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November 12, 2019 |
Law360 Names Nine Gibson Dunn Partners as 2019 MVPs

Law360 named nine Gibson Dunn partners among its 2019 MVPs and noted that Gibson Dunn was one of two law firms with the most MVPs this year.  Law360 MVPs feature lawyers who have “distinguished themselves from their peers by securing hard-earned successes in high-stakes litigation, complex global matters and record-breaking deals.” The list was published on November 12, 2019. Gibson Dunn’s MVPs are: Richard J. Birns, a Private Equity MVP – Rich is a partner in the New York office and Co-Chair of the Sports Law Practice Group. He focuses his practice on U.S. and cross-border mergers, acquisitions, divestitures, joint ventures and financings for both corporations and leading private equity firms.  He also advises private investment funds on a variety of corporate issues, including securities law and shareholder activism matters.  He has extensive experience advising clients on significant transactional matters in media, sports and entertainment. Michael P. Darden, an Energy MVP – Mike is Partner-in-Charge of the Houston office and Chair of the Oil & Gas practice group. His practice focuses on International and U.S. oil and gas ventures (including LNG, deep-water and unconventional resource development projects), international and U.S. infrastructure projects, asset acquisitions and divestitures, and energy-based financings (including project financings, reserve-based loans and production payments). Scott A. Edelman, a Trials MVP – Scott is a partner in the Century City office and Co-Chair of the Media, Entertainment and Technology Practice Group. He has first-chaired numerous jury trials, bench trials and arbitrations, including class actions, taking well over 25 to final verdict or decision. He has a broad background in commercial litigation, including antitrust, class actions, employment, entertainment and intellectual property, real estate and product liability. Theane Evangelis, a Class Action MVP – Theane is a partner in the Los Angeles office, Co-Chair of the firm’s Class Actions Practice Group and Vice Chair of the California Appellate Practice Group. She has played a lead role in a wide range of appellate, constitutional, media and entertainment, and crisis management matters, as well as a variety of employment, consumer and other class actions. Mark A. Kirsch, a Securities MVP [PDF] – Mark is Co-Partner-in-Charge of the New York office. His practice focuses on complex securities, white collar, commercial and antitrust litigation. He is routinely named one of the leading litigators in the United States. Joshua S. Lipshutz, a Cybersecurity MVP – Josh is a partner in the Washington, D.C. and San Francisco offices. His practice focuses primarily on constitutional, class action, data privacy, and securities-related matters.  He represents clients before the Supreme Court of the United States, the Ninth Circuit Court of Appeals, the California Supreme Court, the Delaware Supreme Court, the D.C. Court of Appeals, and many other state and federal courts. Jane M. Love, a Life Sciences MVP [PDF] – Jane is a partner in the New York office. Her practice spans four areas: patent litigation, Patent Office trial proceedings including inter partes reviews (IPRs), strategic patent prosecution advice and patent diligence in transactions. She is experienced in a wide array of life sciences areas such as pharmaceuticals, biologics, biosimilars, antibodies, immunotherapies, genetics, vaccines, protein therapies, blood factors, medical devices, diagnostics, gene therapies, RNA therapies, bioinformatics and nanotechnology. Matthew D. McGill, a Sports & Betting MVP – Matthew is a partner in the Washington, D.C. office. He has participated in 21 cases before the Supreme Court of the United States, prevailing in 16.  Spanning a wide range of substantive areas, those representations have included several high-profile triumphs over foreign and domestic sovereigns. Outside the Supreme Court, his practice focuses on cases involving novel and complex questions of federal law, often in high-profile litigation against governmental entities. Jason C. Schwartz, an Employment MVP – Jason is a partner in the Washington, D.C. office and Co-Chair of the Labor & Employment Practice Group. His practice includes sensitive workplace investigations, high-profile trade secret and non-compete matters, wage-hour and discrimination class actions, Sarbanes-Oxley and other whistleblower protection claims, executive and other significant employment disputes, labor union controversies, and workplace safety litigation.

October 4, 2019 |
Gibson Dunn Ranked in the 2020 UK Legal 500

The UK Legal 500 2020 ranked Gibson Dunn in 15 practice areas and named seven partners as Leading Lawyers.  The firm was recognized in the following categories: Corporate and Commercial: Corporate Tax Corporate and Commercial: Equity Capital Markets – Mid-Large Cap Corporate and Commercial: EU and Competition Corporate and Commercial: M&A: upper mid-market and premium deals, £500m+ Corporate and Commercial: Private equity: transactions – high-value deals (£250m+) Dispute Resolution: Commercial Litigation Dispute Resolution: International Arbitration Dispute Resolution: Public International Law Human Resources: Employment – Employers Projects, Energy and Natural Resources: Oil and Gas Public Sector: Administrative and Public Law Real Estate: Commercial Property – Hotels and Leisure Real Estate: Commercial Property – Investment Real Estate: Property Finance Risk Advisory: Regulatory Investigations and Corporate Crime The partners named as Leading Lawyers are Sandy Bhogal – Corporate and Commercial: Corporate Tax; Steve Thierbach – Corporate and Commercial: Equity Capital Markets; Ali Nikpay – Corporate and Commercial: EU and Competition; Philip Rocher – Dispute Resolution: Commercial Litigation; Cyrus Benson – Dispute Resolution: International Arbitration; Jeffrey Sullivan – Dispute Resolution: International Arbitration; and Alan Samson – Real Estate: Commercial Property – Investment and Real Estate: Property Finance. Claibourne Harrison has also been named as a Rising Star for Real Estate: Commercial Property – Investment. The guide was published on September 26, 2019. Gibson Dunn’s London office offers full-service English and U.S. law capability, including corporate, finance, dispute resolution, competition/antitrust, real estate, labor and employment, and tax.  Our lawyers advise international corporations, financial institutions, private equity funds and governments on complex and challenging transactions and disputes. Our London corporate practice is at the forefront of cross-border M&A, financing and joint venture transactions, including advising clients seeking to access U.S. and European capital markets.  Team members handle major domestic and multi-jurisdictional commercial cases before English, EU and Commonwealth courts, and have a wealth of experience in taking complex matters to trial.  Gibson Dunn’s London office was founded more than 30 years ago.  Our dynamic team includes many dual-qualified lawyers with extensive language skills.

September 20, 2019 |
Proposed CFIUS Regulations: The U.S. Remains Open for Business … but Read the Fine Print

