The high costs and reputational risks of failed business acquisitions or combinations (business combinations) have increased the need for bidders, target companies and their respective advisers to ensure that the deal is successful, or that they are adequately protected if they fail.

Upon deciding the appropriate type of business combination, care should to be taken to ensure that the interests of the company are adequately protected during any negotiation period and between signing and closing. The company should also acknowledge and address the concerns of any counterparty with respect to any costs associated with a failed transaction. Consequently, deal protection mechanisms are often pleaded and tend to be some of the most heavily negotiated provisions. In negotiating deal protection mechanisms, each director must give due consideration to his/her fiduciary duties and continue to do so during the process — the core duty being to act honestly and in good faith with a view to the best interests of the company.

Deal protection mechanisms are principally covenants or arrangements between a bidder and target company boards that are intended to discourage alternative and/or superior proposals with a view to protecting a bidder’s transaction if such a proposal materializes. From a bidder’s perspective, the need for deal protection provisions principally arises because, among other things, they do not want to be a stalking horse as it were and they wish to realize synergies and projected benefits from the business combination and minimize competition. Also, a considerable amount of time and cost is spent resulting from both negotiating business combinations and anticipated future opportunities. For these reasons, bidders are typically reluctant to enter into a business combination without protecting the deal to the best extent possible.

Read More

Share
Twitter LinkedIn Email Save as PDF
More Publications
20 Dec 2021 |

A Time Of Regeneration: Bermuda Can Bounce Back Better

Bermuda’s economy is a mixed bag of emerging opportunities and specific challenges. But if all sec...

17 Dec 2021 |

A Rising Tide: And Ships Are Choosing Bermuda

Bermuda must remain innovative, nimble and wary of too much regulation to stay ahead of the game, ac...

17 Dec 2021 |

A Silicon Valley For ILS

As the ILS market continues to innovate and evolve, driven by external forces including ESG, it will...

3 Dec 2021 |

Americas Restructuring Review 2022

This chapter discusses the defining features of Bermuda’s insolvency landscape and the primary ins...

2 Dec 2021 |

A growing hub for the life sector

Bermuda has become a flourishing focal point for long-term insurance and reinsurance, offering the I...

2 Dec 2021 |

Provisional liquidation in Bermuda and the selection of provisional liquidators

In the absence of a formal equivalent to English administration proceedings or U.S. Chapter 11 proce...

Contributors: Sam Riihiluoma
30 Nov 2021 |

Cryptocurrencies and estate planning

When a person dies having made a will, their personal estate is transferred to their personal repres...

26 Nov 2021 |

Whistleblowing issues for employers

In recent years there have been a number of high-profile scandals brought to light by the actions of...

24 Nov 2021 |

Hong Kong Harbours Long-Term ILS Ambitions

The launch of Hong Kong’s first catastrophe bond signals the start of a new era for Asia’s insur...

4 Nov 2021 |

The Insolvency Review – Ninth Edition

The ninth edition of The Insolvency Review offers an in-depth review of market conditions and insolv...