July 14, 2008

Mars-Wrigley Pending Acquisition: Are the “Strategics” Now Emulating the “Financials”?

From Cliff Neimeth of Greenberg Traurig: Here is the merger agreement for the Mar’s pending acquisition of Wrigley. Query whether this is indicative of the new strategic purchaser mindset in mega business combinations – or just a stand-alone deal?

At a minimum, the deal reflected in the attached merger agreement offers an interesting insight into the current (and perhaps offers a more prescient glimpse into the mid-term future?) state of the M&A financing market.

Most uncommonly, the merger agreement providing for Mars’ strategic $23.0 billion acquisition of Wm. Wrigley Jr. Co. contains some of the seller risk allocations and limitations on equitable remedies, financing covenants and reverse break-up fee provisions that sellers tolerated during the 2005-mid-2007 wave (and subsequent “trickle”) of private equity-sponsored buyouts.

Specifically, Wrigley has no general right to seek specific performance of Mars’ performance obligations under the merger agreement; Mars has agreed to pay a $1.0 billion reverse break-up fee to Wrigley (i.e., an absolute cap on its damages, in prescribed circumstances); and a financing covenant that expressly excludes Mars’ obligation to sue its lenders to enforce their commitments. (NB: Warren Buffet’s Berkshire Hathaway is one of Mars’ financing sources).

Time will tell whether this becomes more common in large cap strategic deals…

How to Handle Hedge Fund Activism

Catch this webcast tomorrow – “How to Handle Hedge Fund Activism” – featuring:

– Joele Frank, Founding Partner, Joele Frank Wilkinson Brimmer Katcher
– David Katz, Partner, Wachtell Lipton Rosen & Katz
– Christopher Young, Director of M&A Research, RiskMetrics Group
– Veronica Rendon, Partner, Arnold & Porter LLP