Lawyers split over breakup fees in China-U.S. M&A

Foreign acquirers have been burdened to pay for this risk in the form of a termination fee. “U.S. sellers don't want to bear that risk because U.S. buyers don't bring it,” said Peter Huang, partner at Skadden, Arps, Slate, Meagher & Flom in Beijing. It's only relevant to overseas buyers, and in recent times, particularly Chinese buyers, he said.

Huang also emphasized that it's important for Chinese companies to be aware of the competitive landscape; if every other bidder is from the U.S., more risk will be allocated to the buy side.

Fang He, an outbound M&A partner at JunHe, sees differently. “It works both ways,” she said, adding that the CFIUS risk should be borne by the U.S. seller as the Chinese party can't be blamed for a review that is not known for its transparency.

It also depends on whether the Chinese party will even accept the deal of having to pay the breakup fee. She explained: “In many cases PRC buyers will have to pay a premium price in order to win the bid. Or they may consider going to other jurisdictions like Europe or Australia, where the risks are lower.” That said, many outbound transactions do not even include break fees, she added.

“There is no magic number but the ballpark figure [for a termination fee rate] is from 6% to 8% for multi-billion dollar deals,” said Huang. “We recently worked on a $6 billion deal that had a $480 million breakup fee, which is about 8%,” he said. 2% to 3% is commonly seen for smaller deals.

Huang was part of the team that advised the Anbang Insurance Group consortium on its $14 billion bid for Starwood Hotels & Resorts Worldwide in March. Marriott International, the initial and counterbidder, would have received a $450 million breakup fee if Starwood proceeded with Anbang. Anbang eventually abandoned the pursuit.

China Resources Microelectronics' $2.46 billion bid for U.S. chipmaker Fairchild Semiconductor International in December 2015 also involved a $108 million termination fee. But Fairchild deemed the offer wasn't sufficient to cover possibility of CFIUS rejection, which it called an “unacceptable level of risk” in a Securities and Exchange Commission filing. Fairchild rejected the Chinese Resources proposal on February 16 2016.

For specific industry deals more likely to be targeted by CFIUS, the seller will negotiate a better package and weigh the amount of risk of non-closure when evaluating the size of the termination fee, said Huang. This story, published by our sibling publication Corporate Counsel, highlights tips for M&A agreements with Chinese companies from a U.S. seller's perspective.

Baker & McKenzie reported that in the first quarter of 2016, $27 billion worth of Chinese outbound investment went into North America, making it the currently second-hottest target region for Chinese companies (only second to Europe, though the $46 billion ChemChina-Syngenta deal, which is subject to CFIUS review, weighed heavily in the EU figure). This is out of the total $83.9 billion in Chinese outbound M&A logged for the quarter.

Commercial risks

Breakup fees are also structured to compensate for a potential lack of funds—another area of concern for U.S. companies considering acquisitions by Chinese firms. Specifically, the foreign exchange risk of whether the Chinese buyer will be able to settle the transaction in a currency other than its own.

“More aggressive sellers will not rely on commitment letters and will want to see the money and obtain a performance guarantee from an international bank in USD,” said Huang.

Foreign sellers will need to understand where the money comes from, as well as decide whether the Chinese party will be able to execute the transaction with sufficient offshore funds. And not only is this more expensive, but it can also be difficult for many Chinese companies and state-owned enterprises unless they get significant leverage from banks.

“But in highly competitive bidding situations I often see that the Chinese buyer is willing to go the extra mile to make the seller happy,” he said.

By Katherine Jo

在中国公司追寻着境外重要目标资产的同时，监管批准和资本流出限制可能阻碍交易的成功执行。这些风险往往构成中国买方和外国卖方之间的谈判核心，各方都希望万一在交易落空的情况下都没有后顾之忧。

反向终止费为不能成交的风险作出赔偿。对中国买方而言，未能取得中国对外投资监管批准是一个重要问题；而美国外国投资委员会（CFIUS）负责审查被认为涉及国家安全要素的国内交易，这对中美并购双方而言是更大的担忧。

2016年2月19日发布的最新一期CFIUS年度报告显示，自2009年来，申报数量的增长幅度超过200%。2014年的增长行业包括科技、半导体和电子零部件制造、专业科技服务和软件出版。

在2012、2013和2014年，中国公司的申报总数分别为23、 21和24件。

外国买方以终止费形式为这一风险买单。美国世达律师事务所北京代表处合伙人黄小霈表示：“美国卖家不愿承担这一风险，因为美国买家不会带来这一风险。”他说，此风险仅与海外买家相关，就近期而言，尤其与中国买家相关。

黄小霈也强调中国公司要意识到整个竞争格局, 这是重要的；如果其他每个竞投人都来自美国，更多的风险就会分摊到买方一边。

君合律师事务所对外并购合伙人何芳持不同观点，“影响是双方面的。”她表示，CFIUS风险应当由美国卖方承担，不能因不透明的审查而将责任归咎于中国当事方。

这还取决于中国当事方甚至是否接受须支付终止费的交易。她解释道：“在许多案例中，中国买方不得不支付溢价来赢得竞标。或者他们可能考虑去其他风险较小的司法管辖区，例如欧洲或澳大利亚。”她还补充说，许多对外交易甚至都不包括终止费。

“[终止费率]没有神奇数字，但大致金额是数十亿交易的6% 到8%，”黄小霈表示。“最近我们在从事一笔60亿美元的交易，终止费是4.8亿美元，约占8%，”他说。对规模较小的交易而言，2%到3%的费率则更为常见。

黄小霈的团队就安邦保险集团联合体在三月以140亿美元竞投喜达屋酒店与度假村国际集团提供法律咨询。如果喜达屋与安邦继续交易，万豪国际（最初竞投人和反竞投人）将获得4.5亿美元终止费。安邦最终放弃了交易。

华润微电子在2015年12月以24.6亿美元竞投美国芯片制造商Fairchild 半导体国际公司也涉及1.08亿美元的终止费。但是Fairchild认为要约不足以承担CFIUS拒绝的风险，在向美国证券交易委员会的申报中将此称为“不可接受的风险水平”。Fairchild在2016年2月16日拒绝了华润提议书。

黄小霈指出，对于CFIUS更可能针对的特定行业交易，卖方将会为一个更好的组合而谈判，并在评估终止费时衡量不能成交的风险金额。本刊姐妹期刊《Corporate Counsel》中的一篇文章通过美国卖方的视角，列举与中国公司订立并购交易的注意事项。

根据贝克麦坚时律师事务所的报告，2016第一季度，价值270亿美元的中国对外投资流入北美地区，成为目前中国公司第二大热点目标地区（仅次于欧洲，但受CFIUS审查的中国化工 – 先正达460亿美元的交易大部分计入欧盟数据），而第一季度中国对外并购的总额为839亿美元。

商业风险

终止费也是为了补偿可能出现的资金短缺，这是考虑被中国企业收购的美国公司另一大担忧，尤其是中国买方是否能以人民币以外的货币结清交易的外汇风险。

“许多强势的卖家不仅依赖于承诺书，而且要看到资金，并取得国际银行出具的美元履约担保，”黄小霈表示。

外国卖家不仅需要了解资金来源，还要决定中国方面能否以充足的离岸资金执行交易。这样, 除了使交易更加昂贵外, 对于许多中国公司和国有企业而言，除非他们能从银行取得大量杠杆式借贷，否则也是困难。

黄小霈也指出：“但在竞争激烈的竞投情况下，我常常看到中国买家愿意付出更多来让卖家满意。”

（作者：赵修敏）