Fiduciary Out Provisions in Public M&A Transactions

Summary

This practice note discusses “fiduciary out” provisions in public M&A transactions. Fiduciary out provisions permit a target company to terminate an incumbent acquisition agreement when the directors of the target determine that doing so is necessary to fulfil their fiduciary duties. In particular, this practice note will briefly outline the fiduciary duties of the directors of a corporation. It will then discuss how these fiduciary duties can apply in the context of a public M&A transaction and may trigger a board’s decision to terminate an acquisition agreement. Finally, this practice note will describe typical fiduciary out provisions and will address considerations which arise when drafting and negotiating these provisions, including termination fees and a corresponding right of the purchaser to terminate the agreement as a result of the behaviour of the target company’s board.