New Environmental Bureau to Regulate China’s Natural Resources

Posted in Environment

By Paul Davies, Bridget Reineking, and Andrew Westgate

President Xi has announced the creation of a new environmental bureau to oversee China’s state-owned natural resources. Establishment of the new bureau is one of the most notable outcomes of the recent meeting of the 19th National Congress of the Communist Party, and follows Xi’s pronouncement that building an “ecological civilization” in his country is necessary for the continued development of the Chinese people.

Currently, China’s natural resources are administered by a set of localized bureaus, which oversee natural resource assets without a centralized national monitor. Local governments are responsible for staffing and funding these bureaus, so economic agendas and industrial development have directed local environmental efforts for years. Frequently, local governments have stripped the protection bureaus of the ability to impose penalties or otherwise enforce environmental compliance measures. And even if the bureaus receive staff and funding, regional and local needs are generally at odds, often causing untimely and frustrating backlogs regarding the uses of resources and land. Without national coordination, even the best-intentioned regulators working for these bureaus have struggled to implement environmental policies. Continue Reading

Can Overseas Bidders Guard Against M&A Risks in An Increasingly Economically Nationalist Europe?

Posted in M&A and Private Equity

By Richard Butterwick, Jonathan Parker, Jana Dammann and Katie Campbell

Growing economic nationalism is threatening to impact M&A across Europe, as governments and regulators take an increasing interest in “foreign” acquisitions of nationally important companies. Deal teams have previously focused on established national security review regimes, including the Committee on Foreign Investment in the US (CFIUS) and the Foreign Investment Review Board in Australia. Now legislative changes in Germany, proposed changes and heightened government interest in the UK and recent statements from the European Commission (EC) indicate a more interventionist approach to acquisitions.

Germany Increases Powers to Scrutinise and Block Sensitive Deals

Recently implemented changes to the German Foreign Trade and Payments Ordinance (FTPO) regime allow the German government to scrutinise and block direct and indirect acquisitions by non-EU bidders of German companies active in security-sensitive areas. The affected industry sectors subject to potential review are broad and include energy, water, nutrition, information technology, healthcare, financial services and insurance, transport and traffic, and software. The changes will affect German inbound deals, which we anticipate will be subject to a greater number of investigations and a stricter approach from the regulator. Continue Reading

French HOP Complaint May Test Whether Planned Obsolescence Is a Misdemeanour

Posted in Environment

By Paul Davies and Michael Green

In August 2015, the French government amended the French Energy Transition Law to include provisions rendering “planned obsolescence” a misdemeanour. In the latest wording of the provisions, article L.441-2 of the Consumer Protection Code (Code de la consommation) defines planned obsolescence as “… resorting to techniques whereby the entity responsible for the placement of a product on the market deliberately intends to shorten [that product’s] life span in order to increase its rate of replacement”. Interestingly, this is the French government’s second attempt to define planned obsolescence since introducing the provision two years ago.

Violation of the prohibition on planned obsolescence carries a potential two-year prison sentence and a criminal fine of up to €300,000. As an added deterrent, the law further provides that the courts may increase the fine to up to 5% of the annual turnover of the entity concerned (based on the average of the entity’s turnover in the three years prior to the date of the offence). The courts will therefore have the option of increasing a fine, provided the fine is proportionate to the infringing party’s gain (see Consumer Protection Code, art. L.454-6). Continue Reading

Factories Shut Down Across China in Unprecedented Environmental Crackdown

Posted in Environment

By Paul Davies, Bridget Rose Reineking, and Andrew Westgate

In recent months, teams of inspectors from China’s Ministry of Environmental Protection and the Communist Party’s anti-corruption commission have conducted a slew of surprise inspections of various industrial facilities throughout China. Estimates suggest that China has temporarily closed as many as 40% of the country’s factories at some point in the last year — sometimes for weeks at a time. The recent crackdown is the fourth in a series of region-wide inspections that began in July 2016, which together amount to some of the most dedicated and comprehensive efforts to enforce environmental compliance in the country’s history.

China’s somewhat urgent enforcement of environmental laws appears — at least in part — motivated by China’s 2013 pledge to reduce emissions from heavily polluting industries by 30% before the end of 2017. Earlier this month, the country ramped up environmental pledges at the 19th National Congress of the Communist Party, announcing an ambitious plan to reduce the concentration of hazardous fine particulate matter (PM2.5) from 47 micrograms in 2016, to 35 in 2035, reported Xinhua, the China’s official press agency. Continue Reading

Distributed Ledger Technology in the Financial Market Infrastructure

Posted in Emerging Companies and Technology, Finance and Capital Markets

By Andrew Moyle and Stuart Davis

The Project Stella report, a European Central Bank (ECB) and Bank of Japan (BOJ) joint venture, details the applicability of distributed ledger technology for financial market infrastructure. During a one-month research project, the central banks tested whether distributed ledger technology (DLT) could sustain the liquidity saving mechanisms — a system introduced in 2013 to ensure the liquidity of banking institutions — in their current real-time gross settlement systems (RTGS).

