Thursday, August 19, 2010
I've posted on matching rights in merger agreements before. And, over at The Deal Professor, just yesterday Steven did a nice post on deal making innovations with the observation that matching rights are becoming more and more common. Almost as if on cue, Intel announced its acquisition of McAfee. The merger agreement is loaded with matching rights for Intel that make it extremely difficult to imagine how a third party might justify putting together a competing bid.
For example, in section 6.3 the agreement provides Intel with information rights in the event a Superior Proposal is received by McAfee. That's to say if Symantec were to throw an unsolicited proposal over the transom, McAfee would have to share it with Intel and provide Intel two days notice before it began negotiations with the second bidder. Of course, that gives Intel a leg-up on any brewing bidding contest. But if that were not enough, the merger agreement gives Intel an explicit match. The matching right prevents McAfee's board from changing its recommendation in favor of the Intel transaction in the event it receives a Superior Proposal until it has:
(A) provided to Parent five (5) business days’ prior written notice that it intends to take a such action... (B) during such five (5) business day period, if requested by Parent, engaged in good faith negotiations with Parent to amend this Agreement in such a manner that the Acquisition Proposal that was determined to constitute a Superior Proposal no longer is a Superior Proposal ...
Explicit matching provisions like this have only one purpose - to shut out potential second bidders by ensuring the only way they will win a potential bidding contest is by overpaying. That's not a position a second bidder likes to be in. The presence of such rights thus weakens the power of a post-signing market check. Prior to the Delaware Supreme Court's decision in Lyondell, I might have been worried that by shutting down a post-signing market check and not conducting a pre-signing market check that a board might be in some danger of running afoul of its Revlon obligations. I'm less worried about that now, but am still uneasy that the prevalence of explicit matching rights in merger agreements where board's have Revlon obligations makes it difficult for a board to argue that it took reasonable steps to maximize shareholder value upon a sale for cash.