Hell or high water

Every deal with a merger control condition contains an efforts covenant saying how hard the buyer must work to get cleared. The weak end is reasonable endeavours, which lets a buyer decline remedies it considers commercially unacceptable. The strong end is a hell or high water covenant, under which the buyer must divest, license or commit to whatever the authority demands, and cannot walk away because the price of clearance turned out to be high.

Sellers push for it because it converts a regulatory question into a certainty question. Without it, a buyer that decides mid review that the required divestment ruins the deal can stop trying, and the seller is left with a failed process and a damaged business rather than a breach of contract.

Buyers resist it for the obvious reason: it is an open ended commitment to accept a remedy nobody has yet seen. The usual landing zone is a capped version, obliging the buyer to offer divestments up to a defined threshold, expressed in revenue or in named businesses, beyond which it may decline.

It sits alongside the reverse break fee rather than instead of it. The covenant governs effort, the fee governs the consequence of failure, and a seller that wins on the covenant, the fee and a long enough long stop date has been genuinely compensated for taking clearance risk. That package is often worth more than a couple of points on the headline price, which is the practical reason to know the terminology.