Letter of Intent to Acquire a Public Company by Merger

Summary

This template is a letter of intent to acquire a public company by merger. A letter of intent memorializes the preliminary understanding parties to a transaction have reached on certain key transaction terms early in the negotiating process. Transaction parties usually will enter into a letter of intent early in the negotiation process, prior to commencing more in depth due diligence or drafting of the primary deal document. Acquirer's counsel often will draft the first version of a letter of intent. A letter of intent is usually nonbinding in whole or in part. Binding terms may include expense reimbursement, exclusivity, dispute resolution, entire agreement clauses, and other "miscellaneous" provisions. Nonbinding terms usually include transaction-specific terms that need to be fully documented in definitive agreements before they become binding. A letter of intent also may take the form of, or be called, a memorandum of understanding or term sheet. There are many reasons why transaction parties may elect to use a letter of intent, including that a letter of intent can: • Identify "deal breakers" early on in the transaction process by forcing the parties to outline major deal points • Serve as a guide for the timing and process of a transaction, including by describing how the due diligence process will function and setting out any target dates for execution or closing • Create certain critical binding obligations even before the primary deal document stage, such as confidentiality, exclusivity, and cost allocation • Create "moral" (even if not binding) obligations between the parties, such as a duty to negotiate in good faith–and- • Address any known special circumstances unique to the particular deal early on in the process. However, a letter of intent may not always be the best or most strategic choice for the parties. In a transaction with a tight timeline, a letter of intent may slow down the transaction process. Without a letter of intent, parties can move directly to drafting and negotiating the primary deal document, rather than taking the time to negotiate the letter of intent. In addition, because letters of intent take time to negotiate, they also may create unnecessary costs. Finally, negotiating and executing a letter of intent could potentially trigger certain reporting obligations (to the extent it may contain binding provisions that would constitute a material agreement or event for the public company) if any of the transaction parties is a public company. You should consult with your securities counsel with respect to your disclosure obligations. For further information, see the Drafting Note to Paragraph . This template letter of intent contemplates an acquisition by a public acquirer of a public target through the merger of such target with a subsidiary of the acquirer (with the target surviving the merger) for stock in Acquirer at a fixed exchange ratio. This type of merger transaction is called a reverse triangular merger or a reverse subsidiary merger. The parties should carefully consider a number of factors, including entity governance, tax, accounting, and transfer restrictions when determining what structure the business combination will take. For example, a reverse triangular merger is expected to be taxable to the shareholders of the Target under the Internal Revenue Code, and therefore, tax counsel should be consulted to determine the tax treatment to the stockholders of the Target. Alternate clauses proposing language regarding floating exchange ratios, and stock and cash transactions, as well as provisions applicable to a private acquirer, are included throughout. This document is generally neutral and provides drafting notes and alternate clauses that can be used to adjust this template to be more pro-target or pro-acquirer, as your deal requires, and should be customized to reflect the ultimate transaction. For a wide collection of public merger resources, see Public Merger Transaction Resource Kit. For more information, see Letters of Intent in Private M&A Deals, Letters of Intent in Public M&A Deals, and Term Sheets. For additional templates, see Letter of Intent (Asset Acquisition), Letter of Intent to Purchase Stock, and Term Sheet (Stock Purchase) (Private Equity Buyer). Click here to see recent examples of publicly filed merger agreements in Market Standards - M&A Market Standards - M&A enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed data points to filter search results. You can customize any search to your needs by adding filters or modifying the search criteria.