It is said that the Material-Adverse-Change (MAC) clause is one of the the most important contract terms of our time. However, due to an almost total lack of proper case law and overall uncertainty regarding its meaning, it is heavily criticized. This might have changed. In December 2018, the Supreme Court of Delaware in the case of Akorn v. Fresenius backed the termination of a merger agreement by first ever enforcing the MAC clause. Using a comparative law approach, this paper examines the MAC clause with special reference to above mentioned precedent case. Particular focus is on the question of whether the extensive judgment creates a framework for the drafting of the contract provision and therefore serves as a basis to provide certainty for MAC clauses in the future.
In a next step, MAC clauses in German public takeover offers and resulting drafting differences to the U.S. will be examined.
MAC clauses become particularly relevant in times of volatile stock markets. It remains to be seen whether the trend from the U.S. will establish itself in Germany.
This paper includes an overview over the current legal status quo in both jurisdictions, an extensive case study and comparison to other relevant cases, and an examination of the structure of a MAC clause with special focus on the "materiality issue". It further examines the implementation of MAC clauses in German takeover offers following the German Takeover Act (WpÜG) and resulting drafting differences.
Table of Contents
A. Introduction
B. Relevance of the MAC clause in Germany and the U.S.
I. The inherent risk in business transactions
II. Current legal status quo
1. § 313 BGB
a) Requirements
b) Arising issues
c) Application to takeover bids
2. Frustration Doctrine
3. Conclusion
C. Akorn v. Fresenius and the Material Adverse Change
I. Case Study
1. Background
a) Facts (pre-Signing)
b) The operation of the MAC clause in the agreement
aa) MAC condition
bb) Definition of MAC
cc) Inferences
c) Facts (post-Signing)
2. Legal analysis of the court regarding the MAC clause
a) Materiality
aa) Digression: Reasons for an undefined standard
(1) Definition vagueness
(2) Impracticability of quantitative benchmarks
(3) Lack of substantive SEC rules
bb) Existing case law regarding the materiality standard
(1) Long-term perspective of a reasonable buyer (In re IBP)
(2) Year-over-year comparison (Hexion v. Huntsman)
cc) Conclusion
(1) Financial metrics
(2) Durational significance
(3) Standalone-evaluation standard
b) Carve Outs
II. Creation of a framework for MAC clauses?
1. Structural standard for MAC clauses
a) Strict expressio unius interpretation in previous cases
b) Parol Evidence Rule valuations
aa) Rule
bb) No restrictive interpretation by default
cc) Drafting consequences
2. Two step materiality standard for determining a MAC
a) Magnitude element
aa) Sudden drop
bb) Decline in earnings guideline
b) Flexible durational element
aa) Long-term
bb) Short-term exception
D. MAC clauses in the corset of the German Securities Acquisition and Takeover Act
I. Conflict of interests
II. Legitimacy of MAC clauses in takeover offers
1. Voluntary takeover offers
a) § 18 WpÜG
b) MAC clauses in the form of an objective condition
c) MAC clauses in the form of a right to revoke or rescind
aa) Wording of § 18 II WpÜG
bb) Teleological reduction of § 18 II WpÜG
cc) Purpose of § 18 WpÜG
2. Mandatory takeover offers
III. Content requirements for admissible MAC clauses
1. Statutory requirements
a) Principle of Certainty (§ 18 I WpÜG)
aa) Wording of § 18 I WpÜG
bb) § 18 I WpÜG in the system of the WpÜG
b) Principle of Transparency (§ 3 II WpÜG)
2. Implementation in the takeover practice
a) Current takeover offers
aa) E.ON / Innogy
bb) Midea / KUKA
b) Practice requirements
aa) Specification of the MAC though financial thresholds
bb) Linkage to § 15 WpHG
cc) Determination of the MAC by an independent auditor
E. Overall conclusion
Objectives and Core Themes
This academic paper examines the legal nature and practical application of Material Adverse Change (MAC) clauses in corporate acquisitions, focusing on the landmark Delaware decision of Akorn v. Fresenius. The study assesses whether this case provides a stable framework for future interpretations and compares the American approach with the regulatory requirements within the German Securities Acquisition and Takeover Act (WpÜG).
