COVID-19 MACs: Some Buyers Decide to Take Their Shot
I’ve previously written about the possibility that buyers might try and invoke MAC clauses in order to terminate deals during the COVID-19 crisis, and I’ve also written about some of the challenges buyers attempting to claim a MAC under these circumstances might face. Now, a Troutman Sanders memo says that a handful of buyers have decided to see if they can wiggle out of their pre-COVID-19 deals in reliance on a MAC clause. This excerpt addresses the ongoing back and forth between Bed Bath & Beyond and 1-800-Flowers.com:
Bed Bath & Beyond filed suit against 1-800-Flowers.Com Inc. seeking to hold it to a $252 million deal in which 1-800-Flowers.Com would buy Personalizationmall.com (Company) from Bed Bath & Beyond. The purchase agreement was executed on February 14, 2020. It included a typical MAE clause that limits the definition of MAE to an individualized event negatively affecting the Company or a broader event that has “a disproportionate effect” on the Company. The deal was scheduled to close on March 30, 2020.
A week before the anticipated closing, 1-800-Flowers informed Bed Bath & Beyond that it was unilaterally delaying closing until April 30, 2020 due to COVID-19. 1-800-Flowers represented that it still wanted to close the deal, but that COVID-19 was preventing it from integrating the business and satisfying certain conditions of the deal. While 1-800-Flowers stated it was not terminating the parties’ agreement or invoking the MAE provision, it represented that it needed additional time to “assess” whether an MAE had taken place.
In response, Bed Bath & Beyond filed suit in Delaware Chancery Court seeking to force 1-800Flowers to close the transaction. In the complaint, Bed Bath & Beyond alleges that there has been no MAE because COVID-19 has not had a “disproportionate effect” on the Company. It claims that 1-800-Flowers’ delay is a maneuver to allow it to “wait and see” the ultimate effect COVID-19 has on the Company’s business and to assess whether it can retroactively assert an MAE to terminate the agreement. According to Bed Bath & Beyond, “even a calamitous event such as COVID-19 does not permit a party to avoid its obligations.”
The memo speculates that more buyers are likely to follow a strategy of seeking to first delay a deal in the hope that business conditions before resorting to an MAC-based termination. The memo also discusses three other pending deals in which buyers have sought to call a MAC. Stay tuned; I’m sure there’s much more to come.
-John Jenkins, DealLawyers.com April 10, 2020
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