Law 610: Individual Research Paper (AY 23/24 Term 2)
Law 610: Individual Research Paper (AY 23/24 Term 2)
Instruction:
Please read the following paragraphs of facts and answer the questions after the paragraphs. (Word limit: 1500 words)
Facts (The following facts are purely fictitious.)
Evelite is a Cayman Island-based private equity fund. It is looking for a food and beverage company to take it private or take over its control. Like other private equity funds, Evelite depends heavily on debts to acquire targets. After surveying the market, Evelite has focused on two potential targets. The backgrounds of these targets are as follows.
The first potential target, ABC, was founded by Jack, a Chinese national, and incorporated in the US state of Delaware. ABC is a food manufacturer whose products are mainly sold to the Chinese market. ABC applies mature technology and invests little in R&D. It has a stable revenue and a relatively small number of debts.
Since 2006, ABC has been listed on the New York Stock Exchange (NYSE). ABC has a dual-class structure. Class A common stocks have one voting right per share, and Class B common stocks have ten voting rights per share. Jack holds 12% of Class A common stocks and all the Class B common stocks. That gives him a total of 65% of voting rights in ABC. ABCs other shareholders are mainly institutional investors. ABC doesnt have outstanding preferred stocks.
ABCs board of directors is composed of 8 members including Jack who serves as CEO and Chairman of the board. Among the other 7 board members, 5 are independent directors and the remaining two are, respectively, ABCs CFO and COO both of whom are Jacks close friends.
The second potential target, DEF, was founded by Jane, also a Chinese national, and incorporated in Singapore. DEF is a food and beverage manufacturer whose products are mainly sold to the Southeast Asian market. DEF invests little in R&D but is expected to invest substantially in market expansion in the next few years. Its cashflow grows modestly in recent years and its debt-to-equity ratio is slightly higher than that of ABC.
Since 2018, ABC has been listed on the Singapore Exchange (SGX). DEF does not have a dual-class structure, so each share of DEF common stocks has one voting right. Jane holds 33% of DEF common stocks. As the founder and CEO, Jane exercises effective operational control over the company. DEFs other stockholders are mostly retail investors with less than 3% shares on average. DEF doesnt have outstanding preferred stocks.
DEFs board of directors is composed of 5 members including Jane. The Chairman of the DEF board, together with the third board member, are independent directors. The remaining two are DEFs General Council and COO, both of whom are Janes friends.
Based on the preliminary communications with, respectively, Jack and Jane, Evelite believes that they both are willing to sell their shares. If needed, they are also open to make a firm commitment to vote for the takeover deal by Evelite. From the business perspective, ABC and DEF are nearly of equivalent value to Evelite.
Questions
Your law firm is engaged by Evelite to advise on this potential going private deal. You are the M&A partner at your law firm in charge of this engagement. As the first step, your client wants you to provide an opinion about which target to deal with. Besides, it also wants to have your opinion on the legal structure of the deal once the target is determined. How will you advise Evelite on these two issues?
In answering this question, you can assume that a proper NDA will be signed when necessary. You do not need to discuss anti-trust, national security or other regulatory approval issues.
