It is said that the Material-Adverse-Change (MAC) clause is one of the the most important contract terms of our time. However, due to an almost total lack of proper case law and overall uncertainty regarding its meaning, it is heavily criticized. This might have changed. In December 2018, the Supreme Court of Delaware in the case of Akorn v. Fresenius backed the termination of a merger agreement by first ever enforcing the MAC clause. Using a comparative law approach, this paper examines the MAC clause with special reference to above mentioned precedent case. Particular focus is on the question of whether the extensive judgment creates a framework for the drafting of the contract provision and therefore serves as a basis to provide certainty for MAC clauses in the future.
In a next step, MAC clauses in German public takeover offers and resulting drafting differences to the U.S. will be examined.
MAC clauses become particularly relevant in times of volatile stock markets. It remains to be seen whether the trend from the U.S. will establish itself in Germany.
This paper includes an overview over the current legal status quo in both jurisdictions, an extensive case study and comparison to other relevant cases, and an examination of the structure of a MAC clause with special focus on the "materiality issue". It further examines the implementation of MAC clauses in German takeover offers following the German Takeover Act (WpÜG) and resulting drafting differences.
Inhaltsverzeichnis (Table of Contents)
- A. Introduction
- B. Relevance of the MAC clause in Germany and the U.S.
- I. The inherent risk in business transactions
- II. Current legal status quo
- 1. § 313 BGB.
- a) Requirements
- b) Arising issues.
- c) Application to takeover bids
- 2. Frustration Doctrine
- 3. Conclusion
- C. Akorn v. Fresenius and the Material Adverse Change
- I. Case Study.
- 1. Background
- a) Facts (pre-Signing)
- b) The operation of the MAC clause in the agreement
- aa) MAC condition
- bb) Definition of MAC
- cc) Inferences
- c) Facts (post-Signing).
- 2. Legal analysis of the court regarding the MAC clause.
- a) Materiality
- aa) Digression: Reasons for an undefined standard.
- (1) Definition vagueness
- (2) Impracticability of quantitative benchmarks
- (3) Lack of substantive SEC rules …...
- bb) Existing case law regarding the materiality standard
- (1) Long-term perspective of a reasonable buyer (In re IBP)
- (2) Year-over-year comparison (Hexion v. Huntsman).
- cc) Conclusion.
- (1) Financial metrics
- (2) Durational significance
- (3) Standalone-evaluation standard
- b) Carve Outs
- II. Creation of a framework for MAC clauses?
- 1. Structural standard for MAC clauses
- a) Strict expressio unius interpretation in previous cases
- b) Parol Evidence Rule valuations
- aa) Rule
- cc) Drafting consequences
- bb) No restrictive interpretation by default..
- 2. Two step materiality standard for determining a MAC.
- a) Magnitude element
- aa) Sudden drop…
- bb) Decline in earnings guideline
- b) Flexible durational element…........
- aa) Long-term.
- bb) Short-term exception
- D. MAC clauses in the corset of the German Securities Acquisition and Takeover Act.
- I. Conflict of interests…
- II. Legitimacy of MAC clauses in takeover offers....
- 1. Voluntary takeover offers
- a) § 18 WpÜG....
- b) MAC clauses in the form of an objective condition
- c) MAC clauses in the form of a right to revoke or rescind……………………….
- aa) Wording of § 18 II WpÜG
- bb) Teleological reduction of § 18 II WpÜG.….....
- cc) Purpose of § 18 WpÜG
- 2. Mandatory takeover offers
- III. Content requirements for admissible MAC clauses…
- 1. Statutory requirements
- a) Principle of Certainty (§ 18 I WpÜG)
- aa) Wording of § 18 I WpÜG.….……………………….
- IIIbb) § 18 I WpÜG in the system of the WpÜG
- b) Principle of Transparency (§ 3 II WpÜG)
- 2. Implementation in the takeover practice.
- a) Current takeover offers
- aa) E.ON / Innogy
- bb) Midea/KUKA…
- b) Practice requirements..
- aa) Specification of the MAC though financial thresholds…......
- bb) Linkage to § 15 WpHG
- cc) Determination of the MAC by an independent auditor.
- E. Overall conclusion
- The legal framework and practical application of Material Adverse Change (MAC) clauses in public takeover bids.
- Comparative law analysis of MAC clauses in the U.S. and Germany.
- The impact of MAC clauses on the certainty and predictability of takeover transactions.
- The interplay between MAC clauses and existing legal frameworks in both jurisdictions.
- The implications of the Akorn v. Fresenius case study for future takeover transactions.
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This seminar paper explores the legal framework and practical application of "Material Adverse Change" (MAC) clauses in public takeover bids. By examining the Akorn v. Fresenius case study, the author aims to provide a comparative law approach, analyzing both the U.S. and German perspectives on MAC clauses. This research is particularly relevant given the increasing prevalence of such clauses in takeover agreements.
Zusammenfassung der Kapitel (Chapter Summaries)
The paper begins by outlining the inherent risk in business transactions and the need for contractual protections. It then delves into the current legal status quo of MAC clauses in Germany and the U.S., examining relevant legal provisions, case law, and doctrinal interpretations. The author provides a detailed analysis of the Akorn v. Fresenius case study, exploring the factual background, the operation of the MAC clause in the agreement, and the court's legal analysis regarding the materiality of the adverse change.
Following this, the author examines the legal framework for MAC clauses in the German Securities Acquisition and Takeover Act (WpÜG), addressing conflict of interests and the legitimacy of such clauses in both voluntary and mandatory takeover offers. The paper concludes by analyzing the content requirements for admissible MAC clauses, highlighting the principles of certainty and transparency, and exploring current takeover practices.
Schlüsselwörter (Keywords)
Material Adverse Change (MAC), Takeover Bids, Public Takeovers, Akorn v. Fresenius, Comparative Law, Securities Acquisition and Takeover Act (WpÜG), German Law, U.S. Law, Contract Law, Business Transactions, Risk Management, Materiality, Legal Framework, Case Study, Corporate Governance, Legal Certainty, Transparency, Contractual Provisions.
- Quote paper
- Sebastian Edrich (Author), 2019, Material-Adverse-Change clauses in Public Takeovers in the Case of Akorn v. Fresenius. A Comparative Law Approach, Munich, GRIN Verlag, https://www.grin.com/document/539474
