Question for any M&A lawyers out there. I've been following the SPG / TCO merger deal and recently TCO's stock price started trading fairly wide of the offer price of $52.50. I'm just wondering, can Simon Property Group walk from the deal without any penalties?
No penalties were specified in the merger agreement (see below); however, could they possibly be sued by Taubman if they decide to walk from the deal?
Thanks
Merger Agreement:
https://www.sec.gov/Archives/edgar/data/1022344/0…
| +278 | CVP 2025 Summer Analyst Class Is A JOKE | 135 | 36m | |
| +107 | The "Not So Obvious" things that get you a return offer? | 10 | 20h | |
| +62 | Ex-JP Morgan analyst awarded $35M decade after NYC building’s glass door suddenly shattered on her | 15 | 1d | |
| +36 | Pros and Cons of the BB coverage groups | 16 | 5d | |
| +36 | BIG FOUR ARE PARADISE | 6 | 1h | |
| +35 | Georgetown Placement for 2024 and 2025 | 21 | 4d | |
| +32 | Best IB group on the Street | 14 | 17h | |
| +30 | How to deal with egotistical team? | 6 | 19h | |
| +27 | UBS Outlook | 19 | 2h | |
| +24 | Targetish LAC for 100k debt? | 14 | 6d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
This is exactly what Sycamore is trying to do on their $525m deal to get 55% of Victoria Secret. Apparently they signed in Feb but tried to renegotiate with VS's parent company L Brands.
Interested to see what others have to say.
I wonder if there is a Lawyer equivalent of WSO. If not maybe a business opportunity...
That particular legal case is interesting because it's going to set a precedent for any other firms who want to bail out on a deal during this pandemic.
Matt Levine wrote a brilliant column about it today in Bloomberg. Here's the long and short of it:
- Sycamore agreed to buy a 55% stake in Victoria's Secret from L Brands back in February
- They're trying to back out now and they're being sued by L Brands to prevent them from backing out
- Their merger agreement specifically states that they can't back out just because of a pandemic
- However, every merger agreement has a line about the target having to conduct business as usual until the close of the deal. From the Sycamore-VS merger agreement:
>Parent shall and shall cause its Subsidiaries to conduct the Business in the ordinary course consistent with past practice
- Because of the Pandemic, VS has had to furlough all of its employees and close all of its stores. this is obviously not business as usual
- Sycamore is attempting to claim this as justifiable grounds to back out of the deal because the "business as usual" clause does not specifically exempt pandemics
Good points. Didn't know about that clause in most agreements. Good times for Lawyers, not so much for bankers.
Floyd 'Money' Mayweather those are good points. In your opinion, what party do you think the courts would rule in favor of if the acquiror would back out citing the "business as usual clause?"
Second question: If the courts rule in favor of the target company, what kind of penalties would the acquiror have to pay?
Ultimately I want to know how big is the risk of the acquiror walking away in the SPG / TCO deal and how big would the penalty be to the acquiror if they lose a case in court (if it's a small fee, that might not be enough to deter the acquiror from backing out).
can confirm there’s a forum for law school kids and it’s v active. also depressing af
Damn you gonna say that and not even even link me? :/
Most merger agreements have a section dedicated to Material Adverse Effects that, in theory, would allow a buyer to walk away from a deal without any legal ramifications.