Published in September 2017, the report concluded that DLT solutions have the potential to increase the resilience and reliability of financial transactions and are scalable to meet the needs of large value payment systems, but they have not yet reached the level of maturity needed to replace the RTGS that the ECB and BOJ currently use. The findings on the scalability of DLT are important, because regulators such as ESMA and FCA have previously questioned whether DLT could be scalable enough to meet the needs of the financial market infrastructure. Continue Reading

Italy Issues New Rules on Hostile Foreign Takeovers and Golden Powers

Posted in Finance and Capital Markets

By Antonio Coletti, Stefano Sciolla, and Isabella Porchia

The Italian Council of Ministers has approved law decree no. 148 (the Decree), extending the disclosure requirements on stakebuilding in Italian listed companies and the Italian government’s so-called “golden powers”. The government may exercise these powers — veto or special conditions — in connection with extraordinary transactions involving companies conducting business in strategic sectors (such as defence and national security).

The first aspect of the Decree deals with stakebuilding. In addition to the ordinary disclosure requirements regarding significant holdings in Italian listed companies, investors building up stakes equal to or higher than 10%, 20%, or 25% must disclose their intentions for final ownership to the Italian Securities Commission and to the target listed company six months after reaching the relevant percentage. Continue Reading

Cyber Risk a Modern Concern for M&A Dealmakers

Posted in Data Protection, M&A and Private Equity

By Gail Crawford, Mark Sun and Katie Campbell

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Amid a growing number of high-profile corporate data breaches, cybersecurity is now a key issue for strategic acquirers. The hack of Yahoo, which came to light midway through its 2016 takeover by Verizon, resulted in a US$350 million purchase price reduction. The true extent of the hack has only recently been uncovered, demonstrating how damaging a large-scale data leak can be. With state-sponsored actors and opportunist hackers at work, and recent cyberattacks specifically aimed at obtaining inside information about transactions, a target’s cybersecurity must be front of mind. In our view, deal teams must consider how a data breach could impact a potential acquisition, before, during and after a deal.

Preparing for a Transaction — What Should M&A Deal Teams Scrutinise?

M&A deal teams must identify a target’s cyber assets and review security protocols and cyber defences, emphasising thorough technical due diligence. Diligence should include how data is stored and managed, where it is handled, and the data security measures implemented by third-party service providers. Acquirers should assess data sets including personal information, focusing on why information is being stored and whether storage is necessary and proportionate.

Acquirers should be alert to red flag issues; for example, lack of awareness about data protection and cyber issues; poor employee training on data security; failure to keep records of historic breaches; and regulatory investigations. Addressing poor practices post-close requires time and resources — buyers may prefer to factor costs into the purchase price, or require pre-closing remediation. Continue Reading

Traditional UK Employment Law Means Gig Economy Transactions Could Be Hard Work For M&A Deal Teams

Posted in M&A and Private Equity

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By Sarah Gadd and Katie Campbell

Companies operating in the “gig economy”, using a largely self-employed workforce, have enjoyed enormous growth in recent years and have made popular M&A targets. In the UK, these companies have come into conflict with long-established employment law. In our view, current laws are not fully equipped to deal with staffing models in which staff and companies alike seek more flexibility than the traditional “masterservant” employment relationship affords. For M&A deals in which business models operate on the basis that a significant proportion of the workforce is selfemployed, acquirers should consider the real nature of the working relationship to assess the risk of staff being reclassified as workers or employees. Reclassification is not only an issue in the newer gig economy sector but also in industries operating a self-employed model, particularly if small, independent businesses become part of larger corporate entities. Continue Reading

President Xi Jinping Pledges Sustainable Development to Build a “Beautiful China”

Posted in Environment

By Paul Davies, Bridget Rose Reineking and Andrew Westgate

At the 19th National Congress of the Chinese Communist Party, President Xi Jinping asserted his country’s emerging leadership in environmental stewardship and pledged to build a “beautiful China”. In his speech to the 2,300 delegates and guests assembled for the Congress’s opening session, President Xi lauded China’s burgeoning role as a global marshal of environmental reform.

Xi’s speech follows major efforts to reduce energy consumption and conserve resources across China — such as green finance initiatives facilitating lending to firms in environmentally friendly sectors; programmes for the development of alternative energy sources; and efforts to strengthen and enforce environmental laws and regulations. President Xi pointed to these efforts and proclaimed that China’s pursuit of sustainable development is both paying off domestically, and setting an example globally.  Continue Reading

Innovative Insurance Products Address Legal Issues in Public M&A

Posted in M&A and Private Equity

By Richard Butterwick, Stuart Alford and Katie Campbell

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Dealmakers’ appetite for transactions involving publicly listed companies remains strong — 2016 saw an increase in deal volume, a trend which continues into 2017. However, deals remain challenging, partly due to limitations on bidder deal protections and financing requirements. In response, innovative products have been developed by the insurance industry of provide solutions. In our view, these insurance products will help some bidders or public companies overcome perceived barriers to success in the UK market.

Takeover Code Requirements

Concern over Kraft’s 2009/2010 acquisition of Cadbury prompted a strengthening of deal requirements from bidders by the Takeover panel. This new approach — which the UK Takeover Code (the Code) enshrines — includes a general prohibition on certain deal protection measures on public acquisitions, such as “break fees”. A break fee is a fee that a seller or target company agrees to pay to another party (typically the bidder), if a specified event causes the transaction to fail. Further, Code cash confirmation rules require bidders to launch offers for public companies with “certain funds” financing in place, that a financial adviser has publicly confirmed to exist.

Combined, these factors influence how prospective bidders approach takeovers. Insurance market innovation has begun to address these issues, developing new products to help de-risk deals and navigate Code requirements. Continue Reading