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How may a company terminate a merger agreement?

On Behalf of | May 18, 2021 | Commercial Law

When a business decides to call off a merger transaction, it may have already cost your company time and money. Contracts, however, may contain a clause to provide a remedy if your business or your counterparty wishes to terminate the agreement.

A material adverse change clause can outline how you may terminate an agreement because of an adverse circumstance that materially affects a business outcome. Also referred to as a material adverse effect clause and as explained by Compliance Week, a contract’s terms may describe which unforeseen events trigger the right to back out.

What events may adversely affect a company or business asset?

Common MAC clauses include the ability to terminate a contract because of negative impacts from natural disasters, such as floods or earthquakes. If the event has a significantly negative effect on a business, it may not produce the outcome reasonably relied upon during the transaction discussions.

Skilled negotiators may not always accurately predict an unprecedented or hostile action that can disrupt a financial ecosystem. A severe cyberattack, for example, may cause a significant loss to a company and render its assets inoperable. If a technological breach involved private or sensitive information, a company’s customers may also initiate a costly legal action to obtain relief.

How may careful planning help remedy the loss of an asset’s value?

It could take time for an organization to repair the damage and return to its prior condition after an adverse event. In some cases, an unexpected hardship may reduce an asset’s long-term value.

It often takes significant resources for two parties to agree on merging, acquiring or otherwise transferring assets between each other. Planning ahead to protect your organization’s investment may require a contract that outlines the right to terminate or seek a remedy if an unanticipated adverse event influences a transaction’s worth.