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ANALYSIS: References to Russia–Ukraine Sanctions in M&A Deals

March 30, 2022, 9:00 AM

Deal lawyers who had likely been working for weeks negotiating and drafting agreements for soon-to-be-signed billion-dollar mergers and acquisitions faced the sudden need to update the sanctions-related provisions in their agreements last month due to the war in Ukraine.

U.S. government actions in response to the war in Ukraine have rapidly influenced the terms of mergers and acquisitions agreements, which since Feb. 22 have started to refer directly to the disputed Ukrainian regions of Donetsk and Luhansk. The updates to the provisions demonstrate the importance of sanctions-related representations and warranties to deal parties and indicate that it’s essential for them to reflect the current state of the sanctions regime at the time of signing.

U.S. Government Actions

Russian President Vladimir Putin’s recognition of the Donetsk and Luhansk republics on Feb. 21 resulted in an immediate White House executive order prohibiting transactions with those and certain other occupied regions of Ukraine, and a Feb. 22 Treasury Department declaration of sanctions on Russian banks and Kremlin-connected elites and restrictions on Russian sovereign debt.

These actions are significant parts of the Ukraine-related sanctions that have been a centerpiece of the U.S. response to the Russian invasion that began on Feb. 24. The crisis that they addressed is likely to further increase in importance, with Russian forces refocusing their efforts on the Donbas region, where Donetsk and Luhansk are major cities.

References to Donetsk and Luhansk

Based on an advanced Bloomberg Law transactional precedent search, eight publicly filed M&A agreements that contain references to the Donetsk and Luhansk regions in otherwise typical sanctions-related provisions have been executed by deal parties between Feb. 27 and March 29.

The majority of these deals are large—valued at above $1 billion dollars—and most were advised by the some of the top-ranked M&A law firms as deal counsel. The largest deal among them is the currently pending $10.7 billion Thoma Bravo acquisition of Anaplan Inc.

In these agreements, references to the Donetsk and Luhansk regions of Ukraine have been added to defined terms such as “Sanctioned Person,” “Sanctioned Country,” and “Sanctioned Jurisdiction,” which are in turn referenced in representations and warranties pertaining to sanctions.

These representations and warranties, which are a common inclusion in M&A agreements, take a variety of forms and can be found under different section headings, including “Compliance with Laws,” “Anti-Corruption Laws, Sanctions, and Export Controls,” and “Regulatory Matters.” As is typically the case with representations and warranties, this category of reps essentially states that the representing party hasn’t breached applicable sanctions, and the provisions may contain lookback periods, knowledge qualifiers, and materiality qualifiers.

As an example, below are relevant excerpts from the March 20 Anaplan Inc.–Alpine Parent LLC agreement mentioned above referring to the “Sanctioned Person” and “Sanctioned Country” definitions and the representation and warranty that references those defined terms:

“Sanctioned Person” means any person that is the subject or target of sanctions or restrictions under Trade Controls including: (i) any person listed on any U.S. or non-U.S. sanctions- or export-related restricted party list, including the U.S. Department of the Treasury Office of Foreign Assets Control’s (“OFAC”) List of Specially Designated Nationals and Blocked Persons, or any other OFAC, U.S. Department of Commerce Bureau of Industry and Security, or U.S. Department of State sanctions- or export-related restricted party list; (ii) any person that is, in the aggregate, 50% or greater owned, directly or indirectly, or otherwise controlled by a person or persons described in clause (i); or (iii) any person located, organized, or resident in or a national of any country or region or government thereof that is, or has been in the last five years, the subject or target of a comprehensive embargo under Trade Controls (including Cuba, Iran, North Korea, Syria, Venezuela, and the Crimea, Donetsk, and Luhansk regions of Ukraine) (a “Sanctioned Country”). (emphasis added)

(c) since January 1, 2017, neither the Company nor any of the Company Subsidiaries, nor any of their respective officers, directors or employees, nor to the knowledge of the Company, any agent or other third party representative acting on behalf of the Company or any of the Company Subsidiaries has been (i) a Sanctioned Person; or (ii) engaging in any dealings or transactions with or for the benefit of any Sanctioned Person or in any Sanctioned Country....

Among these eight agreements, four refer to the regions as the “so-called Donetsk People’s Republic or so-called Luhansk People’s Republic regions of Ukraine” and one refers to the “separatist-controlled portions of the Donetsk and Luhansk regions of Ukraine.”

Considering the timing of the additions of these references to the Donetsk and Luhansk regions of Ukraine —especially the additions to the agreements dated Feb. 27 and Feb. 28, signed just days after the unfolding of the crisis and the declaration of new sanctions—they constitute a rather rapid effort on the part of deal parties to ensure that their sanctions-related provisions are as current as possible.

References to Russia

Of the eight agreements we found that reference Donetsk and Luhansk, only one also lists Russia—alongside Iran, Cuba, Syria, “North Sudan,” and Venezuela—as a “country or territory that is the target of country-wide or territory-wide Economic Sanctions/Trade Laws.” A separate precedent search reveals that two agreements signed since the end of February include Russia, or both Russia and Belarus, within the scope of the definition of “Sanctioned Country” or “Sanctioned Party” but do not make reference to the Donetsk or Luhansk regions of Ukraine.

This development could reflect the rapid evolution of the situation in Ukraine from a crisis centered on the border regions of Donetsk and Luhansk to a full-fledged invasion of Ukraine by Russia.

A Complex and Evolving Situation

Though it’s unclear how the crisis in Ukraine will continue unfolding, what is clear is that deal parties and their legal advisors are reacting in real time to the evolving sanctions regime and are attempting to reflect the instant situation in their sanctions-related agreement provisions.

These actions show the importance of vigilant monitoring of a range of sources—ranging from official statements from the White House, State Department, or Treasury Department to media reports of the situation in Ukraine—to ensure the accuracy of these provisions as they are being negotiated, drafted, and finalized. And, of course, with these developments and contract language adjustments come associated changes to the scope of due diligence conducted by deal parties regarding sanctions-related compliance and risks.

Bloomberg Law subscribers can find related content on our M&A Deal Analytics resource.

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