Analysis

7 Major M&A Deals That Broke Down Due To COVID-19

By Benjamin Horney
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Law360 (January 11, 2021, 8:39 PM EST) -- The coronavirus pandemic wreaked havoc on the market for mergers and acquisitions in the middle of last year, causing a short-term stoppage in deal activity, leading multiple major transactions to be revised or abandoned, and resulting in some parties taking their disputes to court.

Here, Law360 looks at seven of the most significant deals that broke down because of the effects of COVID-19.

Xerox Withdraws $34B Hostile Takeover Bid for HP

Xerox's attempt to acquire HP Inc. began when the target announced plans to restructure its business in October 2019, but after months of back and forth, the prospective buyer in late March pulled its $34 billion takeover bid in response to the coronavirus outbreak.

The offer had already been postponed in the immediate aftermath of the initial COVID-19 crisis in the U.S., but on March 31, Connecticut-based Xerox officially pulled the plug, citing market unrest caused by the pandemic and concern for the health and safety of its employees and others. 

The move came in the wake of an extreme drop in Xerox's stock price, which as of March 31 was down more than 43% compared to its closing price on March 3, taking off more than $3 billion from its market capitalization.

In its statement announcing the decision to withdraw the bid, Xerox said its priority was responding to the virus outbreak and ensuring the well-being of its associates, partners and others. However, the technology company said it still believes there are long-term financial and strategic benefits from a tie-up, and complained about HP's lack of a consideration for a possible deal.

"The refusal of HP's board to meaningfully engage over many months and its continued delay tactics have proven to be a great disservice to HP stockholders, who have shown tremendous support for the transaction," Xerox said.

Xerox was represented by King & Spalding LLP. Xerox's independent directors were advised by Willkie Farr & Gallagher LLP. HP was counseled by Wachtell Lipton Rosen & Katz.

Planned Aerospace Megamerger Falls Apart

The coronavirus began coursing through the U.S. a few months after Woodward Inc. and Hexcel Corp. said they would merge into a nearly $14 billion global aerospace and industrial parts manufacturing giant, causing the companies to cancel their planned combination.

The deal, initially announced in January 2020, was structured as an all-stock merger of equals between Colorado-based Woodward and Connecticut-headquartered Hexcel. The companies said the resulting entity would have been a "premier integrated systems provider serving the aerospace and industrial sectors" with a combined market capitalization of about $13.7 billion.

Instead, the coronavirus pandemic took hold, and by early April, the duo decided to mutually cancel their planned merger. Because they came to that conclusion together, neither side was required to pay a breakup fee. The termination was approved by the boards of directors for both sides.

In their announcement canceling the deal, the companies said they still believed in the benefits of a merger, but given the extreme uncertainty in the market, it didn't make sense to go forward with the tie-up. 

A representative for Woodward told Law360 in an email on Wednesday, Jan. 13 that "there are no plans or talks to revisit the merger with Hexcel."

Wilson Sonsini Goodrich & Rosati PC served as counsel to Woodward, with Wachtell Lipton Rosen & Katz advising Hexcel.

Temasek Cites MAC Clause in Pulling $3B Keppel Bid

The first two deals may have involved companies based in the U.S., but the pandemic impacted businesses all over the world, as evidenced by Temasek's decision in August to pull its SG$4.08 billion ($3 billion) offer to take a controlling stake in Singaporean conglomerate Keppel.

The withdrawal from Kyanite Investment Holdings Pte. Ltd., a subsidiary of Singapore's Temasek Holdings (Private) Ltd., came as a result of poor financial performance from Keppel Corp. Ltd. that the buyer said amounted to a material adverse change.

MAC clauses, which are mostly interchangeable with material adverse effect, or MAE, provisions, are a standard feature of merger agreements that, in narrowly defined situations, can provide an out for buyers that have agreed to a deal but later determine the transaction should be nixed. In the aftermath of the U.S. COVID-19 outbreak, experts told Law360 that MAC and MAE clauses should not be viewed as escape hatches for deals.

Kyanite originally inked its acquisition of a 51% stake in Keppel in October 2019, but in August said that Keppel's second-quarter and half-year results failed to meet the bar for the deal to go through. According to Kyanite, The Securities Industry Council of Singapore did not object to the withdrawal.

Keppel has four main lines of business: offshore rig design and construction, property development, infrastructure investments and operations, and asset management. It said in response to the withdrawal that the offer from Kyanite had been unsolicited and that the company was set to go forward with its long-term strategic plan, dubbed Vision 2030.

"We continue to believe in the inherent value of Keppel's business, and have a strong balance sheet and support from our network of banks to finance the group's operations and growth initiatives," Keppel's statement said. "We will continue to execute our Vision 2030 to realize the full value of the company for all our stakeholders."

Legal counsel information was not available, and representatives for the companies did not immediately respond to requests for further information.

French Insurer Bails on $9.05B Play for Bermuda-Based Peer

After Italian investment giant Exor revealed in February that it was in exclusive talks with Covea concerning a potential sale of its reinsurance subsidiary PartnerRe, the companies inked a $9.05 billion agreement in early March, but by mid-May, the transaction had been called off.

The companies didn't disclose the value of their agreement, but according to data provided by Dealogic, it was worth about $9.05 billion. 

The termination came from French insurer Covea, which said on May 14 that the transaction was no longer tenable because of the unprecedented impact of the COVID-19 outbreak on the insurance market. Exor SpA — a European investment company controlled by Italy's Agnelli family, which holds Fiat Chrysler and Ferrari — acknowledged that Covea had informed it of the decision to nix the deal in May, but challenged the validity of the move.

