Материал: Amy C Kläsener

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Managing Expert Determinations

Selecting the right expert

A final key consideration for transaction parties and their counsel in managing the determination process is the selection of the expert. In contrast to an arbitration tribunal, an expert determination is almost always provided by a single expert – commonly an accounting or other industry expert, typically referred to in the transaction agreement as the accounting expert, neutral accountant or similar term – who is selected by the parties in accordance with the transaction agreement.

Selecting the right expert can assist in obtaining a more accurate and supportable determination.This is important because most expert determinations are final and binding on the parties. Some transaction agreements specifically name an individual or a firm to act as the expert. In others a general reference to a nationally recognised accounting firm is all that is included. Knowing that in the event of a dispute an expert will need to be engaged (regardless of whether one was named in the transaction agreement), what are the important factors for transaction parties and their counsel to consider? Following are several items of importance in the selection process.

•The expert should be selected by the parties based on depth of experience. In considering the qualifications of potential experts, it is important that the expert be a licensed professional in the requisite profession (e.g., a certified public accountant).As noted earlier, many transaction agreements provide for the expert’s determination to be final and

binding on parties with only few and narrow grounds available for appeal.Therefore, in the case of a purchase price adjustment dispute involving net working capital items, the selection of an appropriately experienced accountant to serve in the capacity of the expert would be critical to the fair and complete resolution of the dispute.

•The parties should select someone experienced in expert determination of M&A disputes.Without specific experience, the role and the process can be alien to the uninitiated, as it is often very different from the normal spectrum of engagements of, for example, a financial statement auditor. Experience with the role and process may also protect the parties against an expert overstepping their bounds and being persuaded by a flurry of loosely related arguments that are irrelevant, potentially resulting in a determination outside the scope of the expert’s specialist knowledge and possibly outside the scope of the transaction agreement.

•The parties should identify a firm or expert that has run a conflict check and is free of conflicts at the time it is selected to be included in the transaction agreement. Failure to do so can result in an extended delay in the dispute resolution process while the parties identify firms to consider, then agree on the specific firm, and agree on an individual from that firm. Much of this can be avoided by including the selected firm or expert in the transaction agreement.

•An expert’s experience in the specific industry of the parties or the target entity is typically not required or necessary to consider. Owing to the nature of the disputed items in many post-closing purchase price adjustment claims, industry experience is often not relevant because the relevant professional accounting guidance is generally applicable across industries.This is not true, however, for every dispute. A few industries and disputed items would benefit from specific industry experience and knowledge, such as energy and agricultural claims, which can involve unique disputed items and accounting considerations.

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Managing Expert Determinations

Most of the considerations listed above are applicable regardless of whether the expert will be named in the transaction agreement or will be selected only in the event of a dispute. In the event of a dispute requiring an expert determination, the selection of the expert is clearly a key component of that process because of the finality of the determination. Selecting an inexperienced and underqualified expert can lead to a flawed process and possibly an unjust determination.The items described above can assist transaction parties and their counsel in managing the process in a way that results in a fair dispute resolution process.

Conclusion

Managing expert determinations involves planning that begins in the transaction agreement drafting stage, long before an M&A dispute is even contemplated by the parties. In this chapter we have discussed that an expert determination is not an arbitration, and as such it involves some unique considerations and planning. It is possible to actively manage the process by documenting the dispute resolution procedures in the transaction agreement, by objectively assessing the strength of argument on the items in dispute, by providing sufficient background and information to the expert and by selecting an appropriate expert. By applying the information in this chapter the expert determination process can be managed in a way that focuses on the substantive issues, not on the process itself, while providing for an equitable procedure for the transaction parties.

