Preliminary documents | France | Global Private M&A Guide - Limited External Content

Is it customary to prepare a letter of intent or term sheet and, if so, to what extent are they binding on both parties?

In complex transactions, it is customary to prepare letters of intent or term sheets. They are not usually legally binding as the aim of the letters of intent or term sheets is to provide for the main terms and conditions of the prospective transaction, which remain subject to further negotiations between the parties. Provisions which are usually expressed as legally binding in the letter of intent include confidentiality, exclusivity and break-up fees.

Does a term sheet, in this context, customarily include provisions on exclusivity, break fee or confidentiality?

Exclusivity: Exclusivity provisions are commonly used, but only where a specific time frame for the exclusivity period is clearly set out.
Break fee: Break fees are not common at all in France and constitute a penalty provision. Moreover, a judge would be entitled to reduce its amount should it be significantly higher than the real level of damage likely to be incurred.
Confidentiality: Confidentiality provisions are very commonly used in term sheets.

Are exclusivity, break fee and confidentiality provisions supplemented with separately negotiated agreements?

Confidentiality or non-disclosure agreements are usually drafted as separately negotiated agreements (usually entered into by the parties before starting discussions on the transaction). Exclusivity and, if applicable, break fees are usually included in the term sheet if such agreement is binding, i.e., exclusivity will rarely be granted by the seller before a binding agreement is reached on the main terms and conditions of the transaction (in particular, within a bid process).

Is there a duty or obligation to negotiate in good faith?

The Civil Code provides for an express obligation on parties negotiating a transaction, including a sale of shares, assets or business, to negotiate in good faith. This duty applies both in pre-contractual negotiations and during performance of the contract. The duty includes the obligation to inform the buyer of relevant important facts that the buyer could not discover on its own. Also, where negotiations are at an advanced stage giving rise to a reasonable expectation that the transaction will proceed, the unilateral termination of the negotiations by a party may give rise to damages if such termination is characterized as unfair/wrongful.

Global Private M&A Guide - Limited External Content

France

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