Digital reprint from www.TalklawGlobal.com
This edition of TalklawGlobal is led by Anthony Kenny, Assistant General Counsel Corporate and CBS at GlaxoSmithKline. Chairing the law firm panel is Suet-Fern Lee, Senior Partner with Stamford Law in Singapore. The events in the Eurozone and the wider macro economic landscape have resulted in caution - even reluctance - to engage in M&A activity. In addition, funding is harder to come by and when it is available there are far greater demands for assurances and comfort. More and more transactions involve seeking the views of rating agencies which often adds to the complexity, as well as much greater attention from the regulatory authorities. All of this means due diligence has become central to any transaction, creating tensions between buyer, seller, funders and advisors as to how the risk associated with valuation of assets is apportioned. This edtion is led by Anthony Kenny Assistant General Counsel Corporate and CBS GlaxoSmithKline
Anthony’s questions for each jurisdiction are: Question 1) Banks financing a transaction increasingly ask that the due diligence reports provided by advisors of the potential buyer are provided to the financing banks on a reliance basis. What risks does allowing the financing banks to receive a report on a reliance basis create for the advisors? In your jurisdiction will a liability cap included in the reliance release letter protect the advisor and why? Question 2) Given the increasing challenging economic climate and the onset of more regulation throughout the world, what additional issues should potential buyers and sellers consider in your jurisdiction as part of their due diligence questions? Question 3) It is becoming increasingly common for potential purchasers to sell their due diligence reports to other buyers who come later to the process. What risks does this create in your country for the advisor who created the report?
Law Firm Panel Chair
Suet-Fern Lee Senior Partner Stamford Law
Question 4) In your jurisdiction, what are the legal issues associated with allowing companies to be named / referenced as the source for information used in an Information Memorandum, or any other document provided to investors? DISCLAIMER: Any opinions, statements or other information expressed in TalklawGlobal by the respective author(s) do not necessarily state or reflect those of TalklawMedia, the chairperson or his employer, the firm to which the author belongs or other panellists. The information submitted by the legal experts is for educational purposes only and does not create an attorney-client relationship between the reader, their firm, or any lawyer in their firm, and does not prevent any lawyer in any firm on this panel, from representing a party in any matter or manner (including taking a different position to that which he/she might have expressed or endorsed in TalklawGlobal) or serving as arbitrator, mediator, dispute board member or in any similar position based on the expression of his/her opinions on the various subjects published on TalklawGlobal. No information published on TalklawGlobal may be quoted or reproduced elsewhere without the prior written consent of the author and TalklawMedia.
Italy: Gianmatteo Nunziante, Partner, Nunziante Magrone Answer 1) In Italy as well, legal advisors are facing an increase of requests by banks to share with the latter their due diligence reports prepared for the benefit of a potential purchaser. In principle legal advisors are quite reluctant to share their due diligence with the banks, on the one hand because this entails an increase in the potential professional liability and, on the other, because due diligence reports are usually drafted and tailored according to clients’ needs which may not entirely correspond to those of the banks. Gianmatteo Nunziante Partner Nunziante Magrone Rome, Italy Tel: +39 06 695181 g.nunziante@nmlex.it
In principle a liability cap is agreed with the bank that is usually a multiple of the legal advisors fees. However, under the Italian law it must be always taken into consideration that any limitation of the liabilities shall not be valid in case of gross negligence or fraud, although this case should not, in principle, occur for legal advisors. Answer 2) First of all, specific areas of investigation may be essential depending on the areas in which the target company operates, such as environment, health and safety, anti-money laundering. Recently, with due diligence in Italy, it is becoming very important to verify corporate compliance. In particular, Law 231/2001 regulating the criminal liability of legal entities for crimes committed by their managers and employees, exempts companies from liability, if evidence can be adduced that, prior to the committing of the crime, the company adopted and effectively implemented an adequate compliance program to prevent any unlawful behavior. Therefore, during the due diligence process, it is essential to carefully verify what steps have been put in place by the company in order to evaluate if the latter can be exempted from potential criminal risks. Answer 3) In our experience it is not common to sell due diligence reports to third parties, taking into consideration that the report is usually drafted for the exclusive benefit of the client, and tends to analyze the matters that are rather of interest to them. Furthermore, it must be considered that due diligence reports usually contain a general obligation of confidentiality, that prevents the parties from disclosing the relevant content to third parties. Answer 4) As a general rule under Italian law any persons who intend to make a public offering shall give advance notice thereof to the Italian Financial Authority (“Consob�), attaching the prospectus (information memorandum) to be published. The document to be approved by Consob shall contain all the information required for investors to be in a position to proceed in a conscious acquisition. Therefore the law provides that all the information contained in the prospectus shall be true and correct. To this regards any source of information, to the extent that it is relevant for the purpose of the information memorandum, shall need to be true and correct and provided with the consent of the source. In case the information memorandum is prepared in a private transaction any information therein contained may entail liabilities for the correctness of the same, assuming in any case that a proper consent has been obtained for the disclosure. The above mentioned liability would be regulated according to the general principles of tort law.
Related Content The new due diligence risks for companies expanding abroad - online international comparative law guide: http://bit.ly/1itwKOR Talklaw M&A Network - private professional group on LinkedIn led by Suet-Fern Lee of Stamford Law: http://linkd.in/1l76CDR