402: The Successful Joint Venture: From Courtship to Conclusion and Beyond

Transcription

1 ACC s 2013 Annual Meeting Monday, October 28 4:30 PM - 6:00 PM 402: The Successful Joint Venture: From Courtship to Conclusion and Beyond Rob Biskup Director Kevan Flanigan Partner Arnold Pinkston Executive Vice President, General Counsel and Assistant Secretary Allergan Scott Willoughby Senior Corporate Counsel The Clorox Company This material is protected by copyright. Copyright 2013 various authors and the Association of Corporate Counsel (ACC). Materials may not be reproduced without the consent of ACC or the copyright holder. Reprint permission requests should be directed to ACC s Legal Resources Department at legalresources@acc.com 1 of 9

2 Faculty Biographies Session 402 Rob Biskup Director Kevan Flanigan Partner Arnold Pinkston Executive Vice President, General Counsel and Assistant Secretary Allergan Scott Willoughby Scott B. Willoughby is senior corporate counsel at The Clorox Company in Oakland, California. His responsibilities include strategic transactions such as M&A and joint ventures; directing the compliance and ethics program, including anti-corruption compliance; and advising the company's flagship laundry products unit. He also co-chairs the Clorox Legal Department's Diversity and Inclusion committee. Prior to joining Clorox, Mr. Willoughby served as a senior corporate/securities associate at Latham & Watkins LLP in San Francisco. He currently also serves on the board of directors and as chair of the finance committee for Project Open Hand, a charity serving nutritious 'meals with love' to sick and elderly San Francisco residents. Mr. Willoughby also does pro bono work for Family Violence Law Center and the East Bay Community Law Center. He was recently named one of the 'Best LGBT Attorneys Under 40' by the National LGBT Bar Association. Mr. Willoughby received a BA and JD from University of California, Berkeley. 2 of 9

3 The successful joint venture From courtship to conclusion and beyond October 28, ACC Annual Meeting Welcome Welcome and introductions Robert T. Biskup Director, Forensic & Dispute Services Kevan Flanigan Partner Deloitte Corporate Finance LLC Arnie Pinkston Executive Vice President, General Counsel & Assistant Secretary Allergan Scott Willoughby Senior Corporate Counsel The Clorox Company 1 The successful joint venture - from courtship to conclusion and beyond 3 of 9

4 Agenda Finding the right partner Getting married Getting married legal matters Getting married anti-fraud and corruption diligence Getting married JV agreement issues Getting married technology issues Maintaining a productive partnership Key causes for JV failure 2 The successful joint venture - from courtship to conclusion and beyond Finding the right partner Identify problem to be solved or opportunity to be gained Do you have capacity constraints? Is there a need for new/complimentary technology? Are you trying to gain new customers? Are you trying to establish a presence in a new geography/new market? Do you want to create the perception of scale? Diversification of risk? Who are the potential candidates? Current business partners (vendors, customers) Companies confronting similar issues in a different market Potential for alliance with a current competitor What diligence can be done in advance? Is the technology truly viable? Will your customers accept the potential partner? Does the JV partner have a similar vision (operational and financial) for the future? Is the JV partner financially viable? Are the partner expectations aligned? 3 The successful joint venture - from courtship to conclusion and beyond 4 of 9

5 Getting married Address basic business issues Ownership percentages and control Understand each partner s contribution What capital contributions will be required? How will working capital be funded? Define scope of JV what business is included? Financial and Tax Matters Typical QOE and other financial diligence done in any acquisition Understanding of statutory/ifrs/gaap considerations Tax planning and analysis Planning for financial reporting going forward Clear understanding/agreement around leverage/debt structure 4 The successful joint venture - from courtship to conclusion and beyond Getting married legal matters Choice of entity In the US, JV entities are typically limited liability companies Some jurisdictions (e.g. Canada) do not have similar LLC entities Antitrust compliance Critical if combining a business with a competitor Rules of engagement defined early, before exchange of information Negotiations must be carefully managed when with competitor 5 The successful joint venture - from courtship to conclusion and beyond 5 of 9

6 Getting married anti-fraud and corruption diligence SEC and DOJ may impose derivative liability for pre-existing and on-going Foreign Corrupt Practices Act (FCPA) violations by a joint venture partner FCPA compliance is increasingly an essential part of joint venture due diligence, both pre- and post- deal Two goals of FCPA due diligence: 1) identify areas of non-compliance, and 2) identify areas of internal control weakness November 2012 Guidance issued by SEC and DOJ Recommendations: joint venture partner certifications, ledger testing of areas of vulnerability, control documentation and process walk-throughs, tiered due diligence, data analytics, risk assessments, auditing, monitoring, training and education 6 The successful joint venture - from courtship to conclusion and beyond Getting married JV agreement issues Corporate governance (e.g. approval mechanisms, voting requirements) Who will provide administrative support (contributed by parties or hired by JV)? Restrictions on transfer (tag-along, drag-along, rights of first refusal) Dispute resolution Unwinding the JV (the pre-nup Section) 7 The successful joint venture - from courtship to conclusion and beyond 6 of 9

7 Getting married technology issues License fees paid for existing technology? Who owns new inventions or improvements? Technologies to be transferred, timing and method of transfer What happens to new inventions or improvements in event of break-up? Is there alignment around technology use (long-term vs. short-term expectations) Resolutions for potential conflicts of interest 8 The successful joint venture - from courtship to conclusion and beyond Maintaining a productive partnership Communication Dealing with change Cultural differences Negotiation strategies and tactics Strategic differences Management vs. Governance structure Performance management systems Conflict resolution Exit strategies 9 The successful joint venture - from courtship to conclusion and beyond 7 of 9

8 Key causes for JV failure Lack of strategic alignment between the players Partners may not have complementary goals & capabilities. Lack of long term synergies (new market entry, growth of existing markets etc.) Goals/objectives/roadmap not clearly articulated/communicated Lack of flexibility in structure or balanced leverage across each party to the JV Perceptions of an equitable rewards/risk balance change Exiting complexities With JV goals/objectives not well articulated by all parties, exiting becomes more complicated/costly Exiting from JVs with companies from non-western/different cultures has additional complexities Cultural differences resulting in breakdown in trust and collaboration Employee empowerment, work ethic, behavioral norms, background/training/skills are often different for each partner. Inadequate receptiveness to differences Lack of upfront long term plan for Governance & Control Governance Structure & Control issues have led to the failure of many JVs in the past. Conflict resolution is quite difficult and is often plagued by mistrust. Inadequate performance measurement/management Partnerships/JV often have performance management systems that focus on end state financial performance and not intangibles or behaviors necessary for success Source: Insights from the Thought Leadership Roundtable at Tuck School of Business (Dartmouth), Deloitte Advisory Center Analysis, Analyst reports, Academic Journals 10 The successful joint venture - from courtship to conclusion and beyond For more information Robert T. Biskup Director, Forensic & Dispute Services rbiskup@deloitte.com Kevan Flanigan Partner Deloitte Corporate Finance LLC keflanigan@deloitte.com Arnie Pinkston Executive Vice President, General Counsel and Assistant Secretary Allergan Pinkston_Arnold@Allergan.com Scott Willoughby Senior Corporate Counsel The Clorox Company Scott.Willoughby@clorox.com The successful joint venture - from courtship to conclusion and beyond 8 of 9

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