Recently, in the Mergers and Acquisitions course at Harvard Law School, three preeminent M&A practitioners discussed the Merger Agreement as a Contract with Vice Chancellor Leo Strine, Jr., who teaches the class. The panelists were Rick Climan, a partner in the Mergers and Acquisitions group at Dewey & LeBoeuf LLP; Faiza Saeed, a partner in the Corporate Department of Cravath, Swaine & Moore LLP; and Kim Rucker, Senior Vice President and General Counsel of Avon Products, Inc.
The panel went through the main parts of an acquisition agreement, including:
- Representations and warranties;
- Disclosure schedules (“The power is in the disclosure schedules”, remarked Kim);
- Pre-closing covenants that apply between signing and closing, including the strength of covenants and the difference between covenants and closing conditions;
- Closing conditions, the standards to which they must be met, and the risk of a deal failing to close. Faiza gave the example of the breakdown of the General Electric-Honeywell transaction, which led to a discussion of regulatory risks and their effect on the transaction, and the consequent standards of covenants to obtain necessary consents, such as “hell-or-high-water” provisions.
To illustrate many of the concepts, the panel used as examples the Agreement and Plan of Merger between Brocade Communications Systems, Inc. and Foundry Networks, Inc. (which Rick was involved in negotiating) and the Agreement and Plan of Merger between Ticketmaster Entertainment, Inc. and Live Nation, Inc.
The panel also discussed the role of reverse break-up fees, and their quantum, and the differences between public and private company transactions. The panel then considered In re IBP, Inc. Shareholders Litig., and the decision of Vice Chancellor Strine in that case. The discussion then moved to the meaning of ‘material adverse effect’ clauses. Rick pointed out the preponderance of the “material adverse effect” standard, as evidence of which he referred to the 2009 Strategic Buyer/Public Target M&A Deal Points Study published by the Mergers & Acquisitions Committee of the American Bar Association’s Business Law Section (of which committee Rick is the former Chairman), which was discussed on the Forum here. Each of the panelists also gave their advice to the class on negotiating mergers and acquisitions transactions, including Kim’s “Rucker’s Top 5″ tips for young associates.
The video of the panel is available here. (Quicktime .mov format)