cross border- anti trust and national securities (technology transfer,...)

1. Merger and Acquisition, cross
border Anti Trust and National
Securities
By
Arthur Mboue
Research conducted by Arthur Mboue 1

2. Cross Border and exchange Offer Transaction
• Factors to consider before any cross border acquisition
or strategic investment whether the target is within the
US or elsewhere
– Political and regulatory consideration (unrest, labor policies,
permanent restructuration of the budgeting system can
create a huge uncertainty and a fear of tomorrow)
– Integration Planning and Due diligence (can cause delay,
wasted time and resources or result in missing issues)
– Competition Review and Action (careful review by
competition authorities and parties-MJR and notification)
– Deal Technique (understanding customs and practice,
understanding when to respect it, when to challenge it)
– Cross border securities Regulation
Research conducted by Arthur Mboue 2

3. Cross Border Tender and Exchange Offer Transaction
• Five specific exemptive rules for tender and exchanges offers
1. Tier I exemptions-If US shareholders hold 10% or less of the subject
securities excluding all 10% and greater security holders and all securities
held by the bidder from both the numerator and denominator in the
calculation. Obligation to file Sch 14D-9
2. Tier II exemptions-If US hold 40% or less exemptions exists to eliminate
frequent areas of conflict between U.S and foreign regulatory requirements
3. Rule 801-equity securities issued in rights are exempt if US shareholders
hold less than 10% on the 30th day before commencement
4. Rule 802-exempt from the registration requirements of the Act, if US
shareholders hold 10% or less of the target securities on the 30th day before
commencement
5. Rule 14e-5-FPI that fall within the tier ! Exemption will also be exempt from
Rule 14e-5, which prohibits a bidder from purchasing securities except as
part of the tender offer
6. If the home jurisdiction laws so permit, the offerer may completely exclude
all US holders from the tender offer
Research conducted by Arthur Mboue 3

4. Regulation
Regulation
of Merger
and
Acquisition
Anti-trust law Federal Securities
Law
State securities law
(here, Delaware
General Corporate
law)
Research conducted by Arthur Mboue 4

5. Anti Trust Law; the United States
• HSR notification is required prior to (i) the acquisition of $75.9 million or
more of voting securities or assets of the company if either the investor or
the company has assets or annual sales of at least $151.& million and the
other party has assets or annual sales of at least $15.2 million or (ii) any
acquisition involving more than $303.4 million of voting securities or assets
of the company.
• Obligation to file for approval under HSR Act of 1976 depends on the size of
the ultimate parent entity (if 50% more of the outstanding voting securities
of a person)
• Once a notification has been filed, the filer company has one year from the
end of the waiting period to cross the threshold stated in the filing. Once
crossed, filer can acquire voting shares of the company up to the next
threshold for 5 years from the end of the waiting period. 5 thresholds: (1)
$75.9 Million, (2) $ 151.7 Million, (3) $ 758.6 Million, (4)-25%, if the value of
voting securities to be held is greater than $1.5171 Billion, and (5)-50%, if
the value of voting securities to be held is greater than $75.9 Million.
• The initial waiting period under holders of stock rule is 30 days
– Additional data requests may come from either FTC or Antitrust division of the
DoJ with 20 days extensions after compliance with requests
• If a request for early termination of the 30 day waiting period is granted
that fact will be published on the FTC’s website
Research conducted by Arthur Mboue 5

6. Antitrust Law: United States
• Made combinations, contracts, and conspiracies in restraint of trade or attempts to monopolize illegal
Sherman Antitrust Act (1890), Federal anti monopoly and anti trust statute,
approved on 7/2/1890 was the 1st Federal Act outlawed monopolistic business
practices
• Price discrimination
• Conditioning sales on exclusive dealing
• Merger and Acquisition when they may substantially reduce competition
• Servicing on the BoD for competing companies
Clayton Antitrust Act (1914) outlaws
• Vertical mergers and asset acquisition that reduced competition
Celler–Kefauver Act (1950) outlaws
• Requiring companies to file premerger notification with the FTC and the Antitrust of the Justice
Department giving them an opportunity to review and challenge mergers in advance
Hart–Scott–Rodino Antitrust Improvements Act (1976) amended Clayton Act by
Research conducted by Arthur Mboue 6

7. Antitrust Review
• Regulatory bodies such as the European Commission ,
the Antitrust Division of the DoJ, Federal Reserve
Board, state insurance commission and/or FTC may
investigate antitrust proposed merger for monopolies
dangers and have the power to block mergers
• If the combination involves companies in different
countries, it may require approvals by all countries’
regulatory bodies.
• Rules pertaining offers for non US companies:
– This exchange Act rules applies to tender offer for
securities involving a target incorporated outside the US if
those securities are registered under the Exchange Act,
subject to relief from selected provisions depending on the
percentage of the foreign target’s shares owned by US
shareholders. But, the law may apply to US shareholders it
does not matter where the target is incorporate or
registered Research conducted by Arthur Mboue 7

