Antitrust in M&A: Allocating Risk and Responsibility in Merger Agreements

Description

Determining how antitrust risk is shared can be critical in negotiations of a merger agreement. Many tools are commonplace for addressing antitrust risk. Because provisions may determine who takes on the cost of the failed deal, they must be drafted with care.

Efforts clauses govern what the parties have agreed to do to obtain antitrust clearance for the transaction. Clauses typically include a "best efforts," "reasonable best efforts" or "commercially reasonable best efforts" provision, or, where the buyer is obligated to undertake any actions necessary to gain antitrust clearance, a "hell-or-highwater" provision.

Extended investigations can impact financing and the ongoing business of the parties. End-date provisions put a limit on how long the parties must pursue approval, but which party has the right to terminate at the end of a prescribed period, and on what basis, must be negotiated. Reverse termination fees--where a buyer agrees to pay the seller a fixed fee if the deal terminates because of the failure to obtain antitrust approvals--can also come into play.

A buyer will typically want full control and final decisionmaking authority to the extent the buyer is assuming all or substantial antitrust risk. Where the risk is more evenly shared, parties typically agree to share control of the antitrust strategy. In each case, parties will usually agree to work cooperatively towards the end goal of securing antitrust clearance. Material adverse effect thresholds may be employed to limit the level of divestitures a buyer is required to make to gain antitrust clearance.

Listen as our authoritative panel discusses the provisions used in M&A agreements to allocate antitrust risk between the parties, and some recent cases ruling on the enforceability of these provisions.