M&A Boot Camp booklet 2023 - Flipbook - Page 36
B.
Hazards of using a fully binding letter of intent – if the parties are unable to
negotiate a definitive acquisition agreement on their own, a court could be called
upon to fill in the missing terms
C.
Why use a letter of intent (instead of proceeding directly to a definitive
acquisition agreement)?
D.
E.
1.
Provides the acquirer with an opportunity to get certain binding provisions
into place at an early stage (such as a “no-shop” provision and a provision
regarding control of publicity)
2.
May facilitate compliance with regulatory requirements (such as the HartScott-Rodino Antitrust Improvements Act)
3.
May facilitate dealings with third parties (such as potential lenders)
4.
Provides a useful framework for subsequent negotiations; makes
subsequent negotiations more focused
5.
May be treated by the parties as creating a “moral” obligation, even if not
legally binding
Potential disadvantages of using a letter of intent
1.
Securities law disclosure issues
2.
Practical difficulty of keeping a signed letter of intent confidential
3.
Risk that a court may find that a letter of intent creates a duty to negotiate
in good faith or other binding obligations, even where the parties did not
intend to be bound
4.
Possibility that the preparation and negotiation of a letter of intent may
delay the ultimate execution of a definitive acquisition agreement and may
result in extra expense
5.
May place one of the parties at a disadvantage in negotiating the
acquisition agreement
Use of term sheets – a term sheet offers some of the advantages of a letter of
intent (such as providing a useful framework for future negotiations); however,
because a term sheet is typically not signed by the parties, it does not provide the
acquirer with the opportunity to put binding provisions (such as a “no-shop”
provision) into place, and it does not enable the parties to make Hart-ScottRodino Act filings
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