Dispute Resolution Mechanisms in Merger and Acquisition Transactions

Kerem BÖLTEN

İngilizce olarak kaleme alınan “Dıspute Resolutıon Mechanısms In Merger And AcquısıtıonTransactıons” adlı çalışmamızda birleşme ve devralma süreçlerinde çıkan uyuşmazlıkların çözülmesinde uygulanacak çözüm yöntemlerinin incelenmesi ve tahkim yönteminin neden diğer yöntemlerden daha etkili olduğu  açıklanmıştır.

TABLE OF CONTENTS

STATEMENT OF AUTHORSHIP III

ACKNOWLEGMENTS V

TABLE OF CONTENTS VII

ABBREVIATIONS XI

TERMINOLOGY 1

INTRODUCTION.9

PART I: MERGER AND ACQUISITON PROCESS

I. Introduction 13

II. Stages of an M&A transaction 15

A. Target identification and preliminary negotiations 16

1. Confidentiality agreement 17

2. Letter of intent and exclusivity agreement 18

B. Establishment of the data room and due diligence 19

C. The acquisition agreement 22

D. Signing and closing the transaction 26

E. Post-closing activities 27

III.  Conclusion of part I 28

PART II: LITIGATION AND ALTERNATIVE DISPUTE RESOLUTION MECHANISMS 

I. Introduction 31

II. Detailed examination as to the distinctions between litigation and  

     ADR mechanisms 32

A. Litigation 32

1. Introduction 32

2. So-called advantages of litigation 33

3. Why litigation remains weak for M&A disputes 34

a) Limited jurisdiction of courts with respect to the dispute to be  

    hear and type of compensation to be rendered 35

b) Lack of familiarity with local court procedures and language 35

c) Limited party control over the dispute 35

d)Determination of the applicable law and the application of “rules  

   of law” 35

e) Admissibility of Evidence 36

f) Difficulties with regard to the foreign judgments 36

g) Lack of confidentiality surrounding proceedings 37

h) Long lasting trials and appeal processes 37

i) Excessive cost of pursuing litigation overseas 37

j) Lack of independent or impartial judiciary and corrupted system 37

k) Restrictions on judicial review of an arbitral award 38

l) Lack of specialized judges and ever-increasing docket numbers 38

B. ADR mechanisms 38

1. Introduction 38

2. Advantages and disadvantages of ADR mechanisms 40

3. Types of ADR mechanisms 42

a)Negotiation: 43

(1)Introduction 43

(2)Substantial notions in negotiation 44

(3)Characteristics of negotiation 45

(4)Negotiation models 46

(5) Advantages of negotiation 48

(6)Why negotiation remains week for M&A disputes 49

b) Conciliation 50

(1)Introduction 50

(2)Major distinction between conciliation and mediation 51

(3) Considerable “necessity” as to the uniform rules on  

       conciliation 53

(4) Conciliation process and main characteristics of the 

       conciliation 53

(5) Why conciliation remains weak for M&A disputes 58

c) Minitrial 58

(1) Introduction 58

(2)Components of the minitrial 59

(3)Advantages of minitrial 61

(4) Why minitrial remains weak for M&A disputes 61

d) Mediation 62

(1) Introduction 62

(2) Characteristics of mediation 64

(3)Basic principles of mediation 65

a) Impartiality 65

b) Self-Determination 65

c)Informed Consent 65

(4) Forms of mediation 65

a) Facilitative Mediation 66

b) Evaluative Mediation 67

c) Transformative Mediation 67

(5) General overview of mediation process 68

(6) How to select appropriate mediator? 70

(7) Advantages of mediation 71

a) Flexibility 72

b) Less Costly 72

c) Efficiency 73

d) Range of Settlement Options 73

e) Informality 73

f) Preserved to Apply Other Dispute Resolution Mechanisms 74

g) Confidentiality 74

h) Preserves Relationships 74

(8) Why mediation remains week for M&A disputes 74

a) Absence of due process protection 75

b) Absence of appeal process 75

c) Lack of standardized rules and process 75

d) Additional cost if unsuccessful 75

e) Voluntary and non-binding process 76

f) Lack of set of rules for the enforceability of decisions 76

III. Conclusion of Part II 76

PART III: ARBITRATION FOR DIFFERENT STAGES OF M&A DISPUTES

I. Arbitration 79

A. Introduction 79

B. Institutional and ad hoc arbitration 81

1. Institutional arbitration 82

2. Ad hoc arbitration 83

3. Benefits and drawbacks of institutional and ad hoc arbitration for M&A 

     disputes 83

C. General elements of international arbitration agreements 85

a) Arbitration agreement 85

b) Constitution of tribunal 86

c) Conduct of process 86

D. The arbitration agreement 88

1. The autonomy of the arbitration agreement from the main contract 88

2. Development of the autonomy of the arbitration agreement 89

a) Recognition of the principle in leading arbitration rules 89

b) Recognition of the principle in international arbitration 

     convention 90

3. Consequences of the autonomy of the arbitration agreement 92

a) Direct consequences of the principle of autonomy 92

b) Indirect Consequences of the Principle of Autonomy 94

4. Formation and validity of the international arbitration agreement 96

a) Presumptive validity and enforceability of international  

     arbitration agreements under international conventions 96

b) Form and proof of international arbitration agreements 97

c) Capacity and power to conclude international arbitration  

     agreement 98

d) Consent 98

e) Arbitrability 99

5. Effects of the arbitration agreement 100

E. Composition of the arbitral tribunal 100

F. The applicable law to the merits of the dispute 102

1. Applicable law chosen by the parties 102

2. Restrictions over the effectiveness of parties’ choice of law 104

3.  Applicable law chosen by the arbitrators 105

G. The law governing the procedure 105

H. Parties to international arbitration 108

İ. Seat of the arbitral proceedings 109

J. Interim measures in the course of arbitration proceedings 110

K. The arbitral award 111

L.  Enforcement and set aside procedure of arbitral decisions 113

M. Grounds that must be raised by the party resisting recognition or 

  enforcement 114

N. Why arbitration beats litigation? 115

O. Why arbitration beats ADR mechanisms 116

P. Why arbitration is the best mechanism for the resolution of an  

 M&A Disputes 117

a) Neutrality of the Dispute Resolution Forum 117

b) Centralized Dispute Resolution Forum 118

c) Enforceability of Awards 118

d) Commercial Competence and Expertise of Tribunal 119

e) Finality of Decision 119

f) Party Control and Procedural Flexibility 120

g) Speed 120

h) Confidentiality 121

i) Avoiding precedent decisions 121

II. Arbitration as a dispute resolution mechanism for M&A disputes 122

A. Introduction 122

B. Arbitration at various stages of merger and acquisition transaction 122

1. Pre-closing disputes 123

a) Letter of intent 123

b) Confidentiality and exclusivity agreements 123

c) Due diligence 124

2. Post-closing disputes 125

a) Representations and warranties 125

b) Earn-out clauses- price adjustment or indemnification 126

c) Put and sale options 128

d) Anti-trust and competition 128

III. Conclusion of Part III 129

CONCLUSION 131

BIBLIOGRAPHY 135