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Managing Disputes Through Contract: Evidence from M&A

John C. Coates, IV

Harvard Law School

February 27, 2012

Harvard Business Law Review, Forthcoming

An important set of contract terms manages potential disputes. In a detailed, hand-coded sample of mergers and acquisition (M&A) contracts from 2007 and 2008, dispute management provisions correlate strongly with target ownership, state of incorporation, and industry, and with the experience of the parties’ law firms. For Delaware, there is good and bad news. Delaware dominates choice for forum, whereas outside of Delaware, publicly held targets’ states of incorporation are no more likely to be designated for forum than any other court. However, Delaware’s dominance is limited to deals for publicly held targets incorporated in Delaware, Delaware courts are chosen only 20% of the time in deals for private targets incorporated in Delaware, and they are never chosen for private targets incorporated elsewhere, or in asset purchases. A forum goes unspecified in deals involving less experienced law firms. Whole contract arbitration is limited to private targets, is absent only in the largest deals, and is more common in cross-border deals. More focused arbitration – covering price-adjustment clauses – is common even in the largest private target bids. Specific performance clauses – prominently featured in recent high-profile M&A litigation – are less common when inexperienced M&A lawyers involved. These findings suggest (a) Delaware courts’ strengths are unique in, but limited to, corporate law, even in the “corporate” context of M&A contracts; (b) the use of arbitration turns as much on the value of appeals, trust in courts, and value-at-risk as litigation costs; and (c) the quality of lawyering varies significantly, even on the most “legal” aspects of an M&A contract.

Number of Pages in PDF File: 51

JEL Classification: D23,D74, D82, D83, G32, G34, G38, K12, K22, K40, K41

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Date posted: August 23, 2011 ; Last revised: March 4, 2012

Suggested Citation

Coates, IV, John C., Managing Disputes Through Contract: Evidence from M&A (February 27, 2012). Harvard Business Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1915135 or http://dx.doi.org/10.2139/ssrn.1915135

Contact Information

John C. Coates (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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