The Art Of Reneging On A Merger

By Ray Schachter*

In early 2007, with the Dow rising and consumption in the United States increasingly fuelled by easy credit, there was an explosion of deal making. This combination had given rise to a disproportionately strong seller's market for almost any commodity; including active companies. Exacerbating the situation was a well-funded private equity sector eagerly seeking and demanding deals that would produce the double-digit returns. The credit markets began to unravel in mid-2007, and by late 2008 the appetite for mergers and acquisitions started to sour.¹

Naturally, some buyers decided they no longer wanted to proceed and used every possible strategy to renege on their deals with minimal liability or to restructure the transactions to meet new criteria more palatable to them. However, because of the pressures of a hot seller's market and easy credit, the buyers may not have been able to negotiate flexible exit provisions and other risk-allocation