April 13, 2017
Deal Certainty: Minimizing Risks of Tax Opinion Conditions
The busted deal involving The Williams Cos & ETE has put the potential impact of a closing condition tied to a lawyer’s ability to deliver a tax opinion on the front burner. This Cleary memo surveys post-Williams/ETE mergers in order to assess how dealmakers have addressed the “deal certainty” issues that situation created.
The memo finds that a number of alternative approaches have been adopted to reduce the risks associated with an opinion condition. As this excerpt notes, they include the following:
– Text of tax opinions & representation letters are agreed to before signing.
– Text of tax opinions & representation letters are agreed to before signing, and alternate counsel is identified at signing.
– Tax opinions are required at closing, but if a party’s chosen advisor is unwilling to issue the opinion, the party must accept the opinion issued by the counterparty’s advisor; plus acquirer pays termination fee if opinions not issued.
– Tax opinions are required at closing, but acquiror’s obligations are conditioned on it receiving both opinions.
– Covenant to try to restructure, if necessary.
The memo identifies specific transactions that have adopted each of these alternative approaches, and notes that in two public company mergers, the parties dispensed with tax opinion closing conditions altogether. One of those deals provided for opinions to be obtained, but did not condition either party’s obligation to close on their receipt. The other contained no mention of tax opinions.
– John Jenkins