Deal Protection Devices: The Negotiation, Protection, and Enforcement of M&A Transactions
Research Handbook on Mergers and Acquisitions(Claire A. Hill & Steven Davidoff Solomon eds., Edward Elgar Publishing Ltd., 2016)
27 Pages Posted: 20 Jun 2017
Date Written: June 16, 2017
A staple of M&A agreements, deal protection devices are contractual provisions designed to increase deal certainty and provide “insurance” in the event of non-consummation of a merger. While revolutionary innovations in deal protection devices – often spurred by dramatic legal or economic events – garner most of the attention, these deal terms continue to evolve even during relatively stable periods of merger activity. This chapter addresses the considerations relevant to the negotiation, protection, and enforcement of M&A transactions through the use of deal protection devices. This chapter begins with an outline of the different types of deal protection devices used in merger agreements and a discussion of the variations within each type. Next, this chapter summarizes the relevant standards of judicial review that courts have applied in challenges to deal protection.
Finally, this chapter surveys recent empirical research regarding the value added by these deal terms in the context of:
(1) the negotiation of a merger,
(2) stockholder wealth maximization, and
(3) revisions as part of litigation settlement.
This chapter concludes with a brief examination of trends in deal protection devices and potential developments in deal protection jurisprudence going forward.
Keywords: deal protection devices, merger, acquisition, M&A, fiduciary duties, omnicare, unocal, defensive, poison pill, standstill, revlon, termination fee, fiduciary out, matching rights, lock ups, blasius, force-the-vote, topping fees, walkaway povisions, collar, reverse termination fee, crown jewel
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