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Drafting M&A Contracts to Minimise the Risk of Disputes

Jonathan M Moses1

As with every business transaction, mergers and acquisitions can result in disputes, and increasingly arbitration has become a potential forum to resolve them.The parties negotiating the M&A deal share an interest in ensuring a successful transaction, but also they will want to look out for their interests if the transaction does not proceed as planned. Steps can be taken in drafting the M&A agreement to minimise the risk of disputes and to ensure that any dispute proceeds in a manner that maximises the likelihood that the expectations of the parties will be met. But to accomplish these goals, practitioners must take great care, before the event, in drafting critical provisions of the transaction agreement and thinking through the sources of potential disputes between the parties.

In the United States, major M&A disputes typically are heard in federal or state courts, most commonly in the Delaware Court of Chancery. But with the growth in cross-border M&A, which increased from approximately $395 billion in volume in 1997 to over $1.5 trillion in 2018, practitioners in the United States are increasingly being required to think through M&A disputes issues with the possibility that an arbitral forum may be the preferred one.The reasons for choosing arbitration in a cross-border context may include the perception that an arbitral tribunal will be more neutral than a national court, the confidentiality of arbitration, the greater ease of enforcing an arbitral award in the relevant jurisdictions, and the greater control that the parties will have over procedural matters, including discovery. In jurisdictions outside the United States and other developed markets, arbitration related to M&A transactions is likewise growing, in part due simply to economic developments resulting in more deals in those markets but also to the premium that economic actors in those jurisdictions put on arbitration as a mechanism to resolve disputes.

1Jonathan M Moses is a partner at Wachtell, Lipton, Rosen & Katz.The author is grateful to his colleagues, including Mark Gordon, Ryan McLeod, Nick Walter, Celia Glass and Nic Molina, for their assistance in preparing this chapter.

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Drafting M&A Contracts to Minimise the Risk of Disputes

M&A disputes generally fall into two categories: pre-closing, when one party determines it has a basis not to proceed and the other party must litigate to force the first to complete the transaction, and post-closing, if one (or both) of the parties believes its expectations were not met. The nature of the dispute will of course depend on the nature of the transaction: public company mergers are likely going to generate very different kinds of disputes than private company asset acquisitions.This chapter reviews some of the particular issues that may arise in each type of dispute (pre-closing and post-closing) when the M&A transaction is subject to an agreement to arbitrate, and it discusses potential ways to anticipate such issues when drafting the transaction agreement.These issues often come up in M&A transactions with US counterparties, particularly cross-border deals, but they apply to M&A transactions generally.

Pre-closing M&A disputes: getting the deal closed

The first goal of any M&A transaction is usually a successful deal, and the first goal of any transaction agreement is to maximise the likelihood that a deal is able to close. Presumably, the parties entering the transaction share this interest, although their particular perspectives will vary depending on their position. An acquirer, for example, may wish to protect itself against unforeseen developments and have a way to get out of the deal before closing. A target, by contrast, generally wants to allocate the risk of negative developments to the buyer and will wish to ensure certainty of deal closure, having made the strategic (and usually very public) decision to sell itself or the major asset at issue.When arbitration is the preferred forum, certain issues may need to be considered.

Ability to seek injunctive relief

One of the most important tools in M&A disputes is the ability to obtain injunctive relief to force a recalcitrant party to close a deal. It is standard for parties in M&A agreements to agree that either one will be irreparably harmed if the transaction does not close and that the parties therefore consent to injunctive relief as a remedy for a breach.And, in fact, there is a lot of truth to this.A merger or major asset sale or acquisition is a unique event in the life of a company, and even when that is not the case, M&A transactions often involve one or both parties taking actions that cannot be easily reversed or untangled. Money damages will often not be an adequate remedy.A simple provision might read as follows:2

The Parties agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that the Parties do not perform the provisions of this Agreement in accordance with its specified terms or otherwise breach such provisions. The Parties agree that the Parties shall be entitled to an injunction or specific performance to prevent breaches of this Agreement and to enforce specifically its terms and provisions, and each of the Parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that the other Party has an adequate remedy at law.

2The parties may also choose to include a provision that the party seeking injunctive relief shall not be forced to post a bond.