"In attempting to renegotiate the agreed deal terms, Covea has never suggested the existence of a material adverse change, including pandemic risk, or any other issues at PartnerRe that would explain its refusal to honor its commitments," the Italian company said. "Exor believes that no such basis exists."

Ultimately, while the companies weren't able to finish the deal they originally inked, Covea and Exor did end up announcing a different agreement in August. Under the terms of that deal, Covea committed to invest €750 million ($912.6 million) in investment opportunities alongside Exor between 2021 and 2023, according to a statement.

Further, Covea agreed to invest an additional €750 million in investment vehicles with underlying assets that are tied to PartnerRe's reinsurance activities. That second €750 million investment will take place over the course of five years.

Legal counsel information was not available, and representatives for the companies did not immediately respond to requests for further information.

Tiffany Cries Foul After LVMH Tries to Nix $16.2B Deal

One of the most high-profile broken deals to come out of the pandemic actually wound up going through with revised terms, as jewelry retailer Tiffany & Co. and LVMH Moet Hennessy Louis Vuitton SA took their dispute to court before ultimately settling in October and announcing an amended $15.8 billion agreement. 

The ordeal started with luxury goods conglomerate LVMH agreeing to buy Tiffany in November 2019 for $16.2 billion, but in the wake of the pandemic, the buyer began to stall. In September, LVMH finally said it wouldn't be able to go through with the transaction, and that same day, Tiffany filed suit in the Delaware Chancery Court, accusing the buyer of unlawfully using the pandemic to try to avoid completing the deal.

LVMH filed a competing lawsuit in Belgium, and the parties argued over issues including whether the economic effects of the pandemic on Tiffany's business constituted an MAE. Tiffany hit back at the countersuit in late September, saying arguments made by the French company were "baseless and misleading" and marked a "blatant attempt" to avoid paying the agreed-upon price.

One month later, in October 2020, the companies announced they had settled their legal dispute and agreed to a revised $15.8 billion merger

Sullivan & Cromwell represented Tiffany, with Skadden Arps Slate Meagher & Flom LLP advising LVMH.

SoftBank's Cancellation of $3B WeWork Deal Leads to Legal Fight

SoftBank made a major splash in October 2019 when it announced a $3 billion tender offer for WeWork, but in April, the Japanese investment giant pulled the plug and cited multiple reasons, including that the coronavirus had caused significant disruptions to the workspace-sharing company's business.

The tender offer was part of a larger, $9.5 billion rescue packaging for the struggling office space company that was set to see SoftBank Group Corp. pick up an 80% stake in WeWork, which leases real estate through long-term agreements and refurbishes those properties before renting them to tenants with shorter-term needs, including startups and freelancers.

SoftBank said it was justified in announcing that it would not go through with the tender offer for up to $3 billion of WeWork shares because it was allowed to walk away from that portion of the agreement. In addition to effects from the pandemic, SoftBank cited WeWork's failure to earn key antitrust approvals, as well as its inability to close on an agreement involving joint ventures in China.

The move led to a shareholder lawsuit in Delaware, which featured the WeWork special committee alleging SoftBank was reaping the benefits of the larger bailout agreement but backtracking on its end of the bargain. Adam Neumann, co-founder of WeWork, separately launched a lawsuit over the busted arrangement. The suits are on a coordinated track to trial, and the case is expected to be heard this year.

Legal counsel information was not immediately available.

The case is In re: WeWork Litigation, case number 2020-0258, in the Court of Chancery of the State of Delaware.

REITs Go to Court Over $3.6B Deal, End Up Amending the Terms

Simon Property Group Inc. said in February that it had reached a deal to buy fellow real estate investment trust Taubman Centers Inc. for $3.6 billion, before backtracking after the pandemic hit and attempting to escape the deal.

The transaction saw Simon paying $52.50 per Taubman share, but not long after the deal was announced, Taubman's share price plummeted due to the COVID-19 pandemic. When Simon sued Taubman in an attempt to get off the hook for paying the agreed upon price, the target's shares were trading below $40 apiece.

The lawsuit was filed in the Circuit Court for the Sixth Judicial Circuit of Oakland County, Michigan, with Simon arguing that a material adverse change clause in the February agreement gave it the right to exit the deal because the pandemic had disproportionately affected Taubman.

At the time the deal was announced, the companies were aware of COVID-19, which had been spreading in China's Hubei province, but they signed the agreement weeks before the surge in cases in the U.S.

According to Simon, Taubman, an indoor mall owner, had been hit harder by COVID-19 than grocery stores and open-air shopping centers. Taubman, meanwhile, suggested the pandemic hadn't hit it harder than other indoor mall operators.

In November, before they could end up at trial, the companies resolved their dispute and agreed to a revised transaction valued at $43 per share, or about $3 billion total.

Wachtell Lipton Rosen & Katz and Honigman LLP represented Taubman, Paul Weiss Rifkind Wharton & Garrison LLP and Latham & Watkins LLP guided Simon, and Kirkland & Ellis LLP assisted the Taubman special committee of the board of directors.

--Additional reporting by Lucia Osborne-Crowley, Andrew McIntyre, Elise Hansen and Rose Krebs. Editing by Philip Shea and Jill Coffey.

Update: This story has been updated to include comment from Woodward.

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