Wednesday, August 29, 2007
The MGIC Investment and Radian Group Inc. merger took an interesting turn this past week. On August 7, MGIC in a public filing disclosed that it believed a material adverse change had occurred with respect to Radian in light of the C-BASS impairment announced that previous week. C-Bass is the subprime loan subsidiary jointly owned by MGIC and Radian; it has been hit hard by the subprime crisis and has experienced greater than $1 billion in losses in the last few months. MGIC further stated that it had requested additional information from Radian and expected to complete its MAC analysis the week of August 13. Radian, not surprisingly, refuted MGIC's assertion in its own filing. At the time, Radian stated that it was "compelled to carefully assess the proprietary nature of the subsequent information requests [of MGIC] to ensure that Radian does not provide MGIC with an unfair competitive advantage in the event that MGIC decides that it does not have an obligation to complete the merger.."
The Radian/MGIC deal raises similar issues as the Lone Star/Accredited Home Lenders deal, and they are both governed by Delaware law. In particular they both raise mixed legal/factual issue of whether any material adverse change is disproportionate to Radian to an extent greater than the adverse changes to the industry generally (see my post on this here; see the MAC clause in the merger agreement at pp. 7-8). Given the similarities between the Lone Star/AHL deal and this one, I expected Radian and MGIC to wait until VC Lamb issues his decision and opinion in the Lone Star/AHL litigation in late September/early October before proceeding. And that appears to be what is happening. On Aug 21, MGIC sued Radian in federal district court in Milwaukee (its home town), to obtain information from Radian it believes is required to be delivered under the merger agreement and it needs to properly assess whether a MAC occurred (see news report here). MGIC is stalling for time through a nice legal maneuver. The deal is now likely on hold for the next month.
The MGIC/Radian litigation also highlights the importance of tight forum selection clauses. Clause 9.11 of the merger agreement stipulates that the parties accept jurisdiction in any suit for specific enforcement of the transactions contemplated by the agreement in any New York court. But this is not mandatory submission to jurisdiction. This may or may not have been the parties bargained for intent in future disputes (i.e., it may have just been a quick negotiation following the form late at night without really thinking through the possibilities of such an agreement). But, whatever the case, by suing for information in a Milwaukee court, Radian has now established home court advantage for any subsequent MAC litigation fight.