Sticky fingers

21 February 2013 By Reynolds Holding

Deals like the $8.2 bln sale of NYSE include so-called “crown jewel” lockups, which hand over valuable assets even if a transaction fails. Courts have looked askance at such side agreements, but they’re creeping back. The potential benefits may rob shareholders of a higher bid.

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IntercontinentalExchange’s proposed $8.2 billion acquisition of NYSE Euronext includes a separate two-year agreement appointing ICE the exclusive provider of clearing services for NYSE’s European derivatives business. The side deal is a version of so-called “crown jewel” lockups, which, in their basic form, grant a buyer an option to acquire certain of the target’s assets, even if the deal falls through.
U.S. courts ruled in the 1980s that such agreements might not be allowed if they dissuaded other, potentially higher bidders. In recent years, however, several transactions have included agreements that allow the buyer to retain certain rights to the target’s assets or business if the acquisition doesn’t close.

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