Alternative structure provisions give merging parties flexibility

December 18, 2014

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(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)

As illustrated in a number of merger agreements this year, parties to merger and acquisition transactions have included provisions allowing them to change the structure of their transactions before the deals have closed. This provides merging parties the flexibility to take into account events post-signing that would affect the way they want to structure deals.

One such recent transaction is Northwest Bancshare Inc.’s acquisition of LNB Bancorp Inc., in which LNB Bancorp will merge with and into Northwest Bancshares through a forward merger. The mechanics of the merger could change, however, as the merger agreement gives Northwest Bancshares the opportunity to change that structure in the future.

Specifically, pursuant to Section 2.7 of the parties’ merger agreement, prior to the merger’s effective time, “Northwest Bancshares shall be entitled to revise the structure of the Merger described in Section 2.1” of the merger agreement. To do so, however, the following three conditions must be satisfied:

  • such modification does not prevent each party’s respective legal counsel from issuing a tax opinion under Sections 9.2.5 and 9.3.5., respectively, certifying that “the Merger will constitute a reorganization under Section 368(a) of the [U.S. Internal Revenue Code];”
  • the consideration paid to LNB Bancorp stockholders will not change in type, value or reduced in amount; and
  • the “modification will not delay materially or jeopardize receipt of any required regulatory approvals or other consents and approvals relating to the consummation of the Merger.”

Under Section 2.7, Northwest Bancshares and LNB Bancorp agreed to amend the merger agreement and any related documents to memorialize any change in the transaction structure. Northwest Bancshare’s ability to amend the transaction structure is subject to the satisfaction of all of the closing conditions set forth in Article 9 of the agreement, however.

Changing as necessary

The above provision gives Northwest the flexibility to revise the deal structure if it determines, after the agreement has been executed, that the current structure is no longer advantageous to itself or the parties. This could be due to potential unforeseen additional costs, undue delay to the transaction or unexpected events occurring post-signing that the acquirer wants to address.

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