Click for PDF On September 17, 2019, the U.S. Department of the Treasury issued over 300 pages of proposed regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), legislation that expanded the scope of inbound foreign investment subject to review by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”). FIRRMA expanded—subject to the promulgation of these implementing regulations—the Committee’s jurisdiction beyond transactions that could result in foreign control of a U.S. business. The Committee’s jurisdiction will now include non-passive but non-controlling investments, direct or indirect, in U.S. businesses involved in specified ways with critical technologies, critical infrastructure, or sensitive personal data (referred to as “TID U.S. businesses” for technology, infrastructure, and data) and certain real estate transactions. The comment period will conclude on October 17, 2019, and as required by FIRRMA, the final regulations will become effective no later than February 13, 2020. To date, only certain provisions of FIRRMA have been fully implemented. In late 2018, CFIUS launched a pilot program to require mandatory filings in higher risk “critical technology” investments. For the past year, the pilot program has served as a regulatory laboratory for the Committee—allowing it to experiment with the use of a short-form “declaration” and better assess the issues that arise in non-controlling but non-passive investments. Notably, the pilot program will remain in place for the foreseeable future, and the new proposed regulations will implement the remainder of the Committee’s expanded authority under FIRRMA. Other developments are still to come—including the publication of a list of excepted foreign countries from which certain investors will receive less scrutiny. Key developments are described below. Covered Investments No Changes to the Critical Technologies Pilot Program. The proposed regulations leave the existing pilot program for critical technologies untouched. Notably, “critical technologies” is defined to include certain items subject to export controls and other existing regulatory schemes, as well as emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018 (“ECRA”). Throughout the summer, several political and non-political leads at the Department of Commerce reported that we can expect new emerging technologies to be identified under specific Export Administration Regulations export control classification numbers (“ECCNs”) within weeks. However, no new emerging technologies ECCNs have been identified since Commerce issued its advanced notice of proposed rule-making (“ANPRM”) on the subject last fall. Commerce has also noted that it plans to release an additional ANPRM focused on foundational technologies in the coming weeks. Identification of Critical Infrastructure Sectors. CFIUS may review transactions related to U.S. businesses that perform specified functions—owning, operating, manufacturing, supplying, or servicing—with respect to critical infrastructure across subsectors such as telecommunications, utilities, energy, and transportation. Relying in part on the definition provided in the USA Patriot Act of 2001, the new regulations define “critical infrastructure” to include physical or virtual systems or assets the destruction or incapacitation of which would have a debilitating impact on U.S. national security. Previously, President Obama used this definition to identify 16 critical infrastructure sectors meriting special protection and assistance. CFIUS is more specific in its new regulations, listing 28 particular types of “covered investment critical infrastructure” that require additional investment protection. This list, provided in an Appendix to the new regulations, includes a range of technology and assets—from producers of certain steel alloys to industrial control systems used by interstate oil pipelines with specified diameters. However, only U.S. businesses that perform the specific functions matched to each particular type of infrastructure are TID U.S. businesses. For example, companies providing physical or cyber security to a crude oil storage facility would be TID U.S. businesses, but those that provide fencing around the facility or commercially available off-the-shelf cyber security software to the facility are not. The new proposed regulations also provide specific definitions for the listed “covered investment critical infrastructure” functions. Definition of “Sensitive Personal Data.” CFIUS may review transactions related to U.S. businesses that maintain or collect sensitive personal data of U.S. citizens that may be exploited in a manner that threatens national security. “Sensitive personal data” is defined to include ten categories of data maintained or collected by U.S. businesses that (i) target or tailor products or services to sensitive populations, including U.S. military members and employees of federal agencies involved in national security, (ii) collect or maintain such data on at least one million individuals, or (iii) have a demonstrated business objective to maintain or collect such data on greater than one million individuals and such data is an integrated part of the U.S. business’s primary products or services. The categories of data include types of financial, geolocation, and health data, among others. Genetic information is also included in the definition regardless of whether it meets (i), (ii), or (iii). Excepted Investors from Excepted Foreign States. Under the new regulations, certain foreign investors with ties to “excepted foreign states” will receive preferential treatment with respect to the review of covered investments. The proposed regulations create an exception from covered investments (but not transactions that could result in control) for investors based on their ties to certain countries identified as “excepted foreign states,” and their compliance with certain laws, orders, and regulations (including U.S. sanctions and export controls). An investor’s nationality is not dispositive—the proposed regulations identify criteria that a foreign person must meet in order to qualify for excepted investor status. Among these, investors cannot qualify for and may lose their excepted status if they are parties to settlement agreements with OFAC or BIS, or are debarred by the Department of State, for sanctions or export control violations. This will have a significant impact on foreign companies who run afoul of U.S. sanctions and export control regulations—the potential loss of this status for respondents might have the unintended effect of deterring disclosures to OFAC and BIS by those concerned about the loss of excepted investor status. A list of factors will be posted on the Department of the Treasury’s website outlining what the Committee will consider when making a determination on whether certain investors from a foreign state will be excepted from CFIUS scrutiny. Such factors will include whether the state has established and is effectively utilizing a robust process to assess foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security. The proposed regulations indicate that excepted states will be identified by the CFIUS Chairperson with the agreement of two-thirds of the voting members of the Committee, beginning two years after the effective date of the final rule (most likely February 2022). At the outset, the foreign state exception will likely apply to allies with whom the United States shares intelligence data under the multilateral UKUSA Agreement—Australia, Canada, New Zealand and the United Kingdom. Mandatory Filing Requirement. The proposed regulations implement FIRRMA’s requirement for mandatory declarations for certain transactions where a foreign government has a substantial interest, in addition to the mandatory filing requirement for certain investments in U.S. critical technology companies under the pilot program. The submission of a declaration is not required with respect to investments by qualified investment funds.Notably, a majority of the declarations filed under the pilot program have been pushed into the standard review process, meaning that the streamlined “light” filing actually resulted in a longer review process for the parties involved. Anecdotal evidence suggests that fewer than 10 percent of cases filed under the pilot program have been decided on the basis of the short-form declaration alone, despite a relatively low volume of filings. Numerous transactions have required the submission of the full notice, and it has been difficult for the intelligence community to complete their full assessment within the allocated 30 days. Real Estate Transactions FIRRMA expanded the scope of transactions subject to CFIUS review to include the purchase or lease by a foreign person of real estate that “is, located within, or will function as part of, an air or maritime port…”; “is in close proximity to a United States military installation or another facility or property of the United States Government that is sensitive for reasons relating to national security;” “could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or;” “could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance.” Although FIRRMA sought to codify the Committee’s standard practice of examining such risks, it punted on the task of defining such terms. As a result, the proposed regulations resolve a number of uncertainties in FIRRMA with respect to how national security risks associated with real estate transactions will be ascertained. Property Rights that Trigger CFIUS Review. The proposed regulations clarify that—subject to certain exceptions for single housing units and real estate in urbanized areas—real estate transactions subject to the Committee’s review include the purchase or lease by, or a concession to, a foreign person of certain real estate in the United States that affords the foreign person three or more of the following property rights: to physically access; to exclude; to improve or develop; or to affix structures or objects. Covered Real Estate. Coverage is focused on transactions in and/or around specific airports, maritime ports, and military installations. The relevant military installations are listed by name and location in an appendix to the proposed regulations. The relevant airports and maritime ports are on lists published by the Department of Transportation. Notably, such real estate will include properties located within “close proximity” of any military installation identified in Appendix A, parts 1 and 2, “extended range” of any military installation identified in part 2, and any county or geographic area identified in connection with a military installation set forth in part 3 of Appendix A. Definition of “Close Proximity” and “Extended Range.” The proposed rule defines close proximity as “the area measured outward from the boundary of the relevant installation or other facility or property.” The close proximity definition applies with respect to most of the military installations described in the proposed rule and in particular, those identified in the list in parts 1 and 2 of Appendix A. “Extended range” is defined as “the area that extends 99 miles outward from the outer boundary of close proximity” but, where applicable, “no more than 12 nautical miles seaward from the coastline of the United States.” The extended range definition applies with respect to military installations described in part 2 of Appendix A. Exceptions for Certain Investors and Foreign States. The proposed rule sets forth a narrow definition of excepted real estate investor in the interest of protecting national security, in light of increasingly complex ownership structures, and to prevent foreign persons from circumventing CFIUS’s jurisdiction. Thus, the criteria specified in § 802.216 require that a foreign person have a substantial connection (e.g., nationality of ultimate beneficial owners and place of incorporation) to one or more particular foreign states in order to be deemed an excepted real estate investor. Note that foreign persons who have violated, or whose parents or subsidiaries have violated, certain U.S. laws will lose their excepted investor status under these provisions. Urban Cluster Exception. FIRRMA requires that real estate in “urbanized areas,” as defined by the Census Bureau in the most recent U.S. census, be excluded from CFIUS’s real estate jurisdiction except as otherwise prescribed by the Committee in regulations in consultation with the Secretary of Defense. The urbanized area exclusion applies to covered real estate everywhere except where it is in “close proximity” to a military installation or another sensitive facility or property of the U.S. Government as listed in appendix A, or is, is within, or will function as part of, an airport or maritime port. Intersection of Real Estate and Other Covered Transactions or Investments. The proposed regulations clarify that real estate transactions that are also subject to CFIUS’s existing and proposed regulations regarding control transactions and non-controlling investments involving U.S. businesses should be analyzed under those regulations. No Mandatory Filing Requirement. The transactions described in the proposed rule on real estate are not subject to a mandatory declaration requirement. As a general matter, parties to a covered real estate transaction will decide whether to file a notice voluntarily or submit a declaration to CFIUS. CFIUS Filings Voluntary Short Form Declarations as Alternative to Notice. The proposed regulations provide a short-form declaration as an alternative to the Committee’s traditional voluntary notice. To date, declarations have only been available under the pilot program. Declarations will allow parties to submit basic information regarding a transaction that should generally not exceed five pages in length. The Department of the Treasury will accept declarations submitted by parties using a standard template form which will be available on the Department of the Treasury’s website by the time the final regulations become effective. The Committee will have 30 days to assess a covered transaction that is the subject of a declaration (as opposed to the 45-day initial review period available for notices). No Fees to Date. The Department of the Treasury will publish separate proposed regulations regarding fees at a later date. 5 p.m. Eastern Deadline.  The new regulations impose a 5 p.m. EST filing deadline—a seemingly small point that could have a substantial impact in a cross-border deal involving players in multiple time zones. Regulatory Framework The proposed regulations would replace the current regulations found at part 800 of title 31 of the Code of Federal Regulations (31 C.F.R. part 800) and implement the changes that FIRRMA made to CFIUS’s jurisdiction and process with respect to transactions that could result in foreign control of any U.S. business, as well as certain non-controlling “other investments” that afford a foreign person certain access, rights, or involvement in certain types of U.S. businesses. These proposed regulations would establish a new part 802 of title 31 of the C.F.R. and implement the authority FIRRMA provided to CFIUS to review the purchase or lease by, or concession to, a foreign person of certain real estate in the United States. The proposed regulations do not at this time modify the regulations currently at 31 C.F.R. part 801, which set forth the scope of, and procedures for, a pilot program to review certain transactions involving foreign persons and critical technologies. CFIUS continues to evaluate the pilot program. The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Jose Fernandez, Adam M. Smith, Stephanie Connor, Chris Timura and R.L. Pratt. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade practice group: United States: Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com) Marcellus A. McRae – Los Angeles (+1 213-229-7675, mmcrae@gibsondunn.com) Adam M. Smith – Washington, D.C. (+1 202-887-3547, asmith@gibsondunn.com) Christopher T. Timura – Washington, D.C. (+1 202-887-3690, ctimura@gibsondunn.com) Ben K. Belair – Washington, D.C. (+1 202-887-3743, bbelair@gibsondunn.com) Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com) Laura R. Cole – Washington, D.C. (+1 202-887-3787, lcole@gibsondunn.com) Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, sconnor@gibsondunn.com) Henry C. Phillips – Washington, D.C. (+1 202-955-8535, hphillips@gibsondunn.com) R.L. Pratt – Washington, D.C. (+1 202-887-3785, rpratt@gibsondunn.com) Audi K. Syarief – Washington, D.C. (+1 202-955-8266, asyarief@gibsondunn.com) Scott R. Toussaint – Washington, D.C. (+1 202-887-3588, stoussaint@gibsondunn.com) Europe: Peter Alexiadis – Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com) Nicolas Autet – Paris (+33 1 56 43 13 00, nautet@gibsondunn.com) Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com) Patrick Doris – London (+44 (0)207 071 4276, pdoris@gibsondunn.com) Sacha Harber-Kelly – London (+44 20 7071 4205, sharber-kelly@gibsondunn.com) Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Steve Melrose – London (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com) Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 9, 2019 |
Law360 Names Seven Gibson Dunn Lawyers as 2019 Rising Stars

Seven Gibson Dunn lawyers were named among Law360’s Rising Stars for 2019 [PDF], featuring “attorneys under 40 whose legal accomplishments transcend their age.”  The following lawyers were recognized: Washington D.C. partner Chantale Fiebig in Transportation, San Francisco partner Allison Kidd in Real Estate, Washington D.C. associate Andrew Kilberg in Telecommunications, New York associate Sean McFarlane in Sports, New York partner Laura O’Boyle in Securities, Los Angeles partner Katherine Smith in Employment and Century City partner Daniela Stolman in Private Equity. Gibson Dunn was one of three firms with the second most Rising Stars. The list of Rising Stars was published on September 8, 2019.

August 15, 2019 |
Gibson Dunn Lawyers Recognized in the Best Lawyers in America® 2020

The Best Lawyers in America® 2020 has recognized 158 Gibson Dunn attorneys in 54 practice areas. Additionally, 48 lawyers were recognized in Best Lawyers International in Belgium, Brazil, France, Germany, Singapore, United Arab Emirates and United Kingdom.

