Legal risks in M&A of overseas manufacturing enterprises

Earlier this month, China National Chemical Corp (ChemChina) announced that it made an offer of US$43 billion to acquire 100% equity of Swiss agrochemical giant Syngenta International. Once completed, this is expected to be the biggest overseas acquisition deal by a Chinese company to date. In recent years, an increasing number of Chinese manufacturing enterprises have ventured abroad for merger and acquisitions (M&A) of overseas manufacturing enterprises. Using the ChemChina acquisition deal as an example, this article is a brief analysis of common legal risks during different stages of the deal that Chinese enterprises may face when investing in overseas manufacturing enterprises.

Merging and acquiring overseas manufacturing enterprises usually involves stages such as deal structuring, due diligence on assets and intellectual property, negotiation, execution, announcements, foreign investment review, anti-monopoly review, financing, closing, and integration. Each stage may present different legal risks.

Deal structuring

Merging and acquiring listed companies is usually strictly formulated according to M&A rules issued by relevant stock exchanges. In the ChemChina acquisition deal, for example, given that Syngenta is listed in Switzerland and New York, ChemChina made an offer to all of its shareholders in accordance with Swiss and New York M&A rules.

When merging and acquiring private companies (especially partial shares of a private company), one should usually consider the complicated interests and corporate governance arrangements between the target company’s current and new shareholders, and should execute complete and full legal agreements in advance in order to avoid future disputes among shareholders.