A U-Turn To Avoid Regulatory Roadblocks

November 16, 2009 – In The News
The Legal Intelligencer

Just as signs of life are emerging from the deal market with credit thawing and companies peeking out from their protective shells, snack maker Utz Quality Foods pulled out of a deal to be acquired by Snyder's of Hanover after the FTC requested more detailed information from the company in a second round of information gathering done as the commission reviewed the deal for approval.

Utz said in several media reports the review process would have been too costly and time consuming for the company to endure. Both Utz and Snyder's are privately held companies not used to intense regulatory compliance.

The collapse of the deal, even in the midst of an improving mergers and acquisitions market, raises questions about whether an increased regulatory climate could stall the comeback of corporate unions. Business attorneys say "maybe," though it won't be clear until more deals are in the pipeline.

Michael Harrington said it is really too early to tell whether the regulatory climate will affect the mergers and acquisitions market. He said the fear has come out of the market and clients are more actively looking at deal opportunities, but more deals at a level like the Utz-Snyder's deal are needed to see whether there will be an impact.

One thing that is actually spurring more deals is the potential increase in the capital gains tax next year. It has clients looking to complete deals this year to save more in taxes, he said.

Harrington said antitrust is one of only a few areas where government regulation will play a role in mergers and acquisitions and that has always been a relatively tough process. He said companies involved in deals that need those approvals know there will be hurdles and compliance costs.

Where increased regulation has been seen, and has in turn affected the merger market, is in the banking area.

Harrington said he has seen the stress tests placed on large financial institutions trickle down to more medium-sized banks that had still been lending in the tough market. That has caused some middle-market deals to fall through, he said.

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