Publication Date: March 30, 2020
Beyond the devastating impact on people’s health and on healthcare services, the COVID-19 pandemic also has significant implications for the global economy and, consequently, on M&A. In this report, we discuss the sturdiness of a Material Adverse Effect (“MAC”) in US public M&A, and whether a public health issue like COVID-19 is a legitimate reason to invoke the clause, thus presenting an opportunity for acquirers to walk away. Taking this beyond MACs, we lay out selected language within definitive merger agreements of 14 pending US deals, including conditionality, termination clauses and remedies. Specifically, these comprise details on MAC carve-outs, financing cooperation and solvency covenants, reverse break fees and specific performance effects. We also present case studies of a dozen precedent US deals whereby acquirers tried, succeeded and/or failed to lapse a deal citing breaches from many angles and primarily by invoking a MAC or causing financing commitments to fail.
1. Material Adverse Effects and Carve-outs 2. Financing: Cooperation, Representations and Solvency 3. Reverse Break Fees and Specific Performance 4. COVID-19’s Impact on Pending M&A Appendices A. US Risk Arbitrage Universe B. Break Price Calculations, By Company C. Specific Merger Agreement Language Among Selected Deals • Advanced Disposal / Waste Mgmt • Allergan / AbbVie • Caesars / Eldorado • Cypress / Infineon • Delphi / BorgWarner • E*TRADE / Morgan Stanley • Fitbit / Alphabet • Mellanox Technologies / Nvidia • Raytheon / United Technologies • Sprint / T-Mobile US • Stars / Flutter • TD Ameritrade / Charles Schwab • Tiffany / LVMH • Willis Towers Watson / Aon
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