8. The HHI
• The Herfindalhl–Hirschman Index (HHI) is a measure of market concentration within an
industry and is often used by regulators including US DoJ antitrust division to evaluate the
impact of a merger and what action could taken to prevent monopoly.
• In evaluating horizontal merger, regulators will consider both the post merger market
concentration and the increase in concentration resulting from the merger. (market
concentration if a useful indicator of the likely potential competitive effect of a merger.
• Potential competitive harm may occur when the demands for substitutes are not close
substitutes for the products and locations within the relevant market. It is product and
geographic market sometimes, ecommerce can bring closer.
• The HHI is constructed as the sum of the squared market shares of the firms in the industry:
HHI =
𝑖=1
𝑛
(
𝑂𝑢𝑡𝑝𝑢𝑡 𝑜𝑓 𝑐𝑜𝑟𝑝𝑜𝑟𝑎𝑡𝑖𝑜𝑛 𝑖
𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑜𝑟 𝑜𝑢𝑡𝑝𝑢𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑚𝑎𝑟𝑘𝑒𝑡
𝑋 100)2
=
𝑖=1
𝑛
(
𝑚𝑎𝑟𝑘𝑒𝑡 𝑠ℎ𝑎𝑟𝑒 𝑖
𝑡𝑜𝑡𝑎𝑙 𝑚𝑎𝑟𝑘𝑒𝑡 𝑠ℎ𝑎𝑟𝑒
)2
Research conducted by Arthur Mboue 8

9. HHI Concentration level AND Possible Government
Action
• Regulators divides the spectrum of market
concentration as measured by the HHI into three
regions that can be broadly characterized below
Research conducted by Arthur Mboue
Post Merger HHI Concentration Change in HHI Government possible action
Less than 1,000 Not
concentration
Any amount Unlikely to have competitive effects, does not
require further analysis. No action from regulators
Between 1,000
and 1,800
Moderately
Concentrated
Less than 100
points
Unlikely to have competitive effects. No action
from regulators
More than
100 points
Raise significant competitive concerns. Merger will
face possible Government challenge
More than 1,800 Highly
Concentrated
Less than 50
points
Unlikely to have adverse competitive effects. No
action from regulators
More than 50
points
Raise significant competitive concerns, Merger will
face possible Government action
More than
100 points
Create or enhance market power or facilitate its
exercise. Merger will face Government challenge
9

10. Example: HHI
Consider an industry that has seven companies. Their
respective market shares are as follows:
What is the likely government action, if any, if Companies Dull
Inc and Eliza Inc combined?
Company Market Share
ABC Inc 25%
BoB Inc 15%
Condit Inc 15%
Dull Inc 15%
Eliza Inc 15%
Fisher Inc 10%
Gayle Inc 5%
100%
Research conducted by Arthur Mboue 10

11. Example: HHI
Company
Market
Share
HHI Before
(formula 𝒂 𝟐) Company
Market
Share HHI After
ABC Inc 25% 625 ABC Inc 25% 625
BoB inc 15% 225 BoB Inc 15% 225
Condit Inc 15% 225 Condit Inc 15% 225
Dull Inc 15% 225 Fisher Inc 10% 100
Eliza Inc 15% 225 Gayle Inc 5% 25
Gayle Inc 5% 25 Dull + Eliza 30% 900
Fisher Inc 10% 100
Total 100% 1025 Total 100% 1475
• The industry would be considered moderately concentrated before and after the
combination of Dull Inc and Eliza Inc, and
• The change in the HHI is 450 (formula 2ab), which may result in a possible government
challenge.
Research conducted by Arthur Mboue
Formula
𝒂 𝟐
+ 𝟐𝒂𝒃
+ 𝒃 𝟐
11

12. Review of the Acquisition by Foreign Persons
(company)
• Foreign Investment and National Securities Act of 2007 (FINSA)
effective on Oct 24, 2007, amendment to the 1988 Exon Florio
provision, itself amendment to the Defense Production Act of 1950
• The Committee on Foreign Investment in the US (CFIUS) review the
acquisition for the US President to prevent acquisition of the US
corporation (technology and others) threatening the national security
• Review criteria
1) Transaction threatening to impair national security
2) Transaction would involved control by a foreign Gov’t
3) Transaction would result in foreign control of critical infrastructure which
include critical technology
• 3 stages within 90 days
– Initial review- 30 days, no investigation recommendation, clear to proceed
– Investigative review-45 days with recommendation to the president
– President action- 15 days for the US President to decideResearch conducted by Arthur Mboue 12