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Mergers & Acquisitions

M&A Agreements Take Covid-19 in Stride

Published: March 18th, 2020
Contracts on recent large mergers have treated the risk from Covid-19 with language long used in material adverse effects clauses.

The coronavirus may be new, but material adverse effects clauses in merger agreements are not.

Parties to several large merger agreements signed in the weeks since the virus has become a significant public health issue around the world have addressed the risk it poses to the companies in MAE clauses — or, more precisely, in the exclusions to those provisions.

The parties have tended to specify that any negative effects of the virus on one or both companies will not constitute an MAE unless the company is disproportionately affected. That’s a standard formulation often used to allocate other kinds of risks, and one that doesn’t even require direct reference to Covid-19 or the coronavirus, which would be covered by the words “pandemic” or “epidemic.”

Among the recent deals, the merger agreement governing Aon plc’s (AON) $30 billion stock deal for Willis Towers Watson plc (WLTW); Kyocera Corp.’s merger agreement with AVX Corp. (AVX) and the merger agreement in Morgan Stanley’s (MS) deal for E*Trade Financial Corp. (ETFC) deserve further attention. They could shed light on agreements to come, experts say.

Editor’s note: The original version of this article including in-depth analysis on the transactions mentioned above, was published earlier on The Deal’s premium subscription website. For access, log in to or use the form below to request a free trial.


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