Business Transformations Multidisciplinary legal and tax approach pays off The success of an international reorganization, merger or takeover depends on two things: including stakeholders in designing and implementing the new organizational structure and addressing the full range of issues the change is likely to effect. That was the key takeaway of Business Transformations, a seminar conducted by Baker & McKenzie Amsterdam s Reorganizations Group on November 1, 2012. Before a roomful of finance directors, tax directors, legal counsel and HR managers of multinationals from various industries, our reorganization specialists explained the checklist of things companies need to think about when engaged in a business transformation project, such as examining VAT implications, consulting with works councils, transferring employee and customer data, restructuring supply chains and protecting intellectual property rights.
Seventy percent (!) of the mergers and takeovers failed to reap any synergy benefits Companies undergo business transformation projects for many reasons. In some cases, mergers and takeovers are the impetus, but businesses also reorganize to keep up with a rapidly changing world and globalization. The grim reality of reorganizations is that few businesses manage to carry out a business transformation or reorganization successfully. Research has shown that in more than half of the cases studied, the reorganization did not have the intended result. Seventy percent (!) of the mergers and takeovers failed to reap any synergy benefits. These are staggering numbers, said Margreet Nijhof, a partner in Baker & McKenzie s Transfer Pricing & International Tax practices. What makes successful change so difficult to implement? Research indicates several critical success factors in a reorganization, such as synchronizing design with strategy, clarifying roles and responsibilities and deploy the right leaders and capabilities. This seems logical, but it is not always attended to. Nijhof said. Anyone who has ever experienced a reorganization knows the pitfalls, continues Nijhof. The crux is that a successful reorganization requires an integrated and holistic approach to all the issues involved, in such a way that all relevant stakeholders are at the table. Planning and implementing a reorganization by focusing mainly on tax matters for exemple, is bound to result in (unexpected) challenges. Margreet Nijhof
Post-acquisition integration For a post-acquisition integration, knowledge from different legal and tax disciplines is needed. Led by Kim Tan, partner in Corporate Law, specialists at Baker & McKenzie were asked to identify the most important elements in a post-acquisition integration from the perspective of their own areas of expertise. Imagine that a multinational has just completed a takeover, says Tan, What needs to happen to allow the acquired company to be operationally integrated on day one? From the answers provided, it is clear that each discipline has a different view of what should be top of mind, underscoring the importance of coordinating and aligning the various stakeholders. Prepare for customs authorizations & data transfers Make sure that customs authorizations are transferred. Without the right licenses, you cannot continue to export. Brian Mulier, senior tax associate Brian Mulier, senior associate in Indirect Tax, emphasizes the importance of customs authorizations. Make sure that these are transferred. Without the right licenses, you cannot continue to export. Robert Boekhorst, partner IT & Communications, notes that in a takeover, data on all clients and employees are needed. The transfer of this type of data is no simple matter from a legal point of view. The matter becomes complex if, for example, the acquiring company has its headquarters in the United States and the target company has its headquarters in the European Union, as there are major differences in privacy legislation between the US and the EU. In order to avoid legal obstacles, Boekhorst advises companies to begin preparing for the transfer of client and employee data as soon as it is known that a takeover is forthcoming. Kim Tan
There have also been cases in which the works council found out about the imminent takeover by reading about it in the newspaper. Muriëlle Spithoven, legal director of Employment Law Involve the works council early Whenever a company is considering a takeover in Europe, it must consult with the works council. When and how companies do that makes a big difference in how the workforce reacts. We had one case where the supervisory board s advice was rendered insignificant because the works council did not appoint a board member, legal director of Employment Law Muriëlle Spithoven said. There have also been cases in which the works council found out about the imminent takeover by reading about it in the newspaper. To avoid opposition, companies should involve the works council in its takeover and reorganization plans in the early stages. Compile all corporate information It s also critical to make sure you have all the documents you will need to integrate the various branches of the two companies before the deal closes, said Laura Rietvelt, legal director of Corporate Law. Following a takeover, for example, you may have to merge 40 subsidiaries in 30 jurisdictions. That s difficult to do if material information about the subsidiaries is missing. It s bound to create delays and inefficiencies: Relying on the due diligence reports and data room created prior to closing often proves insufficient, Rietvelt said. Consider VAT implications Mirko Marinc, senior associate Indirect Tax, stressed the importance of double checking your valuation of assets like inventory and client lists throughout negotiations to ensure you don t pay extra value-added tax. If the valuation at the beginning of the takeover process differs from that at the end of the process, is the analysis made for the value-added tax still valid? Marinc asked. One way to avoid VAT issues is to include clauses in the transaction documents that allow you to adjust the valuation of assets later in the process. To do so, however, you need to agree on the terms of this reassessment with your counterpart before closing.
