SINGAPORE CONFERENCE 2007 CROSS BORDER STRATEGIC ALLIANCE IDENTIFYING THE KEY CHALLENGES

Transcription

1 CROSS BORDER STRATEGIC ALLIANCE Co Chair: Chris Owen, Manches LLP, London Amir Singh Pasrich, International Law Affiliates, New Delhi Memorandum of Understanding Introduction/ Overview Brewco Ltd is a brewery based in Northland (a country in a land far away) seeking an overseas market for its well known domestic lager, Gulliver s Beers. Lagerput Ltd is a drinks distributor based in Southland (another country) looking to add to the quality brands it markets through its own chain of bars and pubs and through other retail outlets. Objectives of the Joint Venture: 1. A joint venture between Brewco Ltd and Lagerput Ltd to launch Brewco Ltd s premium lager, Gulliver s Beers, in both draught and packaged form in Southland. The joint venture will be run through a new company, Newco, to be established in Southland and owned jointly by Brewco and Lagerput (in the ratio 3:2). 2. Lagerput Ltd to provide the know-how (in respect of retail and pub expertise, brand development and marketing techniques) and to establish facilities to enable Newco to market Gulliver s Beers on draught in Southland and at a later stage, to acquire brewing facilities to enable Gulliver s Beers to be brewed in Southland. 3. Brewco Ltd to supply Gulliver s Beers on draught on a national basis to beer retailers in Southland commencing with the Lagerput Ltd retail networks. The Structure Stage 1 Brewco Ltd and Lagerput Ltd will agree the following documents: Joint Venture Agreement Supply Agreement the terms on which Brewco Ltd will supply the beer to Newco Distribution Agreement the terms on which Lagerput Ltd will use its existing retail chain to distribute the beer Shareholders Agreement regulating the management and operation of Newco Key company constitutional documents for Newco A Newco operating policy document An investment memorandum regarding the raising of finance for Newco (together the Transaction Documents )

2 Page 2 Stage 2 The following events will take place simultaneously: Newco to issue shares to Brewco Ltd and Lagerput Ltd in the ratio 3:2 in exchange for Brewco Ltd and Lagerput Ltd contributing $3 million and $2 million respectively in cash The introduction of third party finance from ABC Bank and the execution of a $5 million Loan Facility Agreement by Newco The Transaction Documents to be executed Finance ABC Bank will provide a loan facility of up to $5 million in cash and will be taking a charge over Newco s assets. The Plan The objective is for Newco to be making profits with an independent management team within 2 years and for Gulliver s Beers to be a household name within 3 years. Other Key points It is envisaged that Brewco Ltd and Lagerput Ltd will co-operate when giving any necessary undertakings to secure financing Profits will be split between Brewco Ltd and Lagerput Ltd in the ratio 3:2 Transaction Overview Brewco Ltd Lagerput Ltd $3 million $2 million 60% shareholding 40% shareholding ABC Bank $5 million loan Newco Legal Charge

3 Page 3 The Tasks Task 1 Please would the participants at your table go round the table introducing yourselves to each other in turn. Please can you provide: - professional details: jurisdiction; name of firm; experience and specialisation; - non-professional interests: e.g. scuba diving, heavy metal guitarist etc; and - an interesting item of personal information Then your table must choose a name by which your firm will be known for the rest of the programme. (Consider in particular the method by which your group will make this decision). (You have 15 minutes to complete this task). Task 2 Identify: 1. What cultural, legal, practical or other barriers do you envisage in implementing the transaction? 2. Your suggestions for overcoming these barriers; 3. The specific proposals you would make to the committee established to manage the launch of the Joint Venture under the terms of the Newco operating policy document to take account of and overcome these barriers? (You have 20 minutes to complete this task).

