Wednesday, November 28, 2007
The acquisition of Midwest Air Group by TPG Capital, L.P. and Northwest Airlines, Inc. is currently stuck in a holding pattern complying with a request for additional information, commonly known as a second request, by the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. A second request is common, but it can lead to federal action to halt or otherwise force the parties to restructure an M&A transaction.
So, given the current posture of the deal, the merger agreement provisions on this matter would be important. Here, you start with Section 6.3(a):
Appropriate Action; Licenses; Filings. The Company, the Parent and the Merger Sub shall use their reasonable best efforts to, as applicable (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law to consummate and make effective the transactions contemplated by this Agreement, (ii) obtain all Licenses required under applicable Law (including all rulings and approvals of Governmental Authorities) as a result of consummation of the transactions contemplated by this Agreement, including the Merger (collectively, “Governmental Licenses”), (iii) obtain all Consents required under material Contracts to which the Company or any of the Company Subsidiaries is a party or by which it is bound (collectively, “Company Consents”), (iv) obtain all Consents required under material Contracts to which the Parent or any of the Parent Subsidiaries is a party or by which it is bound (collectively, “Parent Consents”), and (v) make all necessary notices, reports, filings and registrations, and thereafter make any other required submissions, with respect to this Agreement and the Merger required under applicable Law (including the filings and other submissions, if any, required under the Securities Act and the Exchange Act) (collectively, “Governmental Filings”); provided, that the Parent, the Merger Sub and the Company shall cooperate with each other in connection with the making of all Governmental Filings, including providing copies of all such documents to the non-filing party and its advisors prior to filing (provided, that, in certain circumstances, such filings may be made available only to outside counsel of the non-filing party with a mutually acceptable agreement that such information may not be shared with the nonfiling party) and, if requested, to accept all reasonable additions, deletions or changes suggested in connection therewith. Notwithstanding the foregoing, (i) the Parent and Merger Sub shall not be required to make a change in the identity of its members or a material change in the terms of its members’ investment in the Parent in connection with obtaining any such approval and (ii) the Company shall not (and shall not permit any Company Subsidiary to) pay any consent fee, waive any material rights, materially amend the terms of any Contract or agree to hold separate or dispose of any assets or make any material changes to the operations or business of the Company or the Parent or any of their respective Affiliates, or commit to do any of the foregoing, in connection with obtaining any Governmental Licenses or Company Consents or in connection with any Governmental Filings, in each case without the prior written consent of the Parent in its sole discretion. The Company and the Parent shall furnish all information required for any Governmental Filing to be made pursuant to the rules and regulations of any applicable Law in connection with the transactions contemplated by this Agreement.
This long provision should ring alarm bells for any M&A lawyer. Why? It's not that it is unusual or otherwise -- it is simply because it is the boilerplate you typically see in transactions where no antitrust problems are expected. It is too ordinary. In a transaction like this, given Northwest's involvement you would expect to see an extended provision allocating the antitrust risk and detailing procedures in the case of a second request. So where is it? Well, reading further along in the merger agreement one finds the following provision in Section 6.10:
Section 6.10 [Intentionally Omitted.]
Now that is odd also. In these days where provisions automatically renumber on computers why didn't they just delete it and automatically renumber. Is there perhaps an undisclosed side agreement on antitrust issues here? It certainly looks off. And if any reporters are out there feel free to give Midwest a call on this. I will say this, though, if they have taken this step, given the materiality of the antitrust issues and any provisions dealing with it, I believe this would almost certainly violate the Exchange Act disclosure requirements for material information. If so, Midwest would do well to retain new counsel familiar with the Titan proceedings where Titan was fined by the SEC for similar disclosure failures (more on that here). But again, all of this is mere speculation and it may mean nothing.
I'll have more if anyone speaks with Midwest and then me (including if Midwest has an explanation).