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Arbitration in Merger and Acquisition Transactions QUEEN MARY UNIVERSITY OF LONDON SCHOOL OF INTERNATIONAL ARBITRATION ARBITRATION IN MERGER AND ACQUISITION TRANSACTIONS PROBLEM OF CONSENT IN PARALLEL PROCEEDINGS AND IN THE TRANSFER OF ARBITRATION AGREEMENTS IN MERGER AND ACQUISITION ARBITRATION BY CAHIT AGAOGLU THESIS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY LONDON, 2012 Under the supervision of: Prof. Loukas A. Mistelis 1 ACKNOWLEDGMENTS This thesis is the product of years of research I conducted in London. In that time, I have worked with a great number of people whose contribution in assorted ways to the research and compilation of this thesis deserves special mention. It is a pleasure to convey my gratitude to them all in my humble acknowledgment. I would like to record my gratitude to Prof. Loukas A. Mistelis for his supervision, advice, and guidance from the very early stage of research, in addition to his extraordinary insight, throughout the work. Above all, he provided me all the necessary facilities and support in various ways. I take this opportunity to record my sincere thanks to all members of the School of International Arbitration for their enduring assistance. It was truly a pleasure to work with you all. I would like to acknowledge the financial support of ARKAS Holding, particularly Önder Türkkanı, CEO of Arkas Holding. The library facilities notably the Institute for Advanced Legal Studies have been indispensable. Special thanks go to my friends Emre and Yasin for their support and encouragement and also for their kind friendships. I wish to express my sincere appreciation to my family. This thesis would never have been completed without the encouragement and devotion of my family. This thesis is dedicated to my family. Cahit AĞAOĞLU London June 2012 2 ABSTRACT ARBITRATION IN MERGER AND ACQUISITION TRANSACTIONS PROBLEM OF CONSENT IN PARALLEL PROCEEDINGS AND IN THE TRANSFER OF ARBITRATION AGREEMENTS IN MERGER AND ACQUISITION ARBITRATIONS (Thesis for Doctorate of Philosophy) Cahit AGAOGLU Merger and acquisition (M&A) transactions have increased dramatically both in number and volume around the world in the last decades. Further to these increases, disputes regarding M&A transactions are often referred to arbitration as a consensual and private mechanism which is flexible, given the freedom of the parties to select arbitrators and to adjust the process according to their needs. This study undertakes to address and examine the long and complex processes in merger and acquisition transactions in light of the emerging preference for utilising arbitration in disputes arising therein. Therefore, M&A arbitration faces certain difficulties in coping with every dispute during the transaction, a number of which the author seeks to underline. In the thesis, two main problems of arbitration in M&A Transactions have been covered. Firstly, the problem of consent in consolidation of parallel proceedings during M&A transactions, and, secondly, parties consent validating arbitration agreements/clauses in “assignment” or “succession” after M&A transactions have been completed. The very approach of the thesis proposes whether academic analysis of the subject matter can be best conducted by separation along the many phases of the long and complex process of M&A and whether it is fruitful to examine these phases individually to obtain the greatest insight. Following the dissection of the different phases of M&A transactions, the nature and operation of arbitration in possible disputes arising out of different phases of M&A has been studied. It is also argued that the utilisation of arbitration will and should provide some ideas toward clarifying the content of consent of parties to a transaction. In demarcating the phases and critical stages in M&A transactions, perspective of the problems posed by parallel proceedings is enhanced. Developing on this rich background, argument develops the idea that the logic of consolidation in arbitration and can have pragmatic application to different alternative dispute resolution (ADR) clauses too. The expansive application of consent in M&A arbitration will be tested against those different ADR methods which do not have a binding effect. On the subject of consolidation in M&A transactions, it will be argued that it is necessary not only to focus on the intention of parties, but it is also unavoidable to concentrate on surrounding relevant facts arising in different phases of M&A transactions, given the recent doctrinal developments in academia and practice. Diverging views which have emerged in order to determine consent are explored alongside their respective theories of consent. The specific importance of consent in the transfer of arbitration agreements has been examined in respect of assignment and succession. The existing rules and approaches outlined in many publications will be challenged, and arguments against their automatic application in M&A transactions will be presented in favour of an expansive approach paying attention to the fluency of facts, similar to that employed in consolidation of parallel proceedings. In examining whether current regulation is suitable given the popular emergence of M&A arbitration, the author will propose how deficiencies and inconsistencies in the area can be rectified looking forward in the form of guidelines. 3 ABSTRACT .................................................................................................................... 3 ABBREVIATIONS......................................................................................................... 7 INTRODUCTION ........................................................................................................ 13 PART I : THEORETICAL FOUNDATIONS ........................................................... 41 CHAPTER I: CHRONOLOGICAL PHASES OF MERGER AND ACQUISITION TRANSACTIONS ............................................................................ 42 A) Introduction ......................................................................................................................... 42 1) Negotiation phase ................................................................................................................. 49 a) Preliminary Contacts ........................................................................................................................ 49 b) Letter of Intent .................................................................................................................................... 52 b-1) Delimitations of the notion .............................................................................................................. 55 b-2) Related Instruments ........................................................................................................................ 56 1) Options ...................................................................................................................................... 56 2) Confidentiality Agreements ..................................................................................................... 56 3) Variations in Terminology ....................................................................................................... 57 4) Pre-Contractual Agreements and Promises to Contract ...................................................... 58 5) Bilateral (or Multilateral) and Unilateral Letters of Intent .................................................. 58 b-3) Content ............................................................................................................................................. 59 1) Necessary Clauses ..................................................................................................................... 59 2) Optional Clauses ...................................................................................................................... 59 3) Legal Nature ............................................................................................................................. 60 3.1. Does the Letter of intent amount to a Contract? ........................................................................... 60 3.2. Does the Letter of Intent amount to a Promise to Contract? ....................................................... 63 3.3. Is the Letter of Intent an Offer? ...................................................................................................... 64 b-4) Legal Effects ..................................................................................................................................... 64 b-5) Contractual Interpretation and Completion ................................................................................. 67 c) Due Diligence ....................................................................................................................................... 68 2) Signing Phase (Purchase Agreement) ................................................................................. 70 3) Closing Phase (Completion) ................................................................................................ 71 4) Post-Closing Phase ............................................................................................................... 73 B) Conclusion of Chapter I ..................................................................................................... 74 CHAPTER II : ARBITRATION AND MERGER AND ACQUISITION TRANSACTIONS .......................................................................................................
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