July 8, 2019 |
UK Take Privates

Click for PDF Bloomberg (here) recently reported that PE firms are increasingly scoping out take privates in the UK and “are fed up with waiting for Brexit”.  That is consistent with our experience and current mandates, and the recent deals for Merlin Entertainments and BCA Marketplace provide further evidence. The UK takeover regime brings particular challenges to take private transactions which differ from the US in a number of significant respects.  We thought it timely therefore to send out a reminder of a few of the early stage issues described in our client alert last year explaining how they can be overcome. 1.  Who can management talk to? Senior executives owe duties to act in the best interests of their companies and so need to tread carefully.  However, they are free to have exploratory conversations with potential bidders provided they comply with a few basic principles: they need to be sure they have internal authority and support – keeping the Chairman of the Board informed is usually sufficient during the early stages. Notably in the UK, the role of the Chairman and the CEO are invariably separate roles. they must not disclose any confidential information to third parties – but usually there will be enough public information to allow for preliminary discussions. the number of people they speak to should be limited, both to minimise the risk of a leak and to ensure compliance with the Panel’s rule that there should be no more than six “live” discussions at any one time. advice must be taken from financial advisers and lawyers prior to engaging in any discussion around management incentive arrangements or any possible equity participation in the bidder. Once a bidder is willing to submit a written proposal to the target company, the Chairman will inform the entire board and an independent committee of the board, excluding anyone who might be involved with the bidder, will be established.  The independent committee will determine what information can be disclosed to bidders and management have an obligation to share with the board any information they disclose to potential bidders.  It should be remembered that any information disclosed to one bidder has to be disclosed to other potentially less welcome bidders. 2.  Diligence, costs and timing The due diligence process will be run by the independent committee so management should avoid disclosing any non-public information without prior approval from the independent committee.  Target companies are not permitted to underwrite bidders’ costs although if a white knight bid is made in response to a hostile offer then an inducement fee, capped at 1%, is possible. There is also a rule (“Put up or shut up”) that requires a formal offer to be announced not later than 28 days following the first public announcement of a possible offer.  However, if discussions are ongoing it is usually possible to obtain an extension. 3.  Management and other significant shareholdings Sometimes management will own shares in the target company which are material in the context of an offer.  Under the Takeover Code all target shareholders have to be treated equally.  Therefore, if management wish to roll over their shares into shares of the bidder then either (i) all target shareholders must be offered the same opportunity to take equity in the bidder (which may result in the financial sponsor having to accommodate unwanted minority shareholders in the bidder) or (ii) independent shareholder approval must be obtained to management being treated differently.  The other structural alternative is for the Takeover Panel to agree that those “rolling over” can be treated as joint offerors with the financial sponsor – this is not an easy test to satisfy.  For these reasons great care needs to be taken before any discussions take place around management’s future interests in the bidder. It is worth noting that if management own a material interest in the target, a financial sponsor may be able to secure significant deal certainty by negotiating with management either a hard irrevocable undertaking to accept the offer or a hurdle irrevocable (under which management can only accept an alternative offer if the second offer is circa 15% higher than the initial offer). 4.  No financing condition and no MAC It must be remembered that in the UK a formal offer can only be made when there are “certain funds” in place to satisfy the cash consideration.  Financing conditions are not permitted and, for all practical purposes, there can be no MAC condition either.  The only substantive conditions that are permitted are regulatory and the requirement for acceptances of up to 90% which can be waived down 50% plus one.  This means that all financing needs to be in place on an unconditional basis at the time the offer is announced. 5.  Finally: “It’s good to Talk” – Should we consult the Panel? The UK Panel on Takeovers and Mergers is responsible for administering the Takeover Code which govern takeovers of UK companies.  The Panel Executive (the Panel), which is primarily staffed by current or former corporate finance practitioners, regulates bids on a day-to-day basis. The UK system of takeover regulation is principles-based. The Panel will seek to ensure that the six General Principles (here) which form the cornerstone of the Code are respected in all cases, and an understanding of the principles is essential to deftly navigate the regime. Consultation with regulators on takeover bids is not typical nor always helpful under many regulatory regimes. In the UK by contrast, consultation often will prove to be helpful. Derogations, dispensations and waivers are possible from many Code rules subject to consultation with the Panel.  The Panel responds on a timely basis to queries and is available for consultation on an “out of office hours” emergency basis. PS The Political Environment It is also clear that the growth in take privates will bring private equity more into the public eye.  Government and the wider political community are increasingly focusing their attention on private equity.  While policy thinking is incomplete, it would not be surprising if at some point private equity hits the front pages again and the old chestnuts of leverage, thin capitalisation and carried interest attract the attention of legislators. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Mergers and Acquisitions and Private Equity practice groups, or the following lawyers in London: Thomas M. Budd (+44 (0)20 7071 4234, tbudd@gibsondunn.com) Gregory Campbell (+44 (0)20 7071 4236, gcampbell@gibsondunn.com) Jonathan Earle (+44 (0)20 7071 4211, jearle@gibsondunn.com) Charlie Geffen (+44 (0)20 7071 4225, cgeffen@gibsondunn.com) Chris Haynes (+44 (0)20 7071 4238, chaynes@gibsondunn.com) James R. Howe (+44 (0)20 7071 4214, jhowe@gibsondunn.com) Anna Howell (+44 (0)20 7071 4241, ahowell@gibsondunn.com) Jeremy Kenley (+44 (0)20 7071 4255, jkenley@gibsondunn.com) Amy Kennedy (+44 (0)20 7071 4283, akennedy@gibsondunn.com) Mitri Najjar (+44 (0)20 7071 4262, mnajjar@gibsondunn.com) Selina Sagayam (+44 (0)20 7071 4263, ssagayam@gibsondunn.com) Alan Samson (+44 (0)20 7071 4222, asamson@gibsondunn.com) Mark Sperotto (+44 (0)20 7071 4291, msperotto@gibsondunn.com) Nigel Stacey (+44 (0)20 7071 4201, nstacey@gibsondunn.com) Steve Thierbach (+44 (0)20 7071 4235, sthierbach@gibsondunn.com) Nicholas Tomlinson (+44 (0)20 7071 4272, ntomlinson@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 20, 2019 |
Gibson Dunn Transactions Named Private Equity Deal of the Year and Consumer, Retail, Food & Beverage Deal of the Year by The Deal

The Deal named “Veritas Capital Fund Management LLC and Evergreen Coast Capital Corp. take athenahealth Inc. private” as its Private Equity Deal of the Year. Gibson Dunn was counsel to the investor Group. The Gibson Dunn team included New York partners Richard Birns, Aaron Adams and Eric Sloan. The Deal also recognized Gibson Dunn when naming “PepsiCo Inc. (PEP) acquires carbonated beverage specialist SodaStream International Inc.” as its Consumer, Retail, Food & Beverage Deal of the Year. Gibson Dunn represented PepsiCo Inc. and the team was led by New York partners Barbara Becker and Saee Muzumdar. The awards were announced on June 20, 2019. Gibson, Dunn & Crutcher’s Private Equity Practice represents many of the largest and most active financial sponsors, sovereign wealth funds and other investor groups around the world. We provide a full-service solution to our private equity clients.  We handle deals ranging from venture and growth capital transactions through multibillion-dollar club deals.  In close coordination with lawyers in other Gibson Dunn practice areas, we provide a comprehensive service including: due diligence and compliance; deal negotiation, documentation and execution; tax structuring; acquisition finance; corporate governance and management equity. Gibson, Dunn & Crutcher’s Mergers and Acquisitions Practice Group is an international leader in mergers, acquisitions, divestitures, spin-offs, proxy contests and joint ventures.  Our lawyers deliver sophisticated judgment, technical excellence, creative solutions, and vast market knowledge to each transaction entrusted to us. Our M&A clients include public and private companies, ranging from Fortune 100 and multinational corporations to smaller companies; private equity firms; boards of directors and special committees; selling shareholders; management teams; and financial advisors.  Clients also regularly enlist Gibson Dunn to provide advice regarding takeover preparedness and the implementation of defensive measures.  

June 6, 2019 |
What May Be Ahead For PE Infrastructure Investment In Asia

Hong Kong partner Scott Jalowayski and associate James Jackson are the authors of “What May Be Ahead For PE Infrastructure Investment In Asia” [PDF] published by Law360 on June 6, 2019.

May 17, 2019 |
In the Wake of International Protectionism, France Strengthens Its Enforcement Scheme Applicable to Foreign Investments

Click for PDF On May 16, 2019, the French Constitutional Court (Conseil constitutionnel) cleared most of the provisions of the ambitious so-called “Pacte” Statute on the development and transformation of businesses. Pacte addresses a number of significant legal issues. Among them, in the wake of international protectionism and EU regulation on establishing a framework for the screening of foreign direct investments (see Gibson Dunn’s alert of March 5, 2019), Pacte significantly strengthens the French enforcement scheme applicable to foreign investments. Government Approval Required for Foreign Investments in Strategic Business Sectors Existing French regulation requires foreign investors, prior to making an investment in one of 14 specified sectors[1], irrespective of its size, to obtain an authorization from the French Minister of the Economy. The affected business sectors comprise those impacting France’s public order, public safety or national defense interests. Since November 29, 2018, are also covered certain R&D activities regarding cybersecurity and artificial intelligence as well as the hosting of data pertaining to sensitive businesses. During the discussions in Parliament on Pacte, the French Government indicated it would further broaden the scope of the business sectors affected to better protect “industries of the future” and innovation. The authorization process applies to EU and non-EU investors who acquire: directly or indirectly a controlling stake in a company whose registered office is located in France; or all or part of a line of business of a company whose registered office is located in France. It applies also to non-EU investors who acquire more than 33.33% of the stock or voting rights of a company whose registered office is located in France. The Minister of the Economy may order an investor in breach of this process to withdraw from the investment, to modify the scope of its investment or to revert it. Failure to abide by the Minister’s order exposes the investor to a fine in a maximum amount equal to two times the investment amount (in addition to the potential cancellation of the investment). Pacte Strengthens the Sanctioning Power of the French Minister of the Economy Under Pacte, the French Minister of the Economy is entrusted with a new power of injunction against an investor in breach of either the authorization process or the terms of the authorization[2]. The Minister may, thus, without delay and without any requirement for a prior Court approval, force the investor, under a daily penalty[3], to abide by the process (or by the conditions imposed as part of the authorization), to revert the investment at its cost or to modify its terms. The Minister may also now withdraw its authorization. If an investment has been made without authorization, the Minister may appoint a representative in charge of ensuring that -within the conduct of the acquired business- France’s interests will be protected; to this effect, the representative will be empowered to block any management decision likely to undermine these interests. In situations where France’s interests are or may be compromised, the Minister of the Economy may take new additional interim protective measures and: suspend voting rights attached to the fraction of the share capital held in violation of the authorization process; freeze or restrict distributions and remunerations pertaining to the share capital held in violation of the authorization process; and suspend, restrict or temporary prohibit the disposal of all or part of the assets falling within the ambit of the strategic business sectors. While none of these measures is subject to a prior Court approval, the investor must be given a formal notice and a 15-day delay to present its arguments, except in case of an emergency, exceptional circumstances or imminent breach of public order, public security or national defense. Effective implementation of the Minister’s extended powers will be outlined in decrees to be released later this year by the French government which will be important to monitor. Pacte Increases Fines Against Non-Complying Investors In addition, Pacte increases the amount of the fines that may be imposed by the Minister on an investor in breach of either the process or the terms of the authorization. The maximum fine that can be inflicted may amount to the higher of the following: two times the amount of the investment, 10 percent of the annual turnover (excluding taxes) of the company engaged in the strategic business sector, or 5 million euros for legal entities and 1 million euros for individuals. Pacte Improves the French Parliament’s Information on Foreign Investments Eventually, in line with the EU Regulation, Pacte aims at improving transparency regarding foreign investments and compels: the Minister of the Economy to disclose annually to the Parliament statistical no-names data regarding the screening of foreign investments in France; and the French government to provide annually to certain members of the Parliament (e.g., the chairmen of the Commissions in charge of economic matters and the secretary (rapporteurs) of the finance Commissions) a report containing qualitative and statistical information on measures taken to protect and promote national interests and strategic business sectors as well as on the screening of foreign investments and the outcomes achieved thanks to the new legislation.    [1]   The list of the 14 covered business sectors is as follows: 1°) gambling industry (except casinos); 2°) private security services; 3°) research and development or manufacture of means of fighting the illegal use of toxics; 4°) wiretapping and mail interception equipment; 5)° security of information technology systems and products; 6°) security of the information systems of companies managing critical infrastructure; 7°) dual-use items and technology; 8°) cryptology goods and services; 9°) companies dealing with classified information; 10°) research, development and sale of weapons; 11°) companies that have entered into supply contract with the French Ministry of Defense regarding goods or services involving dual-use items and technology, cryptology goods and services, classified information or research, development and sale of weapons; 12°) activities related to goods, products or services, essential to preserve French interests in relation to public order, public security and national defense (such as energy supply water supply, electronic communication networks and services); 13°) R&D in relation to business sectors 4°), 8°), 9°) or 12°) regarding cybersecurity, artificial intelligence, robotics; 14)° data hosting with respect to data pertaining to business sectors 11°) to 13°).    [2]   The Minister may in particular order the investor to dispose of all or part of the concerned business.    [3]   The amount of which will be defined by a decree to be released later by the French government. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the Paris office by phone (+33 1 56 43 13 00) or by email (see below): Nicolas Baverez –nbaverez@gibsondunn.com Benoît Fleury – bfleury@gibsondunn.com Jean-Philippe Robé – jrobe@gibsondunn.com Nicolas Autet – nautet@gibsondunn.com © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 9, 2019 |
UK Nationalisation – Investment Treaties can offer opportunities to reorganise now to protect valuations

