve public hearings are still possible when particular issues are raised
by a transaction and are often granted in the largest transactions. Even when their legal
standing is less than clear, state politicians, attorneys general and regulators often make
their presence known.
This necessary period of delay between signing and closing, combined with the
fact that stock remains a significant component of the consideration in many financial
institutions acquisitions, means that the typical financial institution acquisition is subject
to pricing market risks over a lengthy period of time. A drop in the price of an acquiror’s
stock between execution of the acquisition agreement and the closing of the transaction
results in the seller’s shareholders receiving less value (at least in the short term) for their
exchanged shares or, under some structures, increases the transaction’s potentially
dilutive effect on the acquiror’s shares. Such market risk can be dealt with by a pricing
structure that uses a valuation formula (instead of a fixed exchange ratio) and,
‘frequently, a collar. In addition to, or in lieu of, a collar pricing mechanism, transactions
have also included so-called "walk-away" provisions permitting unilateral termination in
the event the acquiror’s share price falls below a certain level (either on an absolute or
an indexed basis or, more commonly, both). Of course, inclusion of cash as part of the
merger consideration also acts as an inherent partial hedge against market risk in the
acquiror’s stock.
In addition to contractual protections, it should be emphasized that since market
risks can manifest at any time, as evidenced by the subprime turmoil in 2007, the parties
should move forward quickly to satisfy the applicable merger conditions and not add
unnecessary delay to what can already be a lengthy period between signing and closing.
Most agreements contain provisions that require the parties to try to move as quickly as
possible to get to closing.
1. Fixed Exchange Ratios
The pricing structure used in a stock-for-stock transaction can take various forms.
The simplest, and by far the most common, structure (especially in the context of larger
transactions) is a fixed exchange ratio set at the time an agreement is signed. A fixed
exchange ratio calls for each target share to be converted into a specific number of
acquiror shares at closing, without adjustment to reflect intervening trading levels or
other factors. The advantage of a fixed exchange ratio for the acquiror is that it is able to
349
