Rui frowned. He could not frown harder at this atrocity of an acquisition that he was seeing being proposed. He had printed out the entire deal sheet and was reading through all of the terms that the excited M&A Managing Director had proposed. And he was now stuck on one of the longest conference calls he had ever been on, especially for a deal at such an early deal sheet signing stage. He was pretty comfortable, sitting on his couch at home. But it was still a tough call. Apparently this call was over the internet through his nearby laptop somehow? Someone explained it to him step-by-step, but he forgot once again how it all worked.
On paper, the proposed acquisition seemed smart. The company in question, some new tech start-up company for some kind of medical device, managed to be have a valuation lower than their real estate assets. Rui really didn't care about the medical devices at all. They were probably a failure. And thus, a normal person would see hideous disaster - people who created value saw opportunity. And in fact, Rui never understood much of the public revulsion over buy-outs, even leveraged buy-outs (though that was clearly not the transaction at hand here since they weren't dealing with a public company.) If one could make a great deal of profit by gutting and shuttering down a company, then that merely meant that the company was better off dead than alive, Rui thought. Rui's thoughts then went somewhere stranger. "Dead than alive? Wasn't that name of some erotic beach volleyball game?" This was not quite relevant, but Rui did remember the nightmare of supposed "zombie companies" when he worked in Japan, though he always thought that phenomenon was over-stated in the business literature.
Anyways, the combined cost of the tender offer to the firm would have been worth significantly less than the real estate. But, a "toxic" problem loomed. "Yes, I know. However, and I think you pointed this out in our call last week, they're in dire straights when their investment deal with you-know-who from across the pond pulled out of their deal. I think there's a significantly high probability that they were in such dire straights, they failed at least one of their solvency tests, which would bode badly for us."
The other director was rather incredulous, and Rui understood why. "Yes, yes. You're right. Absolutely right. I'm probably off-base here and wrong about this all. Definitely. But on the off-chance this problem does arise, the cost of liability-proofing ourselves is comparatively a small risk."
Rui pulled out his wacky scribbles on his notepad, filled with hearts, smiley faces, and frowny faces, which nevertheless still attempted to illustrate a corporate financing structure. "A lot of these tech places go really overboard in jacking up benefits. A few of them even offered defined benefits contribution pension plans."
Laughter emerged on the phone and Rui chuckled a bit just to play around, "But um, sorry, I'm actually serious. Some of the techies did that, as irresponsible as that is. And these guys were formed back before absolutely everyone knew that was a bad-baddy idea. So what if that's why their finances are so bad?"
Rui thought a little about the transaction, "So uh, someone correct me if I'm wrong, but what if we prepared for that possibility by uh, you know, structuring this as an asset purchase instead of a membership interest purchase?"
The conference seemed fairly receptive to this line of thought, until the tax advisor chimed in. Apparently, the sellers were dead-set on having the entire tech firm purchased as opposed to just its assets, because apparently their personal tax structuring would be a lot easier in that case.
Rui twirled his pencil and chewed his hair just a bit before he replied, "Oh. Well, thank you so much for that information. That definitely changes things. Thank you. That changes things not a lot though. We can still do the membership interest purchase and acquire the entire LLC, but if we see a pensions problem, we can just internally sign and execute a separation and distribution that creates a second partnership that owns all of the property. And we can just let the partnership with all of the toxic pensions, eer, I mean the toxic parts of the pension, go bankrupt."
The lawyer on the call piped up and noted that "there was a problem."
Rui nodded again despite the fact that nobody could see him nod while he was speaking on a phone, "Thanks! Though correct me if I'm wrong, I thought we could structure the investment vehicles in a way that we're pretty safe from some judge piercing the corporate veil."
The lawyer spoke up and explained that Rui was right. Though that wasn't the problem that the lawyer was thinking about it. As he explained, there had been just a recent case early last year in the jurisdiction of the tech company where some investment fund had been forced to shoulder the entire defined benefits contribution liability alongside its property (as opposed to typically only the earned portion of the benefits) because of some court's convoluted three-prong test, which Rui didn't understand at all. However, the lawyer did explain that although he could make sure with a legal memo at the usual fee, Rui's idea would probably fail the test, especially because the jurisdiction was so open about its hostility to asset stripping.
The lawyer finished his description, to a largely silent conference call.
"...fucking commies! ...I mean, oops. Teehee~"
The entire conference call was silent for just a second before they broke out into raucous laughter. Rui was almost infamous in his entire firm for so very-rarely swearing, despite profanity being almost commonplace and having characterized most of the call. It took them a second to realize who had reacted to the news the fastest (Rui).
Another director broke the laughter, still seemingly not holding it entirely together, by suggesting that they just break for the day and address the issue if financial due diligence ends up confirming that this toxic pension possibility ended up being a problem.
It was at this time that Rui realized that filing his nails, his traditional habit while on conference calls (which he always did on speaker-phone), was probably a terrible idea in his current form and probably made several people wonder "what the hell is that background noise." In a lot of ways, it would be absolutely mortifying had someone noticed.
He looked at his very odd looking nail, "Oh gosh, I'm not sure how I'm going to fix this."
Word Count: 1,105
Thu Sep 19, 2024 8:54 am by 
