Will Christopher Flowers succeed in his attempt to change his mind about buying
Sallie Mae? Or will he have to pay the $900 million breakup fee? Many lawyers
have weighed in on this subject, most of them on Sallie’s side, saying that
the MAC clauses preventing buyers from reneging on a deal are generally pretty
tough. Steven Davidoff, on the other hand, has actually read the court documents,
and he reckons that Flowers
has a good chance of winning the case in Delaware court. It looks as though
Flowers sneakily managed to get language in the contract saying that any
adverse event, not just a "materially" adverse event, would allow
him to walk away from the deal, if that adverse event took place in Congress.
A quick bit of background: Flowers is saying that when Congress enacted legislation
which would hurt subsidies to Salllie Mae, that counted as an adverse change
which allows the buyout deal to be scrapped. Sallie Mae, by contrast, is saying
that Flowers was well aware of the pending legislation when he agreed to the
buyout, so it can hardly have come as much of a surprise when the legislation
came into effect.
Davidoff says, basically, that they’re both right: the legislation, as passed,
was not so much worse than the proposed legislation that it would count as "materially
adverse". But even if it was a tiny bit worse than the proposed
legislation, that might give Flowers the loophole he’s looking for:
On its face the plain language of the MAC definition requires that the enacted
legislation be only adverse — there is no materiality qualifier.
In other words, if Flowers needs a Material Adverse Effect, he doesn’t have
one. But he doesn’t need a Material Adverse Effect, he just needs an Adverse
Effect. So he might well be able to keep his $900 million, and maybe pop over
to London to spend it on Northern Rock instead.