Shareholder Primacy Earnout disputes, proxy advisors
May 14, 2025
This discussion dives deep into the tangled world of earnout disputes in mergers, including a landmark Delaware case that highlights key legal complexities. It explores how changing interest rates have increased the significance of earnouts, along with their potential pitfalls and litigation risks. A particularly gripping analysis of Johnson & Johnson's challenges with a healthcare acquisition underscores the critical nature of precise contractual language. The episode also humorously examines the evolving role of proxy advisors and their impact on corporate governance.
AI Snips
Chapters
Transcript
Episode notes
Earnouts Bridge Valuation Gaps
- Earnouts address valuation gaps by tying part of the payment to future performance.
- They also handle information asymmetry and control allocation between buyers and sellers.
Earnouts Spark Litigation Conflicts
- Acquirers may manipulate post-acquisition operations to minimize earnout payments.
- This creates inherent conflict, driving widespread litigation in Delaware courts.
Schneider's Tractor Purchase Clause
- Schneider promised to buy 60 tractors every three years to grow W&S's fleet.
- They did, but retired more tractors, leaving the total fleet smaller and missing profit targets.