15.617, Spring 2004 John Akula Lecture 12: 3/29/04 Guest: David Walek, Ropes & Gray I. Why Int’l M&A is different? II. International JVs (joint ventures) III. Lawyering I. Why Int’l M&A is different? • For the large part domestic and international deals are not that different. • There are same issues, covenants about business, IP issues, and antitrust issues • 80% the same • 20% different: o tax and structuring issues o you need an international tax expert (lawyer)  you’re dealing with multiple tax jurisdictions assuming a US firm is acquiring a firm outside of US  when you do int’l M&A you do it with several foreign subsidiaries  John Kerry is trying to eliminate companies from going off shore  High profit in low tax jurisdiction • The Netherlands is a popular structure for companies to adopt since it is easier to do business there • Multinational acquisitions: there is not a separate body of law that governs int’l corporate law/tax • You are always dealing with local law. • In Delaware it’s easy to set up a corporation • In Germany, it’s not enough to have a signed agreement since it only holds when you read it to a local magistrate. • Many countries don’t have corporate law; but some have more regulations that US • Holland has a strict corporate law • Delaware has a well established corporate system. • In a lot of countries you need to have a local representative there that acts as a local executive. Antitrust/competition law • As a practical matter, foreign countries aren’t into antitrust • In Europe, there is one head that takes care of all the antitrust rulings for all of the countries.• IP: these days this is the key reason why people are buying companies o Trade secrets o Software o Brands o Chemical compounds • The degree of IP protection is not the same around the world • Therefore, get appropriate information before making a decision • China has weak IP for software/media. • Some countries have foreign ownership limitations (less so these days) o Currency controls • Around the world there are more foreign corrupt practices. Lawyers have: • rule of law: a broader depiction of corruption • America’s law is 99% reliable o Due process is not always the case around the world • other countries are more apt to put company-people in jail • In America you might just get a fine/sanction • Terminating distributors is more problematic overseas then in the US o US honors contracts • Labor issues: harder to change workforce rules overseas. II. Int’l JVs (joint ventures) • non-international reasons to do JVs: o a partnerships of some kind o strategic alliances/contractual o company who change their goals (ex. Millennium Pharmaceuticals) o Millennium developed a drug, and another party manufactures it, and another party markets it (strategic alliance) JV • takes the strategic alliance one step further to pursue a project • a shared investment w/economic risk and return • everyone gets a return • Whether its worth doing this depends on the size, duration, liability issues, management issues. • There are dichotomies between local and federal government rules. • “Favored status” from being locally owned. o Easier to get gov’t contract o Easier to get tax breaks • In the US we have majority, minority, or 50/50 • In terms of control over entity • each party has its own concerns• The control mechanisms o Voting regulations o How many Board seats o Super-majority provisions o Selection of management o Types of return (preferred, etc.) o You want to prevent deadlocks • deal with the ownership of the venture: o could be going into new country o switching industries o need another facility Tagalong: if majority wants to sell out, they have to take minority along (reciprocal of a drag) III. Lawyering • Initially historically, foreign lawyers are less involved with business deals (they tend to be gatekeepers) • US lawyers find ways to work around the