Transfer Pricing Associates

The Importance of Managing IP in Mergers, Acquisitions and Divestitures

post Friday August 23, 2013

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The importance of intellectual property and other intangible assets cannot be understated in today’s business environment. One specific segment of business that IP greatly affects the landscape of transactions and commerce is mergers and acquisitions. As businesses begin to focus investment on the development, enhancement, maintenance and protection of intangibles and IP, a great deal of the book value of companies lies in these specialized and unique assets.

There are many challenges to correctly and effectively valuing intangibles, but the issue of appropriate valuation is especially critical in transactions that result in the merger or acquisition of multiple companies. Because of the changes in the business world, the importance of IP has dramatically increased and pushed these assets to the center of mergers. A recent example of this was the Nestlé’s acquisition of Pfizer’s infant nutrition business.

Nestlé acquired the global infant nutrition business by submitting bids and winning a global auction. Pfizer put their child nutrition segment on the auction block in order to focus on their core competencies of pharmaceuticals. The primary goal of Nestlé in purchasing this segment was to cultivate and generate a more substantial presence in the child nutrition market. In order for the transaction to be approved by the South African Competition Commission, the oversight body that is comparable to the Antitrust Division of the United States Department of Justice and the Federal Trade Commission, Nestlé proposed a permanent divestiture. The end result of Nestlé’s proposal was the sale of all physical assets in South Africa that were acquired from Pfizer while concurrently granting a third party a 10-year, fully paid license to utilize the Pfizer trademarks that would be owned by Nestlé. During the 10-year period while the third party was exploiting the licensed trademarks, they would be permitted to generate their own branding and create a new corporate identity for the business segment that was purchased from Nestlé. Following the original 10-year period, there would also be an additional 10-year period where Nestlé would not be permitted to use the original trademarks. The divestiture was restricted only to operations and licensing in South Africa.

This example presents a clear picture of the importance of managing intellectual property before, during and after mergers, acquisitions and even divestitures. The ruling by the South African Competition Commission is a positive sign for all businesses. It demonstrates that the tribunal recognizes the value and importance of intellectual property and because of Pfizer’s handling of their IP before the sale, there was sufficient evidence of its identifiable value.

Source: Lexology

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