Click for PDF The political instabilities caused by Brexit raise the possibility that a General Election may be held in the UK sooner than the scheduled 5 May 2022.  Given current political turbulence, the prospect of Labour winning any such snap election can no longer be dismissed.  If this happens, a future Labour government led by Jeremy Corbyn and John McDonnell is expected to consider nationalising a range of assets, including utilities (such as water, rail and energy), the Royal Mail and possibly even certain private finance initiative (PFI) companies.  Nationalising profitable UK companies on this scale  has not happened since the post-WWII 1945 Labour government. How might nationalisation happen? There is not yet much detail on how any nationalisation programme would be carried out.  Industry-specific regulations and arrangements mean that the process will probably differ depending on the sector.  Some businesses – e.g. rail, certain PFI contracts – are run under  time-limited franchises and a Labour government might simply allow these contracts to run their course before bringing them back under government control.  However, other utilities are run under perpetual licences (e.g. regional water franchises in England and Wales were sold, not leased).  Here, the Government would need to impose a compulsory takeover, possibly issuing Government bonds to shareholders in exchange for their shares in the company owning the asset. Valuations It will not be possible to prevent the expropriation of these assets if it is approved by the UK Parliament.  However, a key question will be how the owners of such nationalised assets will be compensated.  Valuing shares is typically complex (especially with unlisted SPV ownership structures).  Labour has suggested valuations would be made on a case by case basis, with a role for Parliament in the process.  There is a concern, however, that Labour may seek to save money by refusing to pay full market value for the expropriated assets, or that the use of Government bonds as consideration may mean that payment is deferred over extremely long periods (some of the stock issued as consideration for the post-WWII nationalisations was not redeemable for 40 years). Valuations that are seen as unfair will inevitably trigger compensation claims by investors.  There are a number of routes to possible claims, such as under the Human Rights Act 1998 and/or the European Convention on Human Rights.  However, investment treaties may offer some investors a better chance of reclaiming the full value of their expropriated investments.  The standard of compensation under most investment treaties is fair market value.  In order to take advantage of an investment treaty, an investor will need to have in place a corporate structure which includes an entity located in a jurisdiction that is party to an investment treaty with the UK to pursue a treaty claim. What is an investment treaty? An investment treaty is an agreement between states that helps facilitate private foreign direct investment by nationals and companies of one state into the other.  Most investment treaties are bilateral (known as “bilateral investment treaties” or “BITs”), but the UK is also a party to the Energy Charter Treaty, which is a multilateral investment treaty with 51 signatories.  The purpose of an investment treaty is to stimulate foreign investment by reducing political risk.  Amongst other things, it is intended to protect an international investor if an asset it owns in the other state is subsequently nationalised without adequate compensation.  Investment treaties generally provide that the overseas investor will receive fair and equitable treatment and that the compensation for any nationalisation will be appropriate and adequate.  There are currently more than 3,200 BITs in force worldwide. The definition of what constitutes an investment is usually quite broad including, for example, security interests, rights under a contract and rights derived from shares of a company. Importantly, most investment treaties provide investors with a right to commence arbitration proceedings and seek compensation if the state has breached its obligations under the treaty (e.g. for failing to provide adequate compensation for a nationalisation).  This means a UK investment treaty could offer an avenue of protection for an overseas investor of a nationalised UK asset.  A list of countries with a UK BIT is here. How to benefit from a UK investment treaty? Some investors in UK assets that may be the subject of nationalisations are considering restructuring their UK investments to take advantage of investment treaties to which the UK is a party.  In some circumstances, this can be achieved by simply including a holding company in the corporate chain which is located in a jurisdiction that has an investment treaty with the UK.  So long as the restructuring is completed before a dispute regarding nationalisation arises, it will be effective.  Therefore, investors who hold UK assets that potentially may be the subject of nationalisation should consider restructuring now. The UK has investment treaties in force with over 100 jurisdictions but not all of them will be suitable for a restructuring.  Investors will want to analyse not only the substance of the UK investment treaty to which the host country is a signatory (some are more rudimentary than others) but also other risk factors.   In particular, investors will want to check the tax treatment of a particular investment vehicle, including making sure that the new company is not obliged under local rules to withhold tax on any interest or dividends.  Equally, some jurisdictions may be considered unattractive because of geopolitical uncertainties or because their courts and professionals have limited business experience.  The costs and governance associated with any possible restructuring would also need to be carefully considered, especially if the restructuring involves a jurisdiction where the new entity will be required to establish a more substantive business presence.  Given all these risks, there are probably only a very small set of  jurisdictions where investors might consider incorporating an entity within their deal structures. Each investment treaty is different and the possible structure will depend on the exact terms of the relevant treaty.  However, in general terms, the restructuring would usually involve the insertion of a new entity incorporated at the top of the corporate structure that holds the UK assets (but below any fund) via a share-for-share exchange with the existing holding entity. Conclusion If a future Labour government seeks to nationalise private assets it is inevitable that claims will be made, particularly regarding the amount of compensation paid to owners.  Although it is not yet clear how a Labour government would assess compensation levels, investors may wish to consider structuring their investments so that they will have the option of using a UK investment treaty for any valuation disputes. This client alert was prepared by London partners Charlie Geffen, Nicholas Aleksander and Jeffrey Sullivan, of counsel Anne MacPherson and associate Tamas Lorinczy. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please feel free to contact the Gibson Dunn lawyer with whom you usually work or any of the following lawyers: Jeffrey Sullivan – International Arbitration jeffrey.sullivan@gibsondunn.com Tel: 020 7071 4231 Sandy Bhogal – Tax SBhogal@gibsondunn.com Tel: 020 7071 4266 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Nicholas Aleksander – Tax NAleksander@gibsondunn.com Tel: 020 7071 4232 Tamas Lorinczy – Corporate tlorinczy@gibsondunn.com Tel: 020 7071 4218 © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 29, 2019 |
Investments in MENA-Based Assets: Please proceed to the Exit in an orderly fashion

