Adventures in Lawyering, MAC Edition

Will Christopher Flowers succeed in his attempt to change his mind about buying Sallie Mae? Or will he have to pay the $900 million breakup fee? Many lawyers have weighed in on this subject, most of them on Sallie's side, saying that the MAC clauses preventing buyers from reneging on a deal are generally pretty tough. Steven Davidoff, on the other hand, has actually read the court documents, and he reckons that Flowers has a good chance of winning the case in Delaware court. It looks as though Flowers sneakily managed to get language in the contract saying that any adverse event, not just a "materially" adverse event, would allow him to walk away from the deal, if that adverse event took place in Congress.

A quick bit of background: Flowers is saying that when Congress enacted legislation which would hurt subsidies to Salllie Mae, that counted as an adverse change which allows the buyout deal to be scrapped. Sallie Mae, by contrast, is saying that Flowers was well aware of the pending legislation when he agreed to the buyout, so it can hardly have come as much of a surprise when the legislation came into effect.

Davidoff says, basically, that they're both right: the legislation, as passed, was not so much worse than the proposed legislation that it would count as "materially adverse". But even if it was a tiny bit worse than the proposed legislation, that might give Flowers the loophole he's looking for:

On its face the plain language of the MAC definition requires that the enacted legislation be only adverse -- there is no materiality qualifier.

In other words, if Flowers needs a Material Adverse Effect, he doesn't have one. But he doesn't need a Material Adverse Effect, he just needs an Adverse Effect. So he might well be able to keep his $900 million, and maybe pop over to London to spend it on Northern Rock instead.