Oracle Case Study 1990

Article | Stanford Law Review | April 2017

The New Look of Deal Protection

Guhan Subramanian and Fernán Restrepo

Deal protection in mergers and acquisitions (M&A) evolves in response to Delaware case law and the business goals of acquirers and targets. We construct a new sample of M&A deals from 2003 to 2015 to identify four such areas of evolution in current transactional practice: (1) termination fee "creep," which was pervasive in the 1980s and 1990s, seems to have gone away by the 2000s; (2) match rights, which were unheard of in the 1990s, became ubiquitous by the 2010s; (3) asset lockups, which disappeared from the landscape for thirty years, have reemerged, though in a "new economy" variation; and (4) practitioners have begun implementing side agreements to the deal that have a commercial purpose along with a deal protection effect. We offer three recommendations for how the Delaware courts should approach this "new look" to the deal protection landscape. First, courts should clarify that lockups must survive Unocal/Unitrin "preclusive" or "coercive" analysis in addition to Revlon "reasonableness" review. Second, Delaware courts should apply basic game theory to identify the deterrent effect of match rights and new economy asset lockups. And third, Delaware courts should take a functional approach to deal protection, meaning that collateral provisions that have a deal protection effect should be scrutinized under deal protection doctrine, even if these agreements have a colorable business purpose as well.

Keywords: Mergers and Acquisitions; Practice;

 

Darío Vázquez Montes 141471 (he company assumes that the quality o recei"a*les -as !reat. 'notherconcern *ecause Oracles #ays recei"a*le e,cee# 1>% #ays -hich -assi!ni+cantly lon!er than competitor a"era!e o > #ays e"en ater consi#erin!that oracle reco!nize# re"enues early.  (he achie"ement o sales is *ase# on the a!!ressi"e sales practice. ?i/emost companies Oracle *ase# employees incenti"es on sales so salesmanipulation ha# al-ays *een a concern. 5n 1$$% Oracles a!!ressi"e salespractice -ere le!itimate *ecause the company ha# potentially !reater cre#itris/ in recei"a*les an# a!!ressi"e sales li/ely ha# contri*ute# to thequestiona*le quality o recei"a*les. (he company assumes that the in"estorsha"e /no-n the re"enue metho# use# *y the company an# the sharehol#ers-ill support their operatin! -ays *ut it -as not that -ay the company ha# lostcre#i*ility -ith the in"estors an# customers *ecause it9s recent poorperormance an# its contro"ersial accountin! policies..0stimate the earnin!s impact or Oracle rom reco!nizin! re"enue at#eli"ery rather than -hen a contract is si!ne#.5 Oracle reco!nize# re"enue at #eli"ery rather than -hen a contracts is si!ne#5 estimate that the company -oul# report #ecrease# earnin!s o @A<<%><BA14$734 an# A$<$34 or +scal years en#e# March 1 1$$% 1$3$ an# 1$33respecti"ely instea# to reporte# A11741%.5 #etecte# that the company has an o"er reco!nition o re"enues -ith a "eryimportant portion o its sales that are unrealiza*le. 5t reco!nizes contractre"enues to *e recei"e# -ithin the year -ith

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