Click for PDF Following the influx of capital into the MENA region in the last two decades, private equity (PE) firms and institutional investors who acquired businesses during that period, and who generally hold on to such assets for a period of 3-7 years, are now seeking to divest these assets and provide returns to their investors. Whilst more developed regions have a strong track record of successful exits, exits from investments in MENA based assets are traditionally more difficult to realise. This article sets out a number of methods to streamline exit processes and potentially increase returns. TURNKEY TRANSACTION The timeframe for the execution phase of a non-complex PE sale transaction (i.e. the period between entering negotiations on a term sheet and closing the deal) is often significantly longer in MENA than it is in developed markets. Even with the best of intentions, it is not uncommon for simple dispositions in the MENA region to drag on for nine to 12 months and regularly it takes much longer. To help shorten this timeframe, private equity and corporate sellers alike should pre-empt issues and attempt to provide the purchaser with a potential “turnkey transaction”. Pre-sale diligence and clean-up The first step in offering a turnkey solution is ensuring that the target group undergoes an extensive vendor due diligence review prior to taking it to market. From a legal perspective, this review should usually include (as a minimum): (i) ensuring that each member of the target group has the requisite licences to operate in its jurisdiction of operation; (ii) simplifying the corporate structure of the target group to make the disposition smooth and marketable; (iii) renewing commercial contracts with key customers and suppliers; (iv) ascertaining (and minimising) which counterparties of the target group’s commercial and financial arrangements will be required to consent to the transaction; and (v) setting up and maintaining a well organised virtual data room. Identifying and resolving issues prior to entering into a formal sales process ensures time is not wasted trying to solve them contractually later in the process. Preparation of a vendor due diligence report also means bidders do not have to carry out due diligence cold. Undertaking these steps prior to going to market will streamline the process to signing, reduce the number of conditions precedent and specific indemnities requested by potential purchasers (which will leave the seller in a stronger negotiating position) and limit the time from signing to completion. Taken together, this should result in significant cost savings. Additionally, a well organised and structured corporate group, with a limited number of identified issues, will be a more attractive proposition for purchasers and could lead to higher asset valuations. W&I insurance A pre-negotiated warranty and indemnity insurance policy is now commonly offered by private equity sellers in developed markets and is emerging as a tool in the MENA market. Whilst its prominence in the region is growing, it is still somewhat of an unknown option for many market participants. To give this issue context, generally speaking, PE sellers will not give warranties or indemnities except as to title and any SPV seller will immediately distribute the proceeds to investors. As a result, the purchaser will have limited recourse for any claims under the SPA. Comprehensive W&I insurance can help to bridge this gap, giving purchasers the security they need and allowing the seller to determine its internal rate of return on the transaction on completion and to distribute the proceeds to its investors without delay. With a stapled W&I policy in place, negotiations of the SPA warranty package are also often more efficient, although W&I insurance providers will be reluctant to insure a one-sided suite of warranties based on limited due diligence. Stapled financing Another option to facilitate a smooth exit is for the seller to arrange stapled financing. Essentially, stapled financing is a financing package pre-arranged by the seller and its advisors prior to going to market, which is then offered to potential purchasers. This form of financing offers both sellers and purchasers a number of advantages. Although in more developed jurisdictions the debt markets are relatively competitive and acquisition financing is more easily attainable, in MENA obtaining acquisition finance has, historically, often been somewhat challenging. Stapled finance packages offer potential purchasers easier access to debt they may otherwise have found very difficult to raise, especially in a truncated timeframe. Importantly, stapled financing also provides an indication of the expected sale price as it demonstrates the debt multiple the business can sustain. In an auction process (further discussed below), offering stapled financing means there could be an increase in the number of fully funded bidders, which should increase competition and potentially lead to a higher sale price. In a transaction with a split signing and completion, offering stapled financing also provides increased deal certainty to the seller by reducing the risk of the successful purchaser being unable to fund the transaction at completion. For purchasers, stapled financing can help streamline the process of securing acquisition financing.  Even if a successful purchaser decides not to move ahead with the stapled terms as offered, from the outset of the transaction they should have a well negotiated facilities agreement and term sheet which they can build on and potentially use to negotiate better terms. This should save the potential purchaser a considerable amount of time and effort and reduce their legal fees. SECONDARY BUYOUTS In the first half of 2018, secondary buyouts (i.e. a disposition of an asset by a financial sponsor or PE firm to a different financial sponsor or PE firm) accounted for over 40% of all dispositions by PE firms in the US. The proliferation of secondary buyouts has been a growing trend in developed markets since 2010, but it is fair to say that this has not yet extended to the Middle East. Indeed secondary buyouts are relatively rare. There are two primary reasons for this: (1) there are fewer players in the market; and (2) there is possible mistrust between competitors. Potential purchasers fear that the seller will have extracted most of the value from the asset prior to the sale and sellers fear that the purchaser may be able to re-sell the asset within a short timeframe for a significantly higher price. Although there is nothing you can do to increase the number of players in the MENA PE market, there are several methods that sellers can employ to alleviate both their own trust concerns and those of a potential PE purchaser. The first is the inclusion of “anti-embarrassment” provisions in the share purchase agreement. Anti-embarrassment provisions require the purchase price of the secondary buyout to be recalculated and to be subject to an upwards adjustment if the purchaser sells on the asset at a higher price within a certain period (normally 1-2 years) following completion of the original transaction. Although anti-embarrassment provisions are less common than they used to be in more developed markets, as asset prices are generally quite stable, market participants have strong relationships and short hold periods are relatively uncommon, this could be a useful tool in MENA where the market is more volatile. To assuage the concerns of potential purchasers that the value of the asset has been maximised and there is no further ‘upside’ available, sellers could also consider rolling-over a small stake in the business (e.g. 10 to 20%), showing faith in the future of the business and aligning themselves with the buyer. If rolling-over a stake in the asset, it will be necessary, however, to ensure that this is permitted under the relevant fund documentation of the seller and to include appropriate minority protections (i.e. tag rights) under a shareholders’ agreement or similar arrangement. It is also important for a seller who is rolling-over to trust the buyer and understand the only realistic option for selling the rolled-over stake will be to exit on the buyer’s terms. RUNNING AN EFFECTIVE AUCTION PROCESS Studies have shown that where there is competition for a business the best way to maximise a financial investor’s return on any investment can be to run the exit process as an auction, rather than as a bilateral sale process. The benefits of this are clear: more potential purchasers come to market, which leads to increased competition, which should lead to a higher sale price. However, while a failed bilateral sale is a private matter, an unsuccessful auction process may become widely known in the market, which could result in other potential purchasers becoming wary of the asset. To try to prevent this from happening, sellers should ensure they run their auction process efficiently and with appropriate ‘gates’ at different stages of the process (such as letters of intent or non-binding indicative bids). This also allows for a pre-emptive bid to emerge should that be available. During the preparation stage of the auction process, the seller or its investment banking team on the transaction should consider the bidder universe, identify those bidders (both financial and strategic) that might be key players in an auction, and be comfortable that those invited to participate will participate meaningfully in the process. Usually they will circulate a teaser containing a limited amount of financial and other information on the business before bidders formally enter the auction process. If there are insufficient meaningful bidders to create competitive tension, the seller will lose its leverage in the process and the advantage of running an auction process is gone. Throughout the auction sale, in order to ensure the potential purchasers maintain discipline, and provided there is competitive tension it is vital to stick to the timeline and process set out in the process letter and remove those parties from the process who fail to do so. The non-disclosure agreement (NDA) will be the first legal document prospective bidders will see in an auction so it is likely to set the stage for the whole process. To help limit legal costs, the NDA should contain market standard terms that will not need to be heavily negotiated (when sending this document to prospective bidders, it is useful to inform them as such). Before moving on to the initial bidding stage of the process, the seller should instruct its legal advisors to prepare a well advanced, reasonably commercial template share purchase agreement (and shareholders’ agreement if rolling-over a stake in the business). This will help to prevent the legal costs of the transaction from spiralling and portray to potential bidders that the seller is a professional outfit who is looking to run an efficient, fair process and enter into a market standard transaction. Few things frustrate a bidder (and their legal advisers) as much as an unreasonably one-sided first draft SPA. When reviewing initial bids, the seller and the financial advisers should be careful to balance the desire to keep as many potential bidders in the process as possible with the need to ensure only qualified (by reference to the criteria set out in the process letter) and serious bidders move to the next stage of the process, when the potential bidders will receive access to the data room. It is not uncommon for companies to enter auctions primarily in order to gain confidential information on a competitor. Moreover, if the process is competitive, the seller should restrict the number of questions that bidders can submit to the management team (based on their due diligence findings) to ensure only those which are material need to be answered. Often bidders submit an excessive list of questions many of which are unnecessary and answering them can become a drain on management and lead to the incurrence of excessive legal fees. The inclusion of a vendor due diligence report in the data room should also help to limit the number of questions bidders and their advisers feel the need to ask. In the final stage of the auction process, the seller should seek to limit the exclusivity period provided to any final bidder and move to signing as soon as practicable (ideally within 24/48 hours). A shorter timeframe will add pressure on the purchaser to finalise the deal and will also leave open the option of returning to one of other bidders as a ‘white knight’ if the deal with the final bidder falls through. CONCLUSION In a market where successful sales by PE firms and financial institutions are difficult to come by, it would be prudent for sellers to consider implementing some (if not all) of the steps outlined above to streamline the transaction process, increase competition and maximise the consideration received in an exit situation. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update.  Gibson Dunn has been advising leading Middle Eastern institutions, companies, financial sponsors, sovereign wealth funds and merchant families on their global and regional transactions and disputes for more than 35 years.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors in the firm’s Dubai office, with any questions, thoughts or comments arising from this update. Fraser Dawson  (+971 (0)4 318 4619, fdawson@gibsondunn.com) Ciarán Deeny (+971 (0)4 318 4622, cdeeny@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 25, 2019 |
Gibson Dunn Earns 79 Top-Tier Rankings in Chambers USA 2019

In its 2019 edition, Chambers USA: America’s Leading Lawyers for Business awarded Gibson Dunn 79 first-tier rankings, of which 27 were firm practice group rankings and 52 were individual lawyer rankings. Overall, the firm earned 276 rankings – 80 firm practice group rankings and 196 individual lawyer rankings. Gibson Dunn earned top-tier rankings in the following practice group categories: National – Antitrust National – Antitrust: Cartel National – Appellate Law National – Corporate Crime & Investigations National – FCPA National – Outsourcing National – Real Estate National – Retail National – Securities: Regulation CA – Antitrust CA – Environment CA – IT & Outsourcing CA – Litigation: Appellate CA – Litigation: General Commercial CA – Litigation: Securities CA – Litigation: White-Collar Crime & Government Investigations CA – Real Estate: Southern California CO – Litigation: White-Collar Crime & Government Investigations CO – Natural Resources & Energy DC – Corporate/M&A & Private Equity DC – Labor & Employment DC – Litigation: General Commercial DC – Litigation: White-Collar Crime & Government Investigations NY – Litigation: General Commercial: The Elite NY – Media & Entertainment: Litigation NY – Technology & Outsourcing TX – Antitrust This year, 155 Gibson Dunn attorneys were identified as leading lawyers in their respective practice areas, with some ranked in more than one category. The following lawyers achieved top-tier rankings:  D. Jarrett Arp, Theodore Boutrous, Jessica Brown, Jeffrey Chapman, Linda Curtis, Michael Darden, William Dawson, Patrick Dennis, Mark Director, Scott Edelman, Miguel Estrada, Stephen Fackler, Sean Feller, Eric Feuerstein, Amy Forbes, Stephen Glover, Richard Grime, Daniel Kolkey, Brian Lane, Jonathan Layne, Karen Manos, Randy Mastro, Cromwell Montgomery, Daniel Mummery, Stephen Nordahl, Theodore Olson, Richard Parker, William Peters, Tomer Pinkusiewicz, Sean Royall, Eugene Scalia, Jesse Sharf, Orin Snyder, George Stamas, Beau Stark, Charles Stevens, Daniel Swanson, Steven Talley, Helgi Walker, Robert Walters, F. Joseph Warin and Debra Wong Yang.

