Dealpolitik: AT&T Gets Unusual Deal Protections in Leap Deal

Buyers almost always protect themselves from material adverse changes in a target’s business by reserving the right to walk away if a “MAC” happens. But in AT&T’s acquisition of Leap Wireless International, the merger agreement also contains what might be referred to as a material favorable change clause. Although a similar provision has been included in a few previous merger agreements, it is unusual.

Buyers of public companies have the risk that they will not be able to complete a purchase because a board may decide that there has been a development that requires it, in the exercise of its fiduciary duties, to change its recommendation on the deal. Such a change would usually make it difficult if not impossible to get the required shareholder vote. In other words, there could be a development that makes a deal that looked good when it was signed no longer look optimal. And directors have to tell shareholders what they think.

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