Covenant to Avoid Actions that Increase Antitrust Risk

Summary

This Covenant to Avoid Actions that Increase Antitrust Risk clause can be included to limit the taking of certain actions with respect to antitrust or other regulatory matters that could potentially adversely affect the ability to obtain any required antitrust or other regulatory approvals. This clause includes practical guidance and drafting notes. Such covenants typically limit the acquisition of any assets, businesses or other entities, or the entry into various commercial arrangements, that might materially increase the risk of not obtaining required regulatory clearances or approvals (e.g., if such future acquisition were in the same product market as the current acquisition and would materially increase the buyer’s market share or otherwise materially complicate the government’s review of the main transaction). Note that the ordinary course of business covenants typically place restrictions on the seller from entering into new transactions or business relationships, so the this covenant typically addresses the buyer only. Alternatively, if the buyer has enough negotiating leverage, it may want to make clear that it can acquire equity in, or even all of, another business without breaching the Agreement. The alternate clause provides language for this situation. Note however, that the restrictive covenant is much more typical than the alternate clause. References to “the Company” refer to the target company, to “Seller” refer to the selling party, to “Parent” or “Buyer” refer to the acquiring party (depending on whether the transaction is structured as a reverse triangular merger or a straight acquisition), and to “the Agreement” refer to the principal agreement setting forth the details of the transaction; such terms should be conformed as appropriate to the terms otherwise being used to refer to such persons. The template provision uses the phrase “the transactions contemplated by this Agreement”– this can be replaced with the appropriate defined term (e.g., “the Transaction” or “the Merger”) used to refer to the M&A transaction to which the principal agreement relates. For a practice note with background on negotiating the antitrust provisions in transaction agreements, please see Transaction Agreements: Antitrust Issues.