April 19, 2019 |
Gibson Dunn Ranked in Legal 500 EMEA 2019

The Legal 500 EMEA 2019 has recommended Gibson Dunn in 14 categories in Belgium, France, Germany and UAE.  The firm was recognized in Competition – EU and Global in Belgium; Administrative and Public Law, Dispute Resolution – Commercial Litigation Industry Focus – IT, Telecoms and the Internet, Insolvency, Insurance, Mergers and Acquisitions, and Tax in France; Antitrust, Compliance, Internal Investigations and Private Equity in Germany; and Corporate and M&A and Investment Funds in UAE. Chézard Ameer, Ahmed Baladi,  Jean-Pierre Farges and Dirk Oberbracht were all recognized as Leading Individuals. Jérôme Delaurière was listed as a “Next Generation Lawyer.”  

March 19, 2019 |
China Revamps Laws on Foreign Investments

Click for PDF On March 15, 2019, the National People’s Congress of China passed the Foreign Investment Law (the “Foreign Investment Law”) which, upon taking effect on January 1, 2020, will replace some of the basic laws and regulations relating to foreign investments in China (the “Existing Laws”).  This new law represents a major overhaul of China’s foreign investment regulatory regime developed over the last four decades. Current Regime The Existing Laws consist primarily of three pieces of legislation:  the Sino-Foreign Joint Venture Law (the “Equity JV Law”), the Foreign Enterprise Law (the “WFOE Law”) and the Sino-Foreign Co-operative Joint Venture Law (the “Co-operative JV Law”).  Each of these laws allows foreign investors to invest in a particular type of legal entity in China.  Under the WFOE Law, for example, a foreign investor can incorporate a wholly foreign owned enterprise (a “WFOE”).  Similarly, under the Equity JV Law and the Co-operative JV Law, foreign investors can set up equity or co-operative joint ventures with Chinese partners (the “Joint Ventures”).  The WFOEs and the Joint Ventures are collectively referred to as foreign invested enterprises (the “FIEs”).  Apart from these laws, China has (and periodically updates) a foreign investment catalogue (the “Foreign Investment Catalogue”) which divides foreign investments into those that are encouraged and those that are on a negative list (the “Negative List”).  The Negative List contains two sub-categories: the prohibited (i.e., no foreign investment is allowed) and the restricted (i.e., foreign investment is allowed subject to satisfaction of certain conditions).  Those sectors that are not on the encouraged list or the Negative List are treated as permitted. The overriding feature of China’s regulation of foreign investments is that the FIEs are treated very differently from companies that are not owned by foreign investors (the “Domestic Companies”).  While China is not unique in this regard, it is the degree of such difference that sets China apart from many other countries.  For instance, the FIEs not only have to satisfy the requirements under the Foreign Investment Catalogue, they also must be registered as different legal entities and subject to different governance procedures compared with the Domestic Companies.  Furthermore, the FIEs are often required to obtain more approvals and enjoy less benefits than the Domestic Companies. Over the last several years, partly as a result of complaints and pressure from foreign governments and businesses, China has taken steps to grant more equal treatment to the FIEs.  While the incorporation documents for all FIEs had to be reviewed and approved by China’s Ministry of Commerce (“MOFCOM”), such requirement is now only applicable to investments in sectors on the Negative List.  The Foreign Investment Law can be seen as another step towards creating a more level playing field in China for both the FIEs and the Domestic Companies. Major Provisions The major provisions of the Foreign Investment Law include the following: National Treatment The Foreign Investment Law specifically provides that the market entry management system for foreign investments in China consists of national treatment plus complying with the Negative List.  In other words, unless otherwise required under the Negative List, the FIEs should be treated in the same way as the Domestic Companies.  This is the first time such national treatment principle is expressly and unequivocally provided in a national law in China. The law also includes some specific requirements for national treatment, including that government policies in supporting business development be applied equally to the FIEs and that equal treatment be accorded to the FIEs in respect of government procurements. Moreover, after the Foreign Investment Law becomes effective, the FIEs will undergo the same incorporation process required under the PRC Company Law (instead of the Existing Laws) as the Domestic Companies.  The FIEs will also be governed in the same way as the Domestic Companies. Protection of Foreign Investments In addition to national treatment, the Foreign Investment Law also contains some  general principles which apparently are aimed at allaying concerns over lack of protection of foreign investments in China, including: there will be no expropriation of foreign investments, unless in special circumstances required for public interest and conducted through a legal process with fair and reasonable compensation made in a timely fashion; the intellectual property rights of the foreign investors and FIEs will be protected and infringements of such rights will be prosecuted strictly according to law; while voluntary technological cooperation between Chinese and foreign investors is encouraged, the terms of such cooperation should be discussed by the investing parties themselves based on principles of fairness and equality, and government authorities or officials may not force transfer of technology through administrative means; government authorities and officials must keep confidential commercial secrets obtained from the foreign investors and FIEs while performing normal government functions; government authorities may not decrease the lawful rights of the FIEs, increase their obligations, impose market entry or exit conditions or interfere with their normal business activities, unless otherwise required by law; local government authorities must honor and perform promises to and contracts with the foreign investors and FIEs made pursuant to law; and a mechanism will be established to collect and address complaints from the FIEs. Requirements under Other Laws The Foreign Investment Law also refers to a number of other laws and regulations relating to foreign investments in China, such as the PRC Anti-Monopoly Law and regulations relating to national security review.  These laws and regulations will continue to be applicable after the Foreign Investment Law comes into effect. Unanswered Questions The Foreign Investment Law is generally viewed as an improvement over the Existing Laws, but it also leaves some important questions unanswered.  One glaring example is that MOFCOM issued a prior draft of the Foreign Investment Law in 2015 for public comments (the “2015 Draft”), which, among other things, dealt with issues relating to variable interest entities (the “VIEs”) (please click here for our comments on the 2015 Draft).  However, the VIE related provisions have all been dropped from the promulgated Foreign Investment Law.  As the VIE structure has been widely used in investments in certain sectors in China for many years, the fact that the Chinese government is still unwilling or unready to tackle this issue is a disappointment to many foreign investors. Furthermore, the Foreign Investment Law is a rather short piece of legislation which contains primarily broad language on general principles.  The extent to which it will actually improve the environment for foreign investments in China will depend on what specific rules and policies will be adopted to implement the law.  For instance, the current Negative List was issued in June 2018.  Many foreign investors are hoping that, with the passage of the Foreign Investment Law, the Negative List will be updated again to further liberalize restrictions on foreign investments in certain sectors.  Similarly, the Foreign Investment Law provides that foreign investors can freely remit out of China their earnings, royalties, capital gains and proceeds from disposal of assets.  However, given China’s tight foreign exchange controls, foreign investors often encounter obstacles and delays in actually making such remittance.  One encouraging development was that three days after the Foreign Investment Law was passed, China’s forex authority issued a circular revising and simplifying rules on cross border financing activities by multinational companies. The Foreign Investment Law is intended to promote and protect foreign investments by making the FIEs less “foreign” in China.  This is a challenge as well as a welcome step in a country which traditionally has believed strongly that there is a big difference between what is domestic and what is foreign.  It remains to be seen whether the purported benefits for foreign investors under  the Foreign Investment Law will be fully realized in real life. Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have about this development.  Please contact the Gibson Dunn lawyer with whom you usually work or the following authors: Yi Zhang – Hong Kong (+852 2214 3988, yzhang@gibsondunn.com) Fang Xue – Beijing (+86 10 6502 8687, fxue@gibsondunn.com) Keron Guo – Beijing (+86 10 6502 8505, kguo@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 6, 2019 |
Webcast: The Capital Markets and Private Equity: From Pre-IPO Planning through Public Company Life

Private equity continues to play a prominent role in the life of public and private U.S. companies. This presentation will explain and explore the life cycle of a PE-sponsored public company, from initial acquisition to pre-IPO planning and structuring, governance considerations, and how public companies access the capital markets through private equity. Our team of capital markets and private equity panelists will discuss market trends, legal developments and our recommendations. View Slides (PDF) PANELISTS: Andrew L. Fabens will share insights based on his experience with initial public offerings of PE-sponsored companies. He is a partner in Gibson Dunn’s New York office, Co-Chair of the firm’s Capital Markets Practice Group and a member of the firm’s Securities Regulation and Corporate Governance Practice Group. Mr. Fabens advises companies on long-term and strategic capital planning, disclosure and reporting obligations under U.S. federal securities laws, corporate governance issues and stock exchange listing obligations. He represents issuers and underwriters in public and private corporate finance transactions, both in the United States and internationally. Andrew M. Herman will share the private equity firm’s perspective on participating in the U.S. capital markets. He is a partner in Gibson Dunn’s Washington, D.C. office and a member of the firm’s Mergers and Acquisitions and Private Equity Practice Groups. Mr. Herman’s practice focuses on advising private equity sponsors and their portfolio companies on leveraged buyouts, growth equity investments and other transactions. He also advises public companies on mergers and acquisitions transactions, securities law compliance and corporate governance. He is experienced in advising on the acquisition and sale of sports franchises. Hillary H. Holmes will share insights and trends regarding PE participation in the capital markets for public companies. She is a partner in Gibson Dunn’s Houston office, Co-Chair of the firm’s Capital Markets practice group, and a member of the firm’s Oil and Gas, Securities Regulation and Corporate Governance, and Private Equity Practice Groups. Ms. Holmes’ practice focuses on securities law and governance counseling in the oil & gas energy industry. She represents private equity, public companies, private companies, MLPs, investment banks and management teams in all forms of capital markets transactions. She also advises boards of directors, conflicts committees, and financial advisors in complex transactions. Julia Lapitskaya will share our views regarding corporate governance of a PE-sponsored company. She is Of Counsel in Gibson Dunn’s New York office and a member of the Securities Regulation and Corporate Governance Practice Group. Ms. Lapitskaya’s practice focuses on corporate governance, SEC and Securities Exchange Act of 1934 compliance, securities and corporate governance disclosure issues, state corporate laws, the Dodd-Frank Act of 2010, SEC regulations and executive compensation disclosure issues. Peter W. Wardle will share insights based on his experience with initial public offerings of PE-sponsored companies. He is a partner in Gibson Dunn’s Los Angeles office and Co-Chair of the firm’s Capital Markets Practice Group. Mr. Wardle’s practice includes representation of issuers and underwriters in equity and debt offerings, including IPOs and secondary public offerings, and representation of both public and private companies in mergers and acquisitions, including private equity, cross border, leveraged buy-out, distressed and going private transactions. He also advises clients on a wide variety of disclosure and reporting obligations, stock exchange listing issues, and general corporate and securities law matters, including corporate governance issues. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

