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The Mars-Wrigley Deal, and Some Reflections on Deal Structure

Mars Wrigley transaction merger acquisition ATL Above the Law blog.jpgThe deal junkies among will enjoy this post by Professor Steven Davidoff over at the NYT’s DealBook, entitled “The Future of M&A.” Professor Davidoff writes:

Earlier this week, several press reports spun the $23 billion Mars-Wm. Wrigley Jr. deal as a strategic transaction done as a leveraged buyout. Boy, were they more right than they knew.

The merger agreement was filed by the parties on Wednesday. It disclosed that the Wrigley-Mars transaction is structured as a private equity leveraged buyout deal with a reverse termination fee structure.

True to the most optional form of this type of transaction, the merger agreement caps Mars’ maximum liability at $1 billion and bars specific performance. The effect is to give Mars a walk right from the transaction at any time, so long as it pays Wrigley $1 billion.

If this is your cup of tea, you can read more after the jump.

This approach might be surprising to some:

When the optionality inherent in the private equity structure first came to light in the fall in this string of broken deals, many, including me, thought it would lead to tighter deals: Targets would insist that private equity transactions move toward the strategic model where reverse termination fees were absent and specific performance permitted.

But instead we are seeing the exact opposite. The few significant private equity deals announced since January have had a reverse termination fee and barred specific performance. And now this, a strategic deal in this private equity model. So is this the end of the strategic deal? Are target boards crazy to agree to this?

Not necessarily. This approach may make more sense viewed from a different angle — or, at least, in the specific context of the Mars-Wrigley transaction. Read Professor Davidoff’s full post — which is lengthy, but quite enlightening, especially for those of you who get off on deal structuring — over here.

Which lawyers deserve the credit — or blame — for this transaction? From Dealscape:

A Skadden, Arps, Slate, Meagher & Flom LLP team led by William Kunkel that included partners L. Byron Vance, Lynn McGovern, Cliff Aronson, James Venit, Michael Lawson and Ed Welch was counsel to Wrigley.

For financial advice, Mars turned to J.P. Morgan and a Simpson, Thacher & Bartlett LLP team led by M&A partners John Finley and Kathryn Sudol.

Wrigley and the Future of M&A [DealBook / New York Times]
Just In: Advisers on Mars-Wrigley [Dealscape / The Deal]

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