Meaning
A commitment in a merger agreement requires a party to take all necessary actions to obtain regulatory clearance, regardless of the burden or cost involved. This hell or high water standard forces the acquiring company to agree to any divestitures or operational changes demanded by government authorities to finalize the transaction.
Obligation Allocation
The provision shifts almost all regulatory approval risk from the seller to the buyer. It ensures that the buyer cannot abandon the transaction due to antitrust objections or conditions imposed by regulators.
Transaction Risk
Sellers demand this level of commitment when there is high regulatory uncertainty surrounding the combination of the two business entities. It maximizes the probability of transaction completion while minimizing the seller’s exposure to regulatory delays.
Legal Resolution
Disputes over this provision often center on whether the buyer has exhausted every possible regulatory remedy before declaring a failure of conditions. If the buyer fails to put forth the required effort, the seller may seek specific performance to compel the completion of the transaction or sue for damages. In court, the buyer must prove that even after offering maximum concessions, such as the sale of major assets or long-term operational restrictions, the government still refused to approve the transaction.
