After just one new deal announced in the prior four weeks, merger activity increased last week with three new deals announced, three deals closing and one suitor attempting to walk away from a deal.
Simon Property Group (SPG) attempted to walk away from its acquisition of Taubman Centers (TCO) last week. SPG filed an action against Taubman Centers requesting a declaration that Taubman has suffered a Material Adverse Event (“MAE”) under the Merger Agreement and has breached the covenants in the Merger Agreement governing the operation of Taubman’s business. If the courts allow for the impact of the COVID-19 situation to count as a Material Adverse Event (“MAE”), it could give other acquirers a way out of their deals. We wrote the following towards the end of March,
With 10 deals trading at spreads of over 25% and 26 deals trading with spreads of over 10%, the merger arbitrage space is rife with both opportunity and risk. If the economic situation deteriorates further and impacted industries are not able to benefit from the massive $2 trillion stimulus package that has now passed both houses of congress, there is a good possibility that several of these deals will fall apart.
Studying the material adverse change (MAC) clause of a merger agreement may not be sufficient, as acquirers could choose to walk away from deals and take their chances in the courts. Paying attention to the kind of acquirer, the macro environment and industry specific issues is very important at this juncture.
The all-stock bid by Uber Technologies (UBER) for Grubhub (GRUB) came to an end when the company agreed to be acquired by Just Eat Takeaway.com last week. According to Reuters, “Uber and Grubhub combined would account for more than half the U.S. food delivery market, according to some analysts’ estimates.” Getting approval from regulators for this deal would have been a difficult hurdle to cross for both the companies.