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Wednesday, October 10, 2007

Acxiom: Coda (Part II -- Acxiom's Press Release)

Likely in response to yesterday's New York Times story Acxiom issued the following press release:

LITTLE ROCK, Ark. – October 10, 2007 - Today, Acxiom® (NASDAQ: ACXM; www.Acxiom.com) reported that it had received full payment of the $65 million settlement amount related to its recently terminated Merger Agreement with Axio Holdings LLC and Axio Acquisition Corp. (collectively “Axio”).

The Company also reported that the $65 million settlement is significantly greater than the one-time expenses related to the terminated agreement and that the Merger Agreement did not include a $111 million termination fee as further explained below.

The Merger Agreement provided that, in the event all conditions to the closing of the merger transaction contemplated by the Merger Agreement were satisfied but the required debt financing for the transaction was not available, the Company would have been entitled to a break up fee of $66.75 million. In other circumstances in which Axio failed to close the proposed transaction in breach of the Merger Agreement, the Company was entitled to seek damages up to a limit of $111.25 million, but was not entitled to compel Axio to close the proposed transaction by seeking to specifically enforce the Merger Agreement.

In the event that a settlement agreement had not been reached, the Company would have had to pursue litigation in order to receive any compensation for damages.

Acxiom's argument is a semantic one.  Essentially, under Section 8.1(f) of the merger agreement, the agreement could be terminated:

by the Company, in the event that Newco and Merger Sub are in breach of their obligation to cause the Merger to be consummated pursuant to Section 2.2 because of their failure to receive the proceeds contemplated by the Debt Financing or their refusal to accept Alternative Financing on terms that are not less favorable, in the aggregate, to Newco and the Surviving Corporation than the Debt Financing contemplated by the Debt Commitment Letter . . . .

In cases where the merger agreement was terminated under this clause, Section 8.3(c) required that:

In the event that this Agreement is terminated by the Company pursuant to Section 8.1(f), Newco shall pay to the Company the Newco Termination Fee [$66.75 million], by wire transfer of immediately available funds to an account or accounts designated in writing by the Company, within two (2) Business Days after such termination.

This is the reverse termination fee referred to by Acxiom above.  In contrast, the $111.25 million figure is in Section 9.8:

9.8 Newco Damage Limitation. The Company agrees that, to the extent it has incurred losses or damages in connection with this Agreement, (i) the maximum aggregate liability of Newco and Merger Sub for such losses or damages shall be limited to $111,250,000 inclusive of the Newco Termination Fee (and the amounts available under Section 8.3(e)), if applicable. . . .

And Section 8.3(f) further limits the buyers damages if the agreement is terminated under Section 8.3(c) [lack of financing above] to the lower amount of $66.75 million.  But generally all other buyer breaches of the agreement are subject to the limitation of $111 million.  This gives the buyers the ability to absolutely walk from the agreement if financing is available by paying this $111 million.  This is what Acxiom is calling a damages limitation but the Times and others term a reverse termination fee.  And it really is semantics.  The Times and others do so because effectively this provides a right for the buyer to walk for any reason by paying the $111 million, a number that is reduced to $66.75 million if they are walking due to the negotiated provision of no financing being available.  Acxiom calls it a cap on damages because they affirmatively have to sue and prove damages up to the cap.  And can you can see the incentives here for the buyer? They will always claim that such financing has become unavailable -- a fact the banks will work with them on to ensure that only the lower fee is payable (I criticized this arrangement previously in the 3Com deal).

In the end, I am not sure why Acxiom is so defensive.  Given the deterioration of their business they appear to have done quite well to get the $65 million particularly given the above incentives which drive the maximum buyer fee to the lower cap.  Acxiom's agreement to do so was a seemingly rational assessment of the likelihood of success in litigation and the risk involved.  Of course, I'd love to know why it was $1.75 million short of the full fee payable in the case of a failure of financing. 

http://lawprofessors.typepad.com/mergers/2007/10/acxiom-coda-par.html

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