Chapter 45
FINANCIAL MANAGEMENT : Taking control of a company

M&A deals tend to come in waves. Their determinants are macroeconomic (globalisation, deregulation, technological evolution), microeconomic (search for size, for new markets, gains of time), human (succession issues) or structural (liquidation of an investment fund).

The art of negotiation consists of allocating the value of the synergies expected from a merger or acquisition between the buyer and the seller. There are two basic methods of conducting the negotiations:

• private negotiation, which preserves a high level of confidentiality, at the cost of having significant competition during the sales process;

• a private auction, which heightens the competition between buyers, but is more restric- tive for the seller.

Regardless of the chosen procedure, certain elements are common to every deal:

• memorandums of understanding and agreements in principle serve to describe the gen- eral agreement found between the parties and are a milestone along the path to full commitment of the parties to the deal;

• representations and warranties guarantee to the buyer that all of the means of produc- tion belong to the company and that there are no hidden liabilities; the seller certifies substantive aspects of the company and the amount of equity capital;

• in some cases, earnout clauses link a portion of the purchase price to the company’s future profits;

• the final outcome of negotiations is the signing of a share purchase agreement.

Stake-building can be the first step to acquiring control over a listed company. But it can be slow and faces the requirement of declaring the crossing of ownership and voting rights thresholds.

A public offer is the usual way to acquire a listed company. It is based on two fundamental principles: transparency and equal treatment of shareholders. It can be in cash or in shares, hostile or friendly, voluntary or mandatory.

In each country, the acquisition of listed companies is conducted under the supervision of a stock-market watchdog. A directive harmonises the main principles of takeover bids in the European Union.