January 22, 2019 |
M&A Report – A New Twist in the Oxbow Joint Venture Saga: Delaware Supreme Court Rules the Covenant of Good Faith and Fair Dealing Cannot Save the Day

Click for PDF The Delaware Supreme Court recently overruled a Court of Chancery opinion that had relied on the covenant of good faith and fair dealing to allow the minority owners in a joint venture to force an exit transaction. In its opinion, the Delaware Supreme Court offered useful guidance for parties seeking to draft joint venture exit provisions and indicated that parties should not expect to rely on the implied covenant of good faith and fair dealing to deliver them from a harsh outcome dictated by clear contractual language. In Oxbow Carbon & Minerals Holdings, Inc. v. Crestview-Oxbow Acquisition, LLC, No. 536, 2018, 2019 WL 237360 (Del. Jan. 17, 2019), the Delaware Supreme Court refused to invoke the implied covenant of good faith and fair dealing to resolve a dispute over whether certain minority members of Oxbow Carbon LLC (“Oxbow”) had a contractual right under Oxbow’s limited liability company agreement (the “LLC Agreement”) to force Oxbow to engage in an “Exit Sale.” The decision highlights the need for parties to devote special attention when drafting joint venture exit provisions and to take care when admitting new members to ensure that such admission does not create unintended consequences for the forced sale or other provisions in the agreements. The dispute arose when two minority members of Oxbow, both of which were owned by the private equity fund Crestview Partners L.P. (“Crestview”) and together owned approximately one-third of the outstanding equity of Oxbow, sought to enforce a contractual right under the LLC Agreement to force Oxbow to engage in an Exit Sale. The LLC Agreement contained an exit sale provision which provided that, beginning on the seventh anniversary of Crestview’s investment (May 2014), Crestview had the right to force Oxbow to engage in an Exit Sale. The LLC Agreement defined an “Exit Sale” as a “Transfer of all, but not less than all, of the then-outstanding Equity Securities of [Oxbow] and/or all of the assets of [Oxbow].” The Exit Sale provision also stated that the exercising party “may not require any other Member to engage in such Exit Sale unless the resulting proceeds to such Member equal at least 1.5 times such Member’s aggregate Capital Contributions through such date.” The dispute centered on two small holders (the “Small Holders”) of Oxbow securities, both of which were controlled by the CEO, founder and majority member of Oxbow, William Koch (“Koch”). Notably, when the Small Holders were admitted as members of Oxbow in 2011 and 2012, respectively, Oxbow (controlled by Koch) failed to follow the procedures required by the LLC Agreement and did not obtain all requisite approvals for the admission of the new members. In connection with the admission of the Small Holders, the existing members should have been asked to waive their preemptive rights; because it was a related party transaction, the admission of the Small Holders should have been approved by a supermajority vote of the existing members; and the Small Holders should have delivered counterpart signature pages to the LLC Agreement. None of these conditions were satisfied, except that signature pages were delivered after the commencement of litigation. Nevertheless, the other members (including Crestview) treated the Small Holders as members and did not raise the defects in their admission until the dispute regarding the Exit Sale arose. Under the terms of Crestview’s proposed Exit Sale, the Small Holders would not receive the 1.5 times return on investment required by the terms of the Exit Sale provision in the LLC Agreement. As a result, Koch and the Small Holders brought suit seeking a declaratory judgment from the Court of Chancery that, absent a 1.5 times return on investment for all members of Oxbow including the Small Holders, Crestview did not have the right to force the proposed Exit Sale. The Small Holders argued that if an Exit Sale does not satisfy the 1.5 times requirement for any member, and that member chooses not to participate, then the Exit Sale cannot go forward because it no longer would involve “all, but not less than all, of the then-outstanding Equity Securities of [Oxbow].” The Court of Chancery referred to this argument as the “Blocking Theory.” In contrast, Crestview argued that if an Exit Sale does not satisfy the 1.5 times requirement for any member, then that member can choose to participate in the Exit Sale, but cannot be forced to sell, and the Exit Sale can proceed without such member. The Court of Chancery referred to this argument as the “Leave Behind Theory.” Crestview also argued that, assuming the Small Holder’s preferred Blocking Theory was adopted and assuming the Exit Sale would not satisfy the 1.5 times requirement for the Small Holders, the Exit Sale should still be able to proceed if the Small Holders receive additional funds sufficient to satisfy the 1.5 times requirement—i.e., if the Small Holders are provided with an additional amount of the sale proceeds such that they receive the 1.5 times return on investment required by the Exit Sale provision. The Court of Chancery referred to this argument as the “Top Off Theory.” The Small Holders responded to Crestview’s Top Off Theory-argument by citing the equal treatment provision in the LLC Agreement which stated that an Exit Sale must treat all members equally by offering “the same terms and conditions” to each member and allocating proceeds “by assuming that the aggregate purchase price was distributed” pro rata to all unitholders and that the unequal distribution proposed by the Top Off Theory would violate such requirement. The Court of Chancery held that the plain language of the LLC Agreement foreclosed Crestview’s arguments in favor of the Leave Behind Theory and Top Off Theory. The Court of Chancery noted that in interpreting contract language, the court must construe the agreement as a whole and give effect to all of its provisions. The Court of Chancery pointed out that while the language of the Exit Sale provision in isolation could be interpreted as supporting Crestview’s Leave Behind Theory, the Leave Behind Theory was inconsistent with the definition of “Exit Sale,” which did not contemplate a partial exit, and Crestview’s Top Off Theory was inconsistent with language in the LLC Agreement requiring payments in an Exit Sale be made on a pro rata basis. Crestview also contended that the Small Holders were not properly admitted as members because the required approvals had not been obtained and required procedures had not been followed in connection with their admission. As a result, according to Crestview, because the Small Holders had not properly been admitted as members, the dispute over the 1.5 times return on investment was moot. The Court of Chancery rejected this argument based on the equitable defense of laches – that Crestview had known about the admission of the Small Holders as far back as 2011 and had not objected until this dispute arose. Notwithstanding the rejection of Crestview’s arguments based on the contractual language and the defective admission of the Small Holders, the Court of Chancery nevertheless invoked the implied covenant of good faith and fair dealing to allow the Exit Sale to proceed. The Court of Chancery noted that the implied covenant ensures that the parties’ contractual expectations are fulfilled in unforeseen circumstances, and the implied covenant supplies terms to fill gaps in the contract. In this case, the Court of Chancery determined that, while the LLC Agreement clearly contemplated the possibility of adding additional members, the LLC Agreement did not specify the rights that later-admitted members would have. Instead, the LLC Agreement empowered Oxbow’s board to determine such rights when additional members were admitted. However, when the Small Holders were admitted, Oxbow failed to follow required procedures, which resulted in the board of Oxbow not determining the rights of the Small Holders. Consequently, according to the Court of Chancery, there were gaps as to how the LLC Agreement and the 1.5 times return on investment requirement were intended to apply to the Small Holders. Ultimately, the Court of Chancery held that the 1.5 times requirement did not give the Small Holders a blocking right. In reaching this decision, the Court of Chancery appeared sympathetic to Crestview, particularly in light of the fact that the failure of the board to determine the rights of the Small Holders arguably stemmed from failures of Oxbow (as controlled by Koch), and stated that an alternative finding would have “produce[d] a harsh result by effectively blocking an Exit Sale.” The Court of Chancery further determined that, had the parties considered the rights of the Small Holders at the time of their admission, Crestview never would have agreed to a re-set of the 1.5 times clause. Koch and the Small Holders appealed the Court of Chancery’s decision to the Delaware Supreme Court. On appeal, the Delaware Supreme Court agreed with the Court of Chancery’s determination that the plain language of the LLC Agreement foreclosed Crestview’s arguments in favor of the Leave Behind Theory and Top Off Theory. However, the Delaware Supreme Court disagreed with the lower court’s conclusion that there had been any “gaps” in the LLC agreement. The Delaware Supreme Court held that the LLC Agreement conferred discretion on the board to determine the terms and conditions applicable to newly admitted members (such as the Small Holders) when they were admitted, and this deferral of determination until admission was a contractual choice and did not create a gap in the LLC Agreement. That is, the fact that the board had discretion to set the terms and conditions applicable to the Small Holders, but it did not require that the Small Holders be treated differently for purposes of determining whether an Exit Sale could proceed, did not create a contractual gap. Rather, the failure to set such terms and conditions resulted from Crestview’s “sloppiness and failure to consider the implications of the Small Holders’ investment.” The Supreme Court pointed out that, while not every procedural formality in connection with the Small Holders’ admission had been followed, Crestview approved the admission of the Small Holders, received a distribution based on the investment from the Small Holders and treated the Small Holders as members. Indeed, the Court of Chancery had held that the equitable defense of laches foreclosed Crestview from arguing that the Small Holders had not been admitted. The Supreme Court noted that the Court of Chancery’s determinations both that Crestview had approved the admission of the Small Holders (notwithstanding the failure to follow certain formalities for admission) and that a contractual gap exists resulting from such failure created “an untenable tension.” The Supreme Court further cautioned that use of the implied covenant of good faith and fair dealing is a limited and extraordinary legal remedy that does not apply when the contract addresses the conduct at issue. The Supreme Court agreed with the Court of Chancery that the plain language of the LLC Agreement foreclosed Crestview’s arguments based on the contractual language. This case highlights the need for parties to devote special attention when drafting joint venture exit provisions in limited liability company agreements and to take care when admitting new members to ensure that such admission does not create unintended consequences for the forced sale or other provisions in the agreements. As a starting point, parties should be careful to address how any minimum return on investment requirement, such as the LLC Agreement’s 1.5 times requirement, will apply to members who are admitted as members at different times. The parties should also consider whether, in the case of a minimum return requirement, they desire to have the flexibility of a topping off option or if the minimum return requirement may only be satisfied upon pro rata and equal distribution of an exit sale’s proceeds. In addition, the parties should be explicit about what type of exit sale a joint venture partner can force. That is, parties should consider whether such provisions should be limited only to equity sales, changes of control or sales of assets, and they should think through how a sale of assets would be accomplished if a holder is entitled to stay behind and not participate in a sale. Further, parties should be extremely careful when using defined terms that also apply to other provisions because such overlapping usage may incorporate concepts not intended to be applied to an exit sale. For example, in the LLC Agreement, the definition of “Exit Sale” also applied to the drag-along provision, and the equal treatment provision applied to the drag-along and other provisions. While the definition and the equal treatment provision made sense in the context of the drag-along provision, they raised issues in the context of Crestview’s right to force a sale because they effectively granted the Small Holders a blocking right. If the exit provision includes a minimum return on investment requirement, the exit provision language should make clear whether the minimum return on investment requirement creates a blocking right or a leave behind right. If the leave behind concept applies, the parties should be explicit about how such leave behind would work in the event of a sale of all the assets of the company. In sum, parties should take care to address all potential contingencies in drafting exit provisions, including how such provisions will apply to newly admitted members, and, in particular, should ensure they do not inadvertently create a blocking right over a forced sale. As demonstrated by the Delaware Supreme Court’s opinion, courts are unlikely to use the implied covenant of good faith and fair dealing to rescue a party faced with “an extreme, harsh and unforeseen result arising from a plain reading” of the contract in question. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work or the following authors: Robert B. Little – Dallas (+1 214-698-3260, rlittle@gibsondunn.com) Eric B. Pacifici – Dallas (+1 214-698-3401, epacifici@gibsondunn.com) Please also feel free to contact any of the following practice group leaders: Mergers and Acquisitions Group: Barbara L. Becker – New York (+1 212-351-4062, bbecker@gibsondunn.com) Jeffrey A. Chapman – Dallas (+1 214-698-3120, jchapman@gibsondunn.com) Stephen I. Glover – Washington, D.C. (+1 202-955-8593, siglover@gibsondunn.com) Private Equity Group: Sean P. Griffiths – New York (+1 212-351-3872, sgriffiths@gibsondunn.com) Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com) Steven R. Shoemate – New York (+1 212-351-3879, sshoemate@gibsondunn.com) Charlie Geffen – London (+44 (0)20 7071 4225, cgeffen@gibsondunn.com) Scott Jalowayski – Hong Kong (+852 2214 3727, sjalowayski@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 18, 2019 |
Gibson Dunn Ranked in Legal 500 Asia Pacific 2019

