Antitrust Risk Allocation in Merger Agreements: Anticipating and Managing Risks of Deal Delay or Non-Completion

Description

Businesses contemplating a merger often negotiate provisions in the merger agreement to allocate the risk of the deal being delayed or derailed due to antitrust concerns by the Department of Justice (DOJ) or the Federal Trade Commission (FTC). As the FTC and DOJ have stepped up their merger enforcement efforts in recent years, antitrust risk-shifting provisions have increased in importance.

Common antitrust risk-shifting provisions include hell or high water, divestitures of certain assets or businesses, and breakup and reverse breakup fees. Reverse breakup fees have been a heavily negotiated deal point in the pending Sprint and T-Mobile merger. Determining which provisions are most appropriate for specific types of deals requires an understanding of the potential antitrust harm of the deal and the individual assets of the buyer and the target.

When including antitrust risk-shifting provisions in merger agreements, counsel to the deal parties must remain mindful of the practical effect of the provisions when dealing with the DOJ and FTC. The inclusion of risk-shifting clauses may cause antitrust regulators to believe a potential merger is fraught with anti-competitive risks and effectively delay or derail the deal. Antitrust counsel must also coordinate closely with corporate deal counsel to outline the interplay of the antitrust risk-shifting provisions with other clauses in the merger agreement.

Listen as our authoritative panel discusses current trends in the use of antitrust risk-shifting provisions in merger agreements, best practices for drafting and negotiating the clauses, and the potential adverse impact of including the provisions in the merger agreement.