- The functionality and legal risk allocation of MAC clauses in U.S. merger agreements.
- Judicial determination of "materiality" and "durational significance" in post-signing business downturns.
- Contract drafting strategies, including the use of Carve Outs and financial thresholds.
- Legal legitimacy and specific content requirements for MAC conditions in German public takeover offers.
Excerpt from the Book
C. Akorn v. Fresenius and the Material Adverse Change
The MAC clause came to greater attention in the recent case of Akorn v. Fresenius, where –in a “landmark case”– the MAC clause was first ever enforced. In particular, due to its precedent character and its affirmation by the Supreme Court of Delaware, the question whether this case serves as a guideline for the future use of MAC clauses interests. Thus, this analysis focuses on the MAC clause.
Summary of Chapters
A. Introduction: Highlights the critical importance of MAC clauses as contractual "backstops" while noting the traditional lack of legal clarity surrounding their definition.
B. Relevance of the MAC clause in Germany and the U.S.: Explores the inherent risks in business transactions and evaluates the applicability of existing legal mechanisms like § 313 BGB and the Frustration Doctrine.
C. Akorn v. Fresenius and the Material Adverse Change: Analyzes the landmark Akorn litigation, focusing on the court’s interpretation of materiality, the two-step test for business changes, and the structural design of MAC clauses.
D. MAC clauses in the corset of the German Securities Acquisition and Takeover Act: Discusses the conflict of interests in German public takeovers and defines the strict statutory limits for incorporating MAC conditions within the WpÜG framework.
E. Overall conclusion: Synthesizes findings, concluding that the Delaware Akorn standards cannot be directly imported into German law, which requires more specific, objective threshold-based definitions for MAC conditions.
Keywords
Material Adverse Change, MAC clause, Akorn v. Fresenius, Delaware Chancery Court, merger agreement, contract law, materiality standard, risk allocation, WpÜG, German takeover law, business MAC, market MAC, due diligence, Carve Outs, financial metrics.
Frequently Asked Questions
What is the primary focus of this paper?
This paper explores the role and legal enforceability of Material Adverse Change (MAC) clauses in corporate takeover agreements, using the Delaware Akorn v. Fresenius decision as a primary case study for comparative legal analysis.
What are the central themes discussed in the work?
The work centers on risk allocation in M&A transactions, the interpretation of "materiality" by courts, the drafting of effective contract clauses, and the specific regulatory constraints of German takeover legislation (WpÜG).
What is the primary research goal?
The goal is to determine if the Akorn ruling offers a reliable guideline for future contract drafting and to contrast these U.S. findings with the regulatory requirements in Germany.
Which scientific methods are employed?
The paper utilizes a comparative legal approach, analyzing case law, statutory provisions, and scholarly commentary from both U.S. and German legal systems.
What is covered in the main body of the text?
The main body covers the fundamental theories of risk in acquisitions, a deep dive into the Akorn litigation facts and legal reasoning, and an examination of how German takeover law (WpÜG) restricts the use of flexible conditions.
Which keywords characterize this work?
Key terms include Material Adverse Change, Akorn v. Fresenius, Delaware Chancery Court, risk allocation, materiality standard, and WpÜG.
Why does the court define Akorn's financial decline as a MAC?
The court found the decline material because it represented a sharp, persistent departure from historical performance trends, exceeding benchmarks for both magnitude and durational significance, independent of general market headwinds.
How does German law differ from U.S. law regarding MAC clauses?
Unlike the broader U.S. approach where contract design is more flexible, German public takeovers under the WpÜG require MAC conditions to be objective, transparent, and often linked to specific financial thresholds to avoid legal uncertainty.
- Arbeit zitieren
- Sebastian Edrich (Autor:in), 2019, Material-Adverse-Change clauses in Public Takeovers in the Case of Akorn v. Fresenius. A Comparative Law Approach, München, GRIN Verlag, https://www.hausarbeiten.de/document/539474