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Drafting M&A Contracts to Minimise the Risk of Disputes

In theory, injunctive relief may come up in a variety of forms. For example, it might be necessary to ensure that a recalcitrant merger partner takes the steps necessary to obtain approval from regulatory bodies3 or shareholders;4 to ensure that a business or its key asset is operated in the ordinary course before closing and is not harmed; or to cause the transaction to close itself.5 Injunctive relief against the consummation of the transaction could also be sought by a third party that believes that the merger will violate its rights under a separate agreement, such as a shareholder agreement or joint venture agreement, that it has entered into with one of the merger partners in connection with an unrelated transaction.6 As discussed below, the terms of such shareholder agreements may be very important to consider in anticipating post-closing M&A disputes, and they frequently will contain arbitration agreements in the cross-border setting.7

The parties should be aware that obtaining injunctive relief to force a deal to close is not easy. Under Delaware law (which the parties often use to govern merger agreements in the United States), injunctive relief will only be granted on a showing of clear and convincing evidence, which is more burdensome than the preponderance of the evidence standard that governs suits for damages.8 Therefore, as a practical matter, many lawsuits that start out with demands for injunctive relief are converted into suits for damages after the transaction has closed (or failed to close).9

One exception to this pattern was the seminal case of In re IBP, in which the Delaware Court of Chancery ordered Tyson, a leading chicken producer, to complete the acquisition of IBP, a major beef and pork producer.Vice Chancellor Strine, as he then was, rejected Tyson’s argument that IBP had suffered a ‘material adverse effect’ – a major deterioration in

3See, e.g., Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 756-57, 762-63 (Del. Ch. 2008) (granting order for specific performance for buyer to use all efforts to obtain antitrust approval).

4Delaware law, for example, specifically allows parties to bargain for ‘force-the-vote’ provisions in merger agreements, which require the target company to put the merger to the vote of its stockholders, even if the target company board changes its recommendation that the stockholders vote in favour of the deal. See Del. Code.Ann. tit. viii, § 146.

5See, e.g., In re IBP, Inc. S’holders Litig., 789 A.2d 14, 84 (Del. Ch. 2001).

6For example, in 2011, Casino Group, the French supermarket chain, sought arbitration of a dispute with Diniz Group, a Brazilian company, arising out of a shareholder agreement through which the parties controlled CBD, a Brazilian supermarket. Casino sought injunctive relief to prevent CBD from merging with Carrefour, another French supermarket chain, in violation of the shareholder agreement, and to require Diniz to

hand over control of CBD to Casino.The arbitration settled shortly before the hearing. See, e.g., Christina Passariello & Geraldine Amiel, Casino Steps Up Brazil Battle,Wall St. J. (July 4, 2011), https://www.wsj.com/ articles/SB10001424052702304803104576424993052846656; James B. Shien, CBD vs. Casino: How Brazil’s

Biggest Retailer Fought a French Governance Takeover – and Lost, Kellogg School of Management (2015).

7A preor post-closing challenge to an M&A transaction may also be pursued by a third party such as a public shareholder or a competing bidder that has no signed contract with either merger partner. Such a challenge would not typically be governed by an arbitration agreement, and certainly not the arbitration agreement in the merger agreement itself.These types of disputes, and the provisions that are typically crafted in anticipation of them, are therefore not reviewed in this chapter.

8IBP, 789 A.2d at 52-54.

9See, e.g., Cooper Tire & Rubber Co. v.Apollo (Mauritius) Holdings Pvt. Ltd., 2014 WL 5654305, at *1 (Del. Ch. Oct. 31, 2014) (seller initially sought specific performance to close deal, but then converted request to claim for damages); Williams Cos. v. Energy Transfer Equity, L.P., 2017 WL 5953513 (Del. Ch. Dec. 1, 2017) (after seller failed to obtain injunction to force deal to close, parties continued in litigation concerning damage claims).

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