However, the section which defines the MAE is 90% a list of what DOESN'T count as an MAE
From Sycamore-Victoria's Secret Merger Agreement:
>“Material Adverse Effect” means any state of facts, circumstance, condition, event, change, development, occurrence, result or effect (i) that would prevent, materially delay or materially impede the performance by Parent of its obligations under this Agreement or Parent’s consummation of the transactions contemplated by this Agreement; or (ii) that has a material adverse effect on the financial condition, business, assets, or results of operations of the Business, **excluding, in the case of clause (ii), any state of facts, circumstance, condition, event, change, development, occurrence, result or effect to the extent directly or indirectly resulting from**
- (A) national, international, foreign, domestic or regional social or political conditions
- (B) changes in any economic, financial, monetary, debt, credit, capital or banking markets or conditions
- (C) changes in interest, currency or exchange rates or the price of any commodity, security or market index
- (D) changes in legal or regulatory conditions, including changes or proposed changes to Applicable Law
- (E) changes or conditions generally affecting the industry of the Business
- (F) changes in, or any failure of the Business to meet, or the publication of any report regarding, any internal or public projections, forecasts, budgets or estimates of or relating to the Business for any period, including with respect to revenue, earnings, cash flow or cash position
- (G) the occurrence, escalation, outbreak or worsening of any hostilities, war, civil unrest, police action, acts of terrorism, cyberattacks or military conflicts, whether or not pursuant to the declaration of an emergency or war
- (H) the existence, occurrence or continuation of any pandemics, tsunamis, typhoons, hail storms, blizzards, tornadoes, droughts, cyclones, earthquakes, floods, hurricanes, tropical storms, fires or other natural or manmade disasters or acts of God or any national, international or regional calamity
- (I) the execution, announcement, performance or existence of this Agreement, the identity of the parties hereto or any of their respective Affiliates or Representatives, the taking of any action to the extent expressly required or contemplated by this Agreement
As you can see, Merger Agreements are designed for the deal to go through no matter what happens, short of the apocalypse. The merger agreement you linked has essentially the same verbiage. ctrl-f the word "pandemic" and it should lead you there.
Interesting.. so pandemics are excluded from MAE definitions? That’s pretty much one of the worst things that could hit a business and a situation in which a buyer shouldn’t be obliged to continue with the deal (commercially or morally speaking) ... exclusion of things like that render the MAE clause rather useless, wouldn’t you agree?
Floyd 'Money' Mayweather , do you know if the below impact mergers that were contemplated prior to the pandemic start?
https://www.cnbc.com/2020/04/23/house-antitrust-chairman-wants-most-mer…
I assume that it wouldn't but I don't really know. I haven't seen much information out about the technicalities of the bill.
No shot that it passes though.
Anyone know if there was a breakup fee in the Sycamore/Victoria Secret deal?
Most deals should have some kind of termination / break up fees.. wouldn't be surprised if that's the case here as well.
There is a termination fee specified for Taubman; however, one was not specified for Simon.
Look up some 2008-2010 MAC clause cases. The majority of them, as I understand, was actually the lender who wanted to walk away from financing, while the seller and buyer (PE sponsor) wanted to push forward.
Unique to this case is that MACs typically have a carve-out for pandemic and different than what the company's industry is experiencing as a whole. So you would need something unique to that business to use a MAC for.
I didn't have this background previously, but this gels with what I'm hearing from lawyers: the second order impacts of COVID and actions of management are what will create cases around MAC clauses.
In the case above, you could see if "ordinary business" procedures are defined in internal documents and find instances where the ordinary course of business was not observed if VS made decisions hastily in response to COVID. Let's say that past practices have included a 5-step approval process to furloughing employees. If the company did not adhere by its standard operating procedures, then the ordinary course of business was not observed.
Just my opinion, but I think it would be extremely unlikely the court will allow Sycamore to walk away from the deal on the accounts of COVID-19. It would just open up pandora's box for any case of buyer's remorse for deals that were agreed upon prior to March 2020.
They can try and claw their way out by arguing that a MAC took place, but I don’t like their chances. Pandemics are excluded in the MAC and so are “developments affecting the mall industry generally”.
They can try to negotiate a lower price on threat of clawing out, which is what the market is pricing in. Check out June options and you’ll see that’s what is expected, a revision to $40 or so, with some probability of still getting full price.
If a deal break was really plausible you’d see the common drop a lot more than the preferred, percentage wise. Trading in rough tandem as they are, suggests revised price.
Architecto eos id deleniti iste commodi. Minus sunt officiis et. Sit repellendus soluta quia dolorem id. Molestias iusto tempora voluptas.
Qui unde eius exercitationem porro consectetur tempora accusamus. Aperiam perspiciatis quo nesciunt repellendus quis. Accusamus est temporibus voluptatum. In tenetur et aut ad unde rem error. Tenetur perferendis voluptatem eaque est. Repellat soluta laboriosam id et ut perferendis non.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...