Gibson Dunn has been recognized in 12 categories in the 2019 edition of The Legal 500 Asia Pacific. The Singapore office was ranked in the following Foreign Firms categories: Banking and Finance, Corporate and M&A, Energy and Restructuring.  The Hong Kong office was ranked in the Antitrust and Competition, Corporate (including M&A), Private Equity, Projects and Energy, and Regulatory: Anti-Corruption and Compliance categories.  Additionally, the firm was ranked for its work in India, Indonesia and the Philippines.  Brad Roach was named as a Leading Lawyer in the Singapore: Energy – Foreign Firms and Indonesia: Foreign Firms categories; Kelly Austin was named as a Leading Lawyer in the Hong Kong: Regulatory: Anti-Corruption and Compliance category; Michael Nicklin was named as a Leading Lawyer in the Hong Kong: Banking & Finance category; Scott Jalowayski and Brian Schwarzwalder were named as Leading Lawyers in the Hong Kong: Private Equity category; and Troy Doyle was named as a Leading Lawyer in the Singapore: Restructuring & Insolvency – Foreign Firms category; and John Fadely and Albert Cho were named as Leading Lawyers in the Hong Kong: Investment Funds category. Youjung Byon has also been named as a Next Generation Lawyer for Hong Kong: Investment Funds.

December 19, 2018 |
Webcast: CFIUS Reform: Implications for Private Equity Investments

On August 13, 2018, President Trump signed legislation that will significantly expand the scope of inbound foreign investments subject to review by the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”). The Foreign Investment Risk Review Modernization Act (“FIRRMA”) expanded the scope of transactions subject to the Committee’s review by granting CFIUS the authority to examine the national security implications of a foreign acquirer’s non-controlling investments in U.S. businesses that deal with critical infrastructure, critical technology, or the personal data of U.S. citizens. Critically, an express carve-out for indirect foreign investment through certain investment funds may prevent many transactions by private equity funds from falling into the Committee’s expanded jurisdiction. In this webcast presentation, our panelists discuss the new CFIUS legislation and its impact on private equity investments. View Slides (PDF) PANELISTS: Judith Alison Lee, a partner in Gibson Dunn’s Washington, D.C. office, is Co-Chair of the firm’s International Trade Practice Group. She practices in the areas of international trade regulation, including USA Patriot Act compliance, economic sanctions and embargoes, export controls, and national security reviews (“CFIUS”). She also advises on issues relating to virtual and digital currencies, blockchain technologies and distributed cryptoledgers. Jose W. Fernandez, a partner in Gibson Dunn’s New York office and Co-Chair of the firm’s Latin America Practice Group, previously served as Assistant Secretary of State for Economic, Energy and Business Affairs during the Obama Administration, and led the Bureau that is responsible for overseeing work on sanctions and international trade and investment policy. His practice focuses on mergers and acquisitions and finance in emerging markets in Latin America, the Middle East, Africa and Asia. Stephanie L. Connor, a senior associate in Gibson Dunn’s Washington D.C. office, practices primarily in the areas of international trade compliance and white collar investigations. She focuses on matters before the U.S. Committee on Foreign Investment in the United States (“CFIUS”) and has served on secondment to the Legal and Compliance division of a Fortune 100 company. Michael Garson is a Senior Managing Director at Ankura with more than 20 years of experience as an attorney in private practice, an in-house general counsel, and a C-suite operations and compliance executive. In those roles, he advised companies and enterprises of all sizes on US federal, state, and municipal procurements and grants and has specific expertise in defense and technology matters. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.  

December 20, 2018 |
Gibson Dunn Ranked in the Legal 500 Deutschland 2019

The Legal 500 Deutschland 2019 ranked Gibson Dunn in four practice areas and named Frankfurt partner Dirk Oberbracht as Leading Lawyer in Private Equity. The firm was recognized in the following categories: Antitrust, Compliance, Compliance: Internal Investigations, and Private Equity: Transactions. Oberbracht is a leading Private Equity and M&A lawyer. He advises private equity investors, corporate clients, families and management teams. He has extensive expertise in cross-border and domestic deals, including carve-outs, joint ventures, minority investments, corporate restructurings and management equity programs.

December 18, 2018 |
Getting a Take Private Off the Ground in the UK

Click for PDF Through discussions with bankers and other market participants, we anticipate that the number of UK take privates will continue to gather pace in 2019.  The UK takeover regime brings particular challenges to take private transactions.  Set out below is a reminder of a few of the early stage issues that arise and how they can be overcome. 1.   Who can management talk to? Senior executives owe duties to act in the best interests of their companies and so need to tread carefully.  However, they are free to have exploratory conversations with potential bidders provided they comply with a few basic principles: they need to be sure they have internal authority and support – keeping the Chairman of the Board informed is usually sufficient during the early stages.  (In the UK, the role of the Chairman and the CEO are invariably separate roles.) they must not disclose any confidential information to third parties – but usually there will be enough public information to allow for preliminary discussions. the number of people they speak to should be limited, both to minimize the risk of a leak and to ensure compliance with the Panel’s “rule of six” (meaning that there should be no more than six “live” discussions at any one time). advice must be taken from financial advisers and lawyers prior to engaging in any discussion around management incentive arrangements or any possible equity participation in the bidder. Once a bidder is willing to submit a written proposal to the target company, the Chairman will inform the entire board and an independent committee of the board, excluding anyone who might be involved with the bidder, will be established.  The independent committee will determine what information can be disclosed to bidders and management have an obligation to share with the board any information it discloses to potential bidders.  It should be remembered that any information disclosed to one bidder has to be disclosed to other potentially less welcome bidders. 2.   Diligence, costs and timing The due diligence process will be run by the independent committee so management should avoid disclosing any non-public information without prior approval from the independent committee. Target companies are not permitted to underwrite bidders’ costs although if a white knight bid is made in response to a hostile offer then an inducement fee, capped at 1%, is possible. There is also a rule (“Put up or shut up”) that requires a formal offer to be announced not later than 28 days following the first public announcement of a possible offer.  However, if discussions are ongoing it is usually possible to obtain an extension. 3.   Management and other significant shareholdings Sometimes management will own shares in the target company which are material in the context of an offer.  Under the Takeover Code all target shareholders have to be treated equally.  Therefore, if management wish to roll over their shares into shares of the bidder then either (i) all target shareholders must be offered the same opportunity to take equity in the bidder (which may result in the financial sponsor having to accommodate unwanted minority shareholders in the bidder) or (ii) independent shareholder approval must be obtained to management being treated differently.  The other structural alternative is for the Takeover Panel to agree that those “rolling over” can be treated as joint offerors with the financial sponsor – this is not an easy test to satisfy.  For these reasons great care needs to be taken before any discussions take place around management’s future interests in the bidder. It is worth noting that if management own a material interest in the target, a financial sponsor may be able to secure significant deal certainty by negotiating with management either a hard irrevocable undertaking to accept the offer or a hurdle irrevocable (under which management can only accept an alternative offer if the second offer is circa 15% higher than the initial offer). 4.   No financing condition and no MAC It must be remembered that in the UK a formal offer can only be made when there are “certain funds” in place to satisfy the cash consideration.  Financing conditions are not permitted and, for all practical purposes, there can be no MAC condition either.  The only substantive conditions that are permitted are regulatory and the requirement for acceptances of up to 90%.  This means that all financing needs to be in place on an unconditional basis at the time the offer is announced. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Mergers and Acquisitions and Private Equity practice groups, or the following lawyers in London: Nigel Stacey (+44 (0)20 7071 4201, nstacey@gibsondunn.com) Jonathan Earle (+44 (0)20 7071 4211, jearle@gibsondunn.com) Charlie Geffen (+44 (0)20 7071 4225, cgeffen@gibsondunn.com) Selina Sagayam (+44 (0)20 7071 4263, ssagayam@gibsondunn.com) Jeremy Kenley (+44 (0)20 7071 4255, jkenley@gibsondunn.com) Anna Howell (+44 (0)20 7071 4241, ahowell@gibsondunn.com) Mark Sperotto (+44 (0)20 7071 4291, msperotto@gibsondunn.com) Nicholas Tomlinson (+44 (0)20 7071 4272, ntomlinson@gibsondunn.com) James R. Howe (+44 (0)20 7071 4214, jhowe@gibsondunn.com) Chris Haynes (+44 (0)20 7071 4238 , chaynes@gibsondunn.com) Alan Samson (+44 (0)20 7071 4222, asamson@gibsondunn.com) Thomas M. Budd (+44 (0)20 7071 4234, tbudd@gibsondunn.com) Amy Kennedy (+44 (0)20 7071 4283, akennedy@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.