The International Agreement and the M&A operation

A cura di: Anna Rita Cognata, Andrea Filippi, Rossana LaconiMaster Giuristi in Azienda 2019

What is an International Agreement? It is an Agreement with transnational character, used in order to link a Company and a Market set in different countries.

We spoke about this topic with Miss Lara Bianchini, a young lawyer at Rödl & Partner which is a Lawfirm composed of Attorneys-At-Law, Tax Consultants, Certified Public Accountants and Labour Consultancy.

Before the codification of the International agreements’ subject in the nineteenth century, lex mercatoria was aimed at regulating contractual and non-contractual international relationships. In the contemporary world, some scholars believe that this lex mercatoria includes certain transnational trade usages and commercial customs recognized internationally by the mercantile community. In addition, it also extends to certain international conventions and even national laws pertaining to international economic relations.

Countries needed to extend their own National legal rules to International agreements in order to solve the problem of identifying the applicable law to International private law. Nowadays, business entities draft atypical contracts and promote the adoption of International conventions. United Nations Convention on Contracts for the International Sale of Goods (1980) and UNIDROIT Principles of International Commercial Contracts (2010) are two of the most significant conventions which can be considered as an input for this topic.

The structure of the International agreement must contain: recitals, definitions, representation and warranties, right to designate clauses, guarantees, price revision clauses and price adjustment clauses, interim management clauses, hardship clauses, force majeure clauses, severability clauses, entire agreement clauses, non-waiver clauses, choice of law, choice of court and arbitration clauses.

The main steps of the International Agreement, especially in an M&A operation, are:
The Pre-contractual step, in which a Letter of Intents (LOI) or a Memorandum of Understanding are sent to the seller to acknowledge about ongoing negotiations.
In the Italian context it is required to have all the elements in the LOI in order to have a binding agreement. On the contrary, in the International context it is often sufficient to have reached an agreement about the main elements. Such a qualification has significant consequences in case of non-compliance: if the document is binding, the party will incur in contractual liability, while a pre-contractual liabilty is the consequence of a non-binding document. The most relevant difference between these two types of liabilities is about the right to damages. The first one expires after ten years, the second one after five years.

As a consequence, a Non Disclosure Agreement is signed by the parties. The most important activity in this phase is the Due Diligence by the buyer. This action is necessary for the assessment of the asset and the identifications of the relevant risks.

Other elements are the Term Sheet (a calendar of activities), an eventual Standstill Agreement (the prohibition on conducting parallel negotiations) and Letters of Patronage (a Newco will adopt a certain conduct or will be in a certain situation at the time of the transaction).

The second stage is the Signing, in which the parties enter the agreement but the transfer of the asset has not been finalized yet. In fact, the following stage might be subjected to certain Conditions Precedent (CP), such as granting of funding, clearance of antitrust authority, or when a client has given his consent to the change of control of the target company. If the CPs are not met, the consequences will be the automatic adjustment of the contractual terms, the renegotiations clause, the penalty on the defaulting party, or the walk away clause.

The last phase is the Closing, or the execution of signing. It may consist of activities such as the payment of the purchase price, the exchange of documents, or the performance of all obligations.

The agreement is entered into when the offeree expresses its acceptance to the proposal. When can the proposal be considered effective?
In Common law system, the mail box rule applies (since it has been sent).
In Civil law system, except Germany, the knowledge principle applies (since the addressee has got knowledge of it).

Anna Rita Cognata

Anna Rita Cognata

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