Merge Initials Negotiation with airSlate SignNow

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in this video i'm going to walk you through the negotiation process for a typical merger we're going to go through each one of these steps one by one so let's start with the initial approach so it could be initiated by either the buyer or the seller so the buyers you've got some company that says hey listen i'm interested in acquiring company x over here and so the buyers management would contact the target companies management and let them know that hey we're interested in buying your company now the selling company alternate so it doesn't have to be that a buyer approaches the seller could be that there's a seller a company that says look we'd really like some other we some other firm to acquire us and so we're gonna hire an investment banking firm maybe we hire goldman sachs to identify some companies that might be interested in buying us now when the seller is trying to get sold they could say okay well we want uh to attract interest from a whole bunch of bidders and we're gonna have an auction we'd have an auction to see if we can get the best price or sometimes when you have this initial approach process it's really just one buyer that the seller is negotiating with so it could go a number of different ways now the approach could be friendly or hostile hostile if you ever hear about oh this company tried to do a hostile takeover what they're talking about when they say hostile is that the management of the target company does not want the takeover to take place they don't for whatever reason they don't want that buying company to be the one that does the takeover maybe they want some other company or maybe they don't want to be taken over at all but for whatever reason targets management is trying to oppose this it doesn't mean that the deal isn't going to go through because ultimately it's up to the shareholders of the target company so they get the vote they're the true owners of the firm now after we've got this initial approach what you typically have happen is some kind of nda non-disclosure agreement is signed because the buying company right they're interested in buying they want as much information about the target company as they can get so they're gonna want some information that might not be public okay so to be so they say okay well we're getting very private information here and the target is in a vulnerable position so they're going to say well we want to make sure that once you have this information you don't go and somehow disclose that or do something that would harm the target company so if we're going to give you access to inside information that's not public you have to sign a non-disclosure agreement so we know that you're not going to turn around and make this public now then the buying company they would be conducting their due diligence looking at the financials of this target company all these disclosures that they're getting these non-public disclosures they're going to look and say okay is there something there that lets us know wait a minute we actually do not want to take over this company okay so they're going to do their due diligence process and then if they're happy with what they find then there's going to be an offer now the offer typically you have this thing called a term sheet okay so the term sheet is basically what it sounds like it's setting out the terms of the deal you say well what are the terms well the purchase price is obviously very important say how much are we going to be paying for this company and then the type of consideration has to do is this going to be a stock deal is the buyer offering shares of its own stock for the target to acquire the target company are they offering all cash is it a combination of cash and stock is the consideration variable maybe we say okay well we're offering eight billion dollars but we're going to have some kind of contingency where if this contingency happens it could be more than 8 billion so what exactly is the buyer willing to pay and how are they going to pay now after the term sheet and so you sometimes have this thing called a letter of intent that lays out additional details but that's not mandatory but sometimes companies the buyer would uh issue this letter of intent as well now the targets board of directors okay so now the company that is going to be acquired potentially their board will sometimes hire this company to do what's called a fairness opinion okay the what the fairness opinion is it basically looks and says oh okay so this buyer is offering eight billion dollars of cash and they will go and say okay is it does that seem like a fair price does that seem like a fair price to the shareholders of the target company if they're getting this 8 billion does that seem like a fair price for this company to basically make it out like the target shareholders aren't getting screwed why would the targets board want to do this well maybe the board is worried if the offer isn't that good they might get sued or something like that so it's common to sometimes have this fairness opinion their companies that that's all they do is they issue fairness opinions so now after so we've we've got the term sheet we got a letter of intent uh and then now we can have a formal merger agreement assuming things have not broken down uh by this point in time if everything's good at this point and things are progressing okay now we have basically the legal team for each of the different company the buyer and the target they're going to go back and forth uh to basically hammer out the terms of the agreement maybe they make some changes to what was in the initial offer and typically there'll be this thing this material adverse event clause what that is is it says okay so there'd be like a clause in this agreement says listen so we're entering into this agreement we're entering into this group the buyers entering this agreement to take over the target but it's not like this is going to happen today right it's going to take months you know we're going to get to that regulatory approval all that and so if something happens something bad there's some kind of bad event that happens before the deal completely closes it gives the buyer the chance to just back out and just say you know what yes we're entering into this agreement to take over the firm here here's the the purchase price all this stuff has been set but if something really bad happens you know this event happens or this or that then we can go and say you know what we rescind the offer we're not we're not merging with this other company now once we've got all that done we've hammered out the terms the merger agreement so forth now we need approval from the shareholders of the target company because remember the shareholders of the target company that company is being acquired and so the shareholders are ultimately the ones that are going to get the cash or stock of the acquiring firm and so forth so these shareholders of the target they are the owners of that target okay not management of the target it's the only the shareholders are the proper owners so the shareholders are going to get to vote on whether they want the deal to go through and then the government might have a say in terms of maybe they think that oh you know what if these two companies merged maybe we'd have some anti-trust concerns maybe we think that it would reduce competition way too maybe the two companies are competitors and they say if they were to merge it would reduce competition and make it unfair for consumers you know prices might go up too high so sometimes uh you know the government will actually come in and block a deal and say the companies are actually half of the deal but the government comes in and blocks the deal and says listen we're not approving this you know maybe in the us like the department of justice or federal trade commission might get involved and block the deal so once this is all happening we've got approval from the government shareholders all this stuff has been hammered out then you've got a merger