This speech was made at "Pulp and Paper Outlook 2007".
Part One
Case Summary
Case Summary
In 2004, we were retained to provide our whole-procedure legal service to a foreign company in its acquisition of a paper mill in North China.
The Target company is a leading company in Chinese market. The total amount of investment involved in this case exceeds USD 20,000,000.
Case Summary
The services we have rendered in this case included:
legal due diligence, design of the transaction scheme, coordination and negotiation, and preparation for legal documents.
Part Two
General Procedure of Acquisition
General Procedure of Acquisition
勏 Information Disclosure
勏 Preliminary Research
勏 Project Evaluation
General Procedure of Acquisition
勏 Due Diligence
勏 Asset Appraisal
勏 Acquisition Agreement
General Procedure of Acquisition
勏 Articles of Association
勏 Administrative Approval
勏 Industry and Commerce Registration
勏 Payment of Consideration
Part Three
Legal Due Diligence
Concept of Legal Due Diligence
劔 Investigation on the legal status of the target company
劔 Evaluation of the existent and potential legal risks in the acquisition
劔 Comment and Suggestion on the feasibility of the transaction
Procedure of Legal Due Diligence
勏 confidential agreement
勏 questionnaires
勏 interview with the relevant persons of the target company
勏 investigation in governing authorities
Procedure of Legal Due Diligence
勏 examination of the documents, materials and information collected in the interview and investigation
勏 further interview and investigation (if necessary)
勏 due diligence report
Key Points of Legal Due Diligence
刓 Basic Information
刓 History Evolution
刓 Ownership and Organization
刓 Personnel
Key Points of Legal Due Diligence
刓 Operations (licences, approvals...)
刓 Finance
刓 Assets
刓 Contractual Obligations
刓 Legal Proceedings
Case Analysis
Background of the Target Company
- private company
- advanced technology and facilities
- actually controlled by a ¨group company〃
Case Analysis
the work we did during the investigation
- issued questionnaires to the management of the Target and the management of the ¨Group Company〃;
- conducted the interviews with the officials of the Target and the ¨Group Company〃;
Case Analysis
the work we did during the investigation
- conducted the investigation in the local governing authorities, including the Administration for Industry and Commerce, Environment Protection Bureau, Labor and Social Security Bureau, Land Resources Bureau, the House Property Bureau and other related authorities
Case Analysis
the problems we focused on
A. the Connection between the Target and the ¨Group Company〃
Case Analysis
I. Most of the Targetˇs major shareholders are also the shareholders of the ¨Group Company〃; all the Targetˇs directors are directors of the ¨Group Company〃;
Case Analysis
II. When establishing the Target, its shareholders, to fulfill the contribution, have taken the assets which should legally belong to the ¨Group Company〃;
Case Analysis
III. The ownership of the land used by the Target is owned by the Target while the buildings was built by the ¨Group Company〃
Case Analysis
IV. The production equipment of the Target are purchased by the ¨Group Company〃 and provided to the Target;
Case Analysis
V. The raw materials used by the Target is imported by the ¨Group Company〃;
Case Analysis
VI. Part of the electric power used by the Target is supplied by the electricity company controlled by the ¨Group Company〃;
Case Analysis
VII. The Target is using the trademark belonging to the ¨Group Company〃;
Case Analysis
VIII. The local tax intended to be borne by the Target is paid by the ¨Group Company〃;
Case Analysis
IX. Both parties have no written documents evidencing that the Target has owed a huge amount of debt to the ¨Group Company〃.
Case Analysis
X. There is a mixture of the assets, funds and expenses between the ¨Group Company〃 and the Target.
Case Analysis
the problems we focused on
B. the Confirmation of the Targetˇs Property
Case Analysis
a. Land
b. Buildings
c. Material equipments
Case Analysis
the problems we focused on
C. Environment Protection
Case Analysis
The Target does get underground water in its production while not obtaining the Permit for Taking Groundwater.
A project of the Target has not obtained the approval from the local Environment Protection Bureau.
Case Analysis
the problems we focused on
D. Labor and Social Security
Case Analysis
a. The Target has not paid social security fee complying with the laws and regulations of the state.
b. The employees of the Target should be lawfully settled, and the labor relationship with some key persons of the Target shall be well kept.
Case Analysis
Our suggestion on the arrangement of the transaction
WFOE or JV ?
Equity Purchase or Asset Purchase?
Case Analysis
WFOE or JV
In a WFOE, the foreign investor will have its exclusive decision-making power.
If case of JV, the domestic investorˇs commercial resources in the local area may help the development of the company.
N Please note: any restriction for WFOE?
Case Analysis
Equity or Asset
Equity purchase is generally the simplest and quickest method to complete, and it will help the company to retain some special license or qualification.
In an asset acquisition, the acquirer may acquire select assets and liabilities of the target. There, consequently, is an opportunity to carve out unwanted assets and liabilities, and avoid some legal risks.
Case Analysis
Solution:
勏 Set up a WFOE in China;
勏 Purchase the assests of the Target;
勏 Enter into non-competition agreement and long-term supply agreement with the ¨Group Company〃.
Thank You!
Thanks for your Trust and Support !