4 Page 4 Task 3 You have received either 1) a document entitled Commercial Issues for Brewco Ltd or 2) a document entitled Commercial Issues for Lagerput Ltd. Please summarise in writing your firm s (i.e. your table s) advice in dealing with the issues raised by your client at the end of each of the following questions. If you need additional space you are welcome to write on the back of that page, but please write legibly and as succinctly as possible listing major points of relevance and precautions to be taken. A spokesperson from your firm may be required to respond to questions from the floor or from the facilitators to clarify the advice. (You have 50 minutes to complete Task 3).

5 Page 5 Commercial Issues of Brewco Ltd 1. Gulliver s Beers is a successful and popular brand of beer with a huge potential worldwide. Brewco is worried that an unsuccessful launch in Southland will damage the world wide reputation of the brand. What is the nature of the licence Brewco should be prepared to give Newco in relation to Gulliver s Beers? How can Brewco protect its brand name? 2. Brewco is concerned that the alcoholic beverages market in Southland may be saturated. To make sure that Gulliver s Beers becomes a best seller, Brewco might have to sell it at a discount for the first few years. Brewco has raised this with Lagerput Ltd who are uneasy about the idea of trading at a loss. How should Brewco deal with potential strategic disagreements? How are you going to deal with a deadlock on strategy?

6 Page 6 3. Brewco wants Lagerput Ltd to use its existing retail networks in Southland to market the beer. Unless there are clear obligations, Brewco fears Lagerput may focus on other projects. What framework should Brewco put in place to measure and control the performance of the parties to the Joint Venture? 4. Brewco is worried that the new anti smoking laws which will soon come into effect in Southland could depress the alcoholic beverages market. How can Brewco ensure that it can exit the Joint Venture if things go badly?

7 Page 7 5. Brewco is concerned about Lagerput s reputation for exploiting its workforce and wants to introduce clear guidelines on this issue. How would Brewco achieve this? 6. Brewco knows little about the laws and court system of Southland. How can Brewco make sure that all disputes are heard in the Courts of Northland? Should disputes be resolved by Court proceedings or should they be referred to arbitration?

8 Page 8 Commercial Issues of Lagerput Ltd 1. Lagerput is a well-known beer chain in Southland. If Gulliver s Beers does not become a successful brand in Southland, its bars and pubs may become less popular and its young, trendy customers may decide to go elsewhere. Brewco, on the other hand, has no existing presence in Southland. If Gulliver s Beers does not become a market leader in Southland, Lagerput is concerned that Brewco may cut their losses and terminate the joint venture. For this reason, Lagerput would like to make it difficult for Brewco to unwind its financial commitments to Newco for at least 5 years. How can Lagerput prevent Brewco from terminating the Joint Venture at short notice? How can Lagerput protect its brand name Lagerput? 2. Lagerput currently distributes and retails other brands of beers. Lagerput wishes to remain free to market the beers of other brands. Lagerput wants ideally a specific acknowledgement from Brewco that it will be free to market other beers but does not want to upset Brewco. What are the options available to Lagerput?

9 Page 9 3. If Newco is a success, Lagerput wants to be able to extract profits out of the Joint Venture in an efficient way. Lagerput also wants to make sure that appropriate arrangements are in place to get additional third party finance. What are the potential structural implications of this? 4. Although Lagerput will only be taking 40% of the shares in Newco, Lagerput is reluctant to accept only 40% of the voting rights. Lagerput believes that it knows how to launch a successful beer in Southland. This raises corporate governance and deadlock issues. How can Lagerput stop being vetoed on key board decisions?

10 Page Brewco is a company with whom Lagerput have had dealings in the past and who have a proven track record. Lagerput cannot, however, ignore the fact that it does not know how Brewco operates. What corporate governance structures for Newco should be put in place to give Lagerput comfort on these issues? 6. Lagerput knows little about the laws and court system of Northland. How can Lagerput make sure that all disputes are heard in the Courts of Southland? Should disputes be resolved by court proceedings or should they be referred to arbitration?