Skin in the Game: The Promise of Contingency-Based M&A Fees
Citation: 103 Geo L.J. 1061 (2015)
In February 2000, The American Lawyer reported that the venerable law firm of Cravath, Swaine & Moore (Cravath) entered into an agreement to help its client, Time Warner Inc. (Time Warner), merge with American Online (AOL). Normally, such an engagement would not be news. In 2013, for example, Cravath was legal counsel on fifty-four mergers totaling $144 billion dollars in total value. The details of few of these engagements were reported, despite much more widespread news coverage of the legal industry. However, the AOL agreement was different—for a reason that had nothing to do with the merger itself. The reason this contract drew so much attention and scrutiny was the nature of the fee that Cravath and Time Warner had negotiated. The contract called for a $35 million fee to be paid to Cravath if, and only if, the merger with AOL closed successfully. A small flat fee would be paid if the merger was unsuccessful. This agreement required Cravath to put some of its proverbial “skin in the game.” As reported at the time, this fee arrangement was highly unusual and was considered a new frontier in mergers and acquisitions (M&A) legal fees. . . .