“There’s a real risk right now for clients in not getting antitrust issues handled correctly,” Ethan Klingsberg said on this week’s Drinks With The Deal podcast. As regulatory and political attention on antitrust issues has increased significantly, lawyers need to think carefully about how to respond, said Klingsberg, the head of U.S. corporate and M&A at Freshfields Bruckhaus Deringer LLP in New York.
For example, targets historically pushed for so-called hell-or-high-water provisions that required a buyer to do whatever it took to win regulatory approval for a deal or pay a large termination fee to the target. But that strategy may end up making a deal more vulnerable to regulatory scrutiny, Klingsberg said. Merging parties may be better served by a so-called fix-it-first approach, in which they make very specific commitments in the merger agreement about how they intend to mitigate the antitrust risk on a deal.
Institutional investors often don’t understand the limitations antitrust can put on dealmaking, he said. That’s true not just for activists but for pension funds and passive investors who, Klingsberg said, “are generally in favor of M&A as a way for increasing share price for buyers. I don’t think that a lot of investors in public companies who are pressuring companies to meet and come up with good M&A strategies appreciate the constraints that are being put on the companies.”
Here’s the podcast: