Re-Evaluating the Emerging Standard of Review for Matching Rights in Control Transactions

45 Pages Posted: 18 Oct 2011 Last revised: 1 Nov 2011

Multiple version iconThere are 2 versions of this paper

Date Written: April 10, 2011

Abstract

In recent years courts have taken a permissive approach to matching rights, viewing them as standard features in merger agreements. Matching rights are deal protection devices intended to give the rightholder assurance that the deal will be completed, consequently these measures can deter subsequent bidders and, in the event a subsequent bid appears, ensure that the initial bidder is advantageously positioned to succeed. This Article argues that courts should re-evaluate the emerging legal standard governing the use of "matching rights" in merger agreements.

Plaintiffs have brought challenges to the use of matching rights in various circumstances. Until now, however, courts have refused to acknowledge that there might be circumstances in which matching rights are preclusive deal protections and therefore unreasonable. Consequently, the emerging legal standard with respect to matching rights is one of permissiveness. In fact, there are circumstances in which one can expect matching rights to be potentially powerful deterrents to second bidders. In such circumstances, the use of matching rights may be unreasonable.

Courts should employ the same fact-intensive review to the use of matching rights that they employ with respect to other deal protection measures. Once sensitized to the specific deterrent effects of matching rights, courts should more closely scrutinize the use of matching rights, particularly when the right-holder is a financial buyer or the sales process demonstrates characteristics of a common value sale.

Keywords: matching rights, mergers, unocal, rights of first refusal

JEL Classification: K20, K22

Suggested Citation

Quinn, Brian JM, Re-Evaluating the Emerging Standard of Review for Matching Rights in Control Transactions (April 10, 2011). Delaware Journal of Corporate Law (DJCL), Vol. 6, 2011 , Boston College Law School Legal Studies Research Paper No. 249, Available at SSRN: https://ssrn.com/abstract=1945885

Brian JM Quinn (Contact Author)

BC Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

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