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deal might lead to employee departures, the target might be successful in persuading the
acquirer that it should not be able to terminate the deal because of those departures.

Climan: I think it’s fair to say that, while it’s become commonplace over the past
several years for the parties to negotiate these carve-outs to the MAC definition in
mergers between public companies, the carve-outs are not yet quite so prevalent in
public-private merger agreements.

What about MAC-outs going in the other direction? When would the target
company insist on a walk right tied to a material adverse change in the acquirer’s
business?

Glover: In stock-for-stock deals, the target would frequently argue to the acquirer:
"You really ought to give me a MAC-out because my stockholders are making an
investment in you going forward.” The acquirer would typically fulfill that request and
there would be a MAC-out exercisable by the target, which would give the target the right
to terminate the deal if there were a material adverse change in the business of the
acquirer.

In that context, there are often carve-outs from the definition of "material adverse
change" for changes in the acquirer’s stock price. An acquirer generally wants to make
sure that the target can’t terminate the deal simply because the acquirer’s stock price
goes down, at least where the decline is generally consistent with what’s happening to
the acquirer’s peer group of companies.

Climan: One situation in which the acquirer might successfully resist the target’s
request for a MAC-out is where the exchange ratio formulation is a pure floating exchange
ratio. If the parties have agreed to a floating exchange ratio, then anything bad that
happens to the acquirer and causes its stock price to fall simply results in more stock being
issued to the target company’s stockholders at the closing of the merger.

However, even where there’s a pure floating exchange ratio, the target company’s
stockholders could be locked into their investment in the acquirer’s stock for some period
of time following the closing, either because of contractual resale restrictions or because
of securities law restrictions. Under these circumstances, the target might still insist on a
MAC-out, notwithstanding the floating exchange ratio.

Glover: Right. Where these resale restrictions exist, the target typically would
have success with the argument, "you’re telling my stockholders you’re giving them a
specified value at the closing, but they’re going to be at risk after the deal closes. There’s
going to be a period where they can’t dispose of their stock and so they really ought to
have some protection if your stock price is on a downward trajectory at the time of the
closing."

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