A company must examine its strategy and not run the risk of a vice president leaving and his successor preferring another location. Margreet Nijhof, tax partner Put supply chain restructuring on your agenda A major issue for multinationals is how to optimize their supply chains, a question that becomes even more important following a takeover. It s an issue that should always be on the agenda during a reorganization, tax partner Margreet Nijhof said. Ongoing maintenance is often needed just to keep up with changes in legislation, regulations and business environments. When centralizing intangible assets, the company business leaders rather than the tax department should choose the jurisdiction, said Eric Westerburgen, a partner in Corporate & International Tax Practice. Company leaders should consider whether the location is accessible and has both a pleasant work and favorable tax environment. If the company has more than one choice, the personal preferences of the most senior people are often decisive. But that decision should be based on company objectives, not just the preference of a senior manager, Nijhof warned. A company must examine its strategy and not run the risk of a vice president leaving and his successor preferring another location, she said. Another issue to consider is that not all suppliers will be willing to cooperate with an adjustment in the supply chain, IT partner Robert Boekhorst said. A company needs to consider that factor when centralizing processes like procurements, he said. Protect your golden eggs Intellectual property partner Michiel Odink compared a company s IP rights to a basketful of eggs in which some of the eggs are worth their weight in gold.
In a merger or takeover, new eggs are added to the basket and the company must evaluate which eggs in the new arrangement are the golden ones, then do its utmost to protect them. Splitting the legal and economic components of IP rights between two jurisdictions is not always the best choice because it could create problems safeguarding these rights. A Dutch judge would say that a company has no economic interest in an IP right of which the beneficial ownership is in Singapore, Odink said. Keep your eye on the big picture Because international business transformations are so complex, having the right legal and business structures are key to their success. Early in the process, companies should include stakeholders at all levels, develop step plans and flow charts with clear decision points, establish who has what competencies and determine who will be responsible for what aspects of the project. It s not just about the tax or legal aspects, corporate partner Kim Tan said. A solution that might be fiscally favorable may not be a good choice from a legal or business perspective. Also, what works in one jurisdiction may not in another. The key is to consider all the business and legal issues, from intellectual property rights and customs authorizations to labor laws and data transfers, so that the blueprint of your new global organizations is based on a complete picture. Taking an international multidisciplinary approach is crucial, Tan said. It s not just about the tax or legal aspects. Taking an international multidisciplinary approach is crucial. Kim Tan, corporate law partner That big picture perspective is why Baker & McKenzie has a global practice group dedicated to advising multinationals on their domestic and multijurisdictional reorganizations.
Reorganizations Group of Baker & McKenzie Amsterdam As one of the few law firms with dedicated local and international Reorganizations practices, we are in a unique position to assist companies in planning and implementing business transformation projects. Our attorneys, tax advisors and civil-law notaries from various practice groups work in multidisciplinary teams to advise on tax, corporate, intellectual property, employment, employee benefits, IT and commercial matters. This enables our clients to successfully achieve objectives and extract value from business transformations. Mounia Benabdallah Corporate & International Tax +31 20 551 7828 mounia.benabdallah Mirjam de Blécourt Employment +31 20 551 7466 mirjam.deblecourt Robert Boekhorst IP / IT +31 20 551 7533 robert.boekhorst Mirko Marinc Laura Rietvelt Margreet Nijhof Muriëlle Spithoven Indirect Tax +31 20 551 7825 mirko.marinc TP & International Tax +31 20 551 7543 margreet.nijhof Michiel Odink IP / IT +31 20 551 7128 michiel.odink Corporate +31 20 551 7936 laura.rietvelt Employment +31 20 551 7810 murielle.spithoven Kim Tan Corporate +31 20 551 7906 kim.tan Visit www.bakermckenzie.nl to learn more. Gillis Kempe Corporate +31 20 551 7930 gillis.kempe Wouter Paardekooper Corporate & Internatonal Tax +31 20 551 7848 wouter.paardekooper 2013 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm. Eric Westerburgen Corporate & International Tax +31 20 551 7446 eric.westerburgen