I think Iowa Law Professor Robert T. Miller is doing some of the most interesting work in corporate law. It appears I am not alone.
In his recent opinion in AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, CV 2020-0310-JTL, 2020 WL 7024929 (Del. Ch. Nov. 30, 2020), which I discussed in the preceding post, Delaware VC Travis Laster wrote:
Professor Robert Miller has provided a helpful set of terminology for analyzing MAE definitions. See Robert T. Miller, Material Adverse Effect Clauses and the COVID-19 Pandemic 30–31 (Univ. Iowa Coll. L. Legal Stud. Rsch. Paper, No. 2020-21, 2020) [hereinafter Miller, COVID-19].
Id. at *54 n.200. (You can down Miller's paper here.)
Subsequently in the opinion, VC Laster relied on Miller's article to explain that:
For purposes of finer-grained analysis, the risks that parties address through exceptions can be divided into four categories: systematic risks, indicator risks, agreement risks, and business risks. See generally Miller, Deal Risk, supra, at 2071–91.
- Systematic risks are “beyond the control of all parties (even though one or both parties may be able to take steps to cushion the effects of such risks) and ... will generally affect firms beyond the parties to the transaction.”
- Indicator risks signal that an MAE may have occurred. For example, a drop in the seller's stock price, a credit rating downgrade, or a failure to meet a financial projection would not be considered adverse changes, but would evidence such a change.
- “Agreement risks include all risks arising from the public announcement of the merger agreement and the taking of actions contemplated thereunder by the parties,” such as potential employee departures.
- Business risks are those “arising from the ordinary operations of the party's business (other than systematic risks), and over such risks the party itself usually has significant control.” “The most obvious” business risks are those “associated with the ordinary business operations of the party—the kinds of negative events that, in the ordinary course of operating the business, can be expected to occur from time to time, including those that, although known, are remote.”
Generally speaking, the seller retains the business risk. The buyer assumes the other risks.
Id. at *60. Personally, I plan to add that quote to the forthcoming new edition of my Mergers & Acquisitions treatise.
