Dykema On Demand
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Featured ArticleCostly BreakupsWhen billion-dollar M&As go bad, boilerplate material adverse change clauses rarely protect buyers from liability for large breakup fees. When KKR and Goldman Sachs signed what will potentially be a $400 million deal to pull out of purchasing stereo-maker Harman International in October, it marked the end of a contentious battle. The private-equity firms wanted to walk away from their $8 billion takeover of Harman, but the target company said it would sue the buyers to enforce a $225 million breakup fee. The $400 million compromise gave the buyers something for their money, and allowed the parties to avoid costly and risky litigation. “The courts are examining the facts closely,” said Dykema attorney Delisa Russell in a Dykema on Demand Podcast. “They’re considering broadly the points of view and expectations of both parties going into a deal.” Other recent cases illustrate the risks buyers face when mergers and acquisitions (M&A) go bad before they close: ■ September 2007: A buyer group, including Bank of America, JPMorgan and J.C. Flowers & Co., cited legislative changes in its intention to cancel a proposed $25 billion buyout of student-loan institution SLM Corp. Sallie Mae says it will sue to collect a $900 million breakup fee. ■ September 2007: Footwear retailer Genesco filed suit against shoe seller The Finish Line, which sought additional financial information from Genesco to determine whether the company’s financial condition deteriorated enough to trigger a MAC clause in its $1.5 billion buyout. ■ October 2007: Silver Lake Partners and ValueAct Capital paid $65 million to terminate their $3 billion buyout of software maker Acxiom. The deal’s material adverse change clause allowed the buyers to cite changing debt markets to avoid paying a $111 million breakup fee. For more information, please contact Delisa Russell at drussell@dykema.com |
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