11.3.3.1. Evaluating Final-Round Bids
The final bidding procedures letter requires detailed terms on key business, strategic, and legal points. Unlike first-round IOIs, final bids are binding, in the sense that the contents of the successful bidder’s final bid will determine the contours of the final transaction. However, “binding” is a relative term here. Typically, a final bid will contain one or more outs. An out, also known as a termination provision, is a provision in a legally binding document (in this case, the final bid) that frees a party (in this case, the bidder) from the commitments it made when it signed the document (in this case, buying the target on the terms the bidder has offered). Often a legitimate concern has to arise to trigger an out, but sometimes an out is worded so that it can be exercised at the discretion of the party. Common outs include the “calamity out” and “market out” discussed in Chapter 7’s section on UAs. There is also typically an out in case of a material adverse change (MAC) in the target. MACs are further discussed in the section on definitive agreements below.
In addition, the seller reserves the right to not select any of the final-round bids if none of them is satisfactory. If the seller rejects all the bids, the result could be another round of bidding, or a deal might simply not happen. This is sometimes called a failed auction.
Often, counsel for the seller prepares a draft of the definitive agreement, which is sent to final round bidders for comment along with, or i