Copyright (c) 2009 All rights reserved. http://works.bepress.com/robert_miller Recent documents in Robert T Miller en-us Sat, 03 Oct 2009 17:11:31 PDT 3600 http://works.bepress.com/robert_miller/28 http://works.bepress.com/robert_miller/28 Fri, 02 Oct 2009 13:45:13 PDT In any large corporate acquisition, there is a delay between the time the parties enter into a merger agreement (the signing) and the time the merger is effected and the purchase price paid (the closing). During this period, the business of one of the parties may deteriorate. When this happens to a target company in a cash deal or to either party in a stock deal, the counterparty may no longer want to consummate the transaction. Merger agreements typically protect counterparties against this risk through "material adverse change" (MAC) clauses, which permit the counterparty to cancel the deal if the party suffers a MAC between signing and closing.Despite the complexity of typical MAC clauses, such clauses almost always rely on an undefined concept of materiality, and virtually all of the important reported cases arising from MAC clauses have required the court to decide whether a particular adverse change in a party's business was "material" within the meaning the agreement. In attempting to give content to this term, courts have generally inquired whether the earnings capacity of the company has been substantially impaired. This inquiry, which I call the Earnings Potential Model, proceeds by comparing the actual or expected earnings of the company across various of its fiscal periods.This article reviews all the important reported MAC cases and argues that the Earnings Potential Model has failed to provide courts with a judiciable standard by which to decide MAC cases. In particular, the model cannot explain (a) which fiscal periods of the company ought to be compared with which, and (b) what percent diminution in earnings between such periods is sufficient to cause a MAC.The article then proposes an efficiency interpretation of materiality as used in MAC clauses: assuming the allocation of risk in MAC clauses is efficient, an adverse change is material if, but only if, it is sufficiently large to make the transaction unprofitable for the counterparty. Based on this interpretation, the article explains and defends a new model of MAC clauses, which I call the Continuing Profitability Model. Under this model, a court would apply a simplified discounted cash-flow analysis based on publicly-available data to determine whether, at the time the counterparty declared a MAC, the transaction was still profitable for it. If so, there was no MAC, and the counterparty should have to close the deal or be in breach. If not, then the party was MAC'd and the counterparty should be permitted to cancel the deal. The article concludes by applying the model to the facts in Hexion v. Huntsman, the most recent MAC case in the Delaware Court of Chancery, and argues that the court, misled by the Earnings Potential Model, was clearly mistaken in holding that Huntsman had not been MAC'd. Robert T. Miller Articles http://works.bepress.com/robert_miller/27 http://works.bepress.com/robert_miller/27 Fri, 03 Apr 2009 13:08:44 PDT Robert T. Miller http://works.bepress.com/robert_miller/26 http://works.bepress.com/robert_miller/26 Fri, 03 Apr 2009 12:55:51 PDT Robert T. Miller http://works.bepress.com/robert_miller/25 http://works.bepress.com/robert_miller/25 Fri, 03 Apr 2009 12:53:56 PDT Robert T. Miller http://works.bepress.com/robert_miller/24 http://works.bepress.com/robert_miller/24 Fri, 03 Apr 2009 12:51:39 PDT Robert T. Miller Book Reviews http://works.bepress.com/robert_miller/23 http://works.bepress.com/robert_miller/23 Tue, 31 Mar 2009 17:52:09 PDT In any large corporate acquisition, there is a delay between the time the parties enter into a merger agreement (the signing) and the time the merger is effected and the purchase price paid (the closing). During this period, the business of one of the parties may deteriorate. When this happens to a target company in a cash deal, or to either party in a stock-for-stock deal, the counterparty may no longer want to consummate the transaction. The primary contractual protection parties have in such situations is the merger agreement's "material adverse change" (MAC) clause. Such clauses are heavily negotiated and extremely complex, and when parties dispute whether one of them has been MAC'd between signing and closing, the fate of the transaction (and thus often billions of dollars in value) depends on the proper interpretation of the MAC clause. This article reports the results of an empirical study of MAC clauses in over 350 business combination agreements filed in the SEC's EDGAR database between July 1, 2007, and June 30, 2008, argues that prior theories of the allocation of risk in MAC clauses are inconsistent with the empirical data, and then explains why the complex allocations of risk typically made in public company merger agreements are in fact efficient. Robert T. Miller Articles http://works.bepress.com/robert_miller/22 http://works.bepress.com/robert_miller/22 Wed, 09 Jul 2008 08:50:06 PDT Robert T. Miller Contributions to Books http://works.bepress.com/robert_miller/21 http://works.bepress.com/robert_miller/21 Wed, 09 Jul 2008 08:49:11 PDT Robert T. Miller Articles http://works.bepress.com/robert_miller/20 http://works.bepress.com/robert_miller/20 Wed, 09 Jul 2008 08:47:13 PDT Robert T. Miller Articles