October 2, 2007
The Unbearable Lightness of Wilson Sonsini
I wanted to reiterate a point that may have been lost in my long post on 3Com yesterday concerning the role of Wilson Sonsini in that deal and in the failed Acxiom/Silver Lake & ValueAct transaction. In both deals Wilson Sonsini represented the targets. So, I was doubly surprised that Wilson negotiated the same reverse termination fee structure in 3Com as it did in Acxiom. In both cases it provides the private equity buyer an absolute right to walk from the transaction if it pays a termination fee, a fee which is substantially reduced if the buyer walks due to the financing banks failure to fund committed debt financing. As a base-line matter, I was a bit put-off that in such an unstable credit market, any lawyer would advise their clients to agree to the reverse termination fee structure 3Com did. And it essentially means that the buyer will have a right to walk by paying the lower fee -- an excuse will always come that the credit could not come from.
But I was doubly surprised that this would come from Wilson. In the midst of negotiating 3Com and aware of the significant credit market problems, Wilson was also negotiating the termination of the Acxiom deal under the same fee structure, a fee structure agreed to before the August troubles. I cannot see how they would not at least point 3Com to the publicly available information about Acxiom and highlight the problems this structure creates and was creating for Acxiom. If so, I would also be surprised 3Com would still agree to these terms, particularly the staggered fee. I am still struggling to justify the logic here. Did Wilson merely take its last private equity deal off the shelf and push the auto-pilot button? I'd like to think other factors were at work, but I'm finding it hard to do. Hopefully, target lawyers in future private equity deals will avoid Wilson's path by and convince their clients to forgo this very risky structure.
And, as I outlined in my post yesterday, this is the most significant but clearly not the only problem with the legal terms of the 3Com deal negotiated by Wilson for its client.
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