The Mars-Wrigley Deal, and Some Reflections on Deal Structure
The 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]
(28) Comments
FIRST to say, Snickers really satisfies.
Wow, I did not understand a word of that.
"Bars" SP - no pun intended, right?
4:45, you're an idiot. Go back to your torts class.
These bastards are fixin to corner the market on gum!
That is all Greek to me. Love ATL, and Lat is certainly alright, but sometimes his M&A background manifests in ways that harm readability.
Lat, while I applaud hiring Kash for her cuteness factor, maybe you should get some guest posts from lawyers in other areas? Litigation? Criminal practice? (The tax and sports posts are a good start I guess...)
Alternatively, explain this stuff better for all the M&A noobz... (I suppose one of the benefits of being a litigator is that I am forced to express the facts of my cases in dumbed-down terms for clients/judges/juries, and thus makes me a better communicator.)
There's the problem right there. Wrigley used Skadden. I would have made that puppy airtight.
J.C. Flowers waiting to happen all over again.
finally a post worth reading.
Skadden to cocaine and skittles.
Is Simpson doing the antitrust on the deal as well?
It's......it's.....content!!!! I missed this.
Even if you're a litigator busted corporate deals are the type of things you'll often end up litigating so you should be worried if you don't understand what he's talking about.
Why does Skadden get to do everything? Schulte should've been tapped on the shoulder for this one.
Thanks for the heads up. It was really interesting.
These are business decisions. You don't blame the monkey scribe for such things.
Skadden is a new school joke.
I'm curious about how this all works in practice. Generally, do the lawyers negotiate the termination fees or is this a matter left to financial advisors, with the lawyers charged with putting the terms on paper?
I'm surprised Sidley didn't get this deal. Aren't they the top firm in Chicago when it comes to strategic M&A (no offense to you Kirkland guys)?
Only a $1 billion termination fee?
Didn't Skadden cause an $ 8 billion + break up fee in Penzoil v. Texaco? (You litigators should know this one.)
10:18 pm (5/1), I too am curious about a non-Chicago firm (though Skadden does have a sizable Chi office) getting top billing on this deal (especially given that Sidley has represented Wrigley on other matters, I believe). However, my guess is that Sidley either (i) has something to do with the financing on this deal (i.e., either for lenders or for mono-line insurers) or (ii) because of the nature of the deal, it was best to use a firm (Skadden) that had never represented the company (and likely won't after the deal). Who knows...
9:58 and 11:37: These are clearly business decisions. The parties are sophisticated enough to understand the recent legal developments and I assume that the break-up fee/specific performance issue is one of the most important points when the merger agreement is negotiated.
10:18, 8:25: Wrigley has been a client of Skadden for years. Notably, Skadden advised Wrigley on its purchase of Lifesavers and Altoids from Kraft.
6:10 pm: No. Another firm is doing the antitrust work.
I hear altoids may be used as an oral sex aid.
2:07 - who?
Okay, 1:51, thanks for the info.
The reason Skadden got this deal is because it is a complex and unusual deal, which means you need the best deal law firm the world has ever known - Skadden.