M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Tuesday, August 30, 2011

Innkeepers challenges Cerberus on MAC

So now Innkeepers has filed a complaint against Cerberus in the SDNY challenging Cerberus' decision to call a MAC on its acquisition of Innkeepers.  

The MAC as it appears in the Commitment Letter is as follows:

The occurrence of any condition, change or development that could reasonably be expected to have a material adverse effect on the business, assets, liabilities (actual or contingent), or operations,  condition (financial or otherwise) or prospects of the Fixed/Floating Debtors taken as a whole . . . 

Here's the Innkeepers' complaint. They are looking for specific performance. The crux of their argument is that while there may have been some market volatility recently, there has been no material adverse change.  Consequently, there is no basis for Cerberus to walk away from the transaction.  Indeed, Innkeepers argues that the subject of the MAC clause - the Fixed/Floating Debtors - are doing just fine, thank you very much.  Recent market volatility has - according to Innkeepers - is not relevant to the performance of the properties in question and in any event was foreseeable at the time of the contract.  They accuse Cerberus of trying to force a renegotiation of terms.

 My best guess is that Innkeepers has the better side of the argument here, although that's left to be seen.  We'll continue to follow this case as it develops.

-bjmq

 

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Material Adverse Change Clauses, Private Equity | Permalink

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