Ramius/Cowen Agreement Made Public

June 5, 2009

Cowen Group, Inc. has filed with the SEC its Transaction Agreement and Plan of Merger with Ramius LLC

On June 4, 2009, Ramius LLC and Cowen Group, Inc. (Nasdaq: COWN) announced an agreement to combine their businesses to create a diversified financial services company. For more information, go to our 06/04/09 post.  On June 5, 2009, the definitive transaction agreement was filed with the SEC. For the full agreement, go to http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?filingid=6646925&tabindex=2&type=html. Among the many interesting terms contained in this agreement, we took particular notice of the following:

  • The representations and warranties of Ramius in Article V and of Cowen in Article IV are parallel, as one would see in a stock for stock “merger of equals”-type transaction.  Section 5.16 contains very broad “Compliance with Laws” representations and warranties concerning Ramius’ business, covering the full gamut of financial and other regulatory compliance and permits.  Cowen makes comparable representations and warranties in Section 4.16.

  • Similarly, the fund-specific representations and warranties concerning Ramius’ business in Section 5.17 are comprehensive and indicative of the types of representations and warranties that investment managers such as Ramius may be expected to make in such transactions.  Interestingly, Ramius represents and warrants in Section 5.17(h) that no investor consents are needed to avoid triggering withdrawal rights in connection with this transaction, thus confirming that the transaction does not constitute a “change of control” of Ramius.

  • Cowen agrees in Section 7.3 to submit this agreement to its stockholders for approval, even if its board of directors has withdrawn, modified or qualified its recommendation to approve the transaction. Whether a target agrees to such a covenant is a commonly negotiated issue in transactions of this kind. 
  • While both parties agree to a “no-shop” clause in Section 7.10, Cowen’s board is given a “fiduciary out” in Section 7.10(b)(iii) to withdraw or modify its recommendation to approve the transaction if it, in short, receives an unsolicited proposal that it determines in good faith is more favorable than the proposed transaction with Ramius and it is advised that failure to change its recommendation would be a violation of its fiduciary duties to Cowen’s shareholders.  Cowen’s board is obligated to provide Ramius with at least 5 business days’ prior notice before changing its recommendation, during which time it must negotiate in good faith with Ramius to make adjustments to the terms of the agreement so that the unsolicited proposal is no longer deemed superior.

  • Ramius’ obligations to close are conditioned on, among other things, Cowen’s representations and warranties being true and correct on the date the agreement was signed and at the Closing.  However, under the proviso inserted in Section 8.2(a), Cowen’s representations and warranties will be deemed to be true and correct so long as any failure to be true and correct would not have a “Material Adverse Effect” on Cowen.  This heightened standard for Ramius to walk away from the transaction is among the provisions designed to give deal certainty.  Cowen’s ability to walk from the transaction is similarly limited by the analogous proviso in Section 8.3(a).

  • While on the subject of Material Adverse Effect, subsection (H) in the definition of this term contains an interesting fund-related carveout with respect to Ramius and its subsidiaries, stating that an “MAE” will not include “withdrawals from the Funds that are consistent with withdrawals from the Funds over the past twelve months.”

  • Cowen agrees in Section 9.2(b) to pay Ramius a “break-up fee” of $3.5 million if the agreement is terminated prior to Closing for specific reasons that include the Cowen board withdrawing its recommendation of the Ramius deal, the breach of Cowen’s covenant to present the deal to its stockholders for approval or of its “no shop” covenants. This break-up fee is the exclusive remedy for Ramius in those circumstances (except with respect to damages caused by Cowen’s willful breach of any provision of the agreement).  The break-up fee is not payable with respect to other breaches of the agreement.   If Cowen’s stockholders vote down the Ramius deal, Cowen must reimburse half of Ramius’ transaction expenses.  If an alternative transaction is publicly announced or proposed prior to the Cowen stockholders meeting, Cowen must reimburse all of Ramius’ transaction expenses, and if within 12 months Cowen executes a definitive agreement for or consummates the alternative transaction then Cowen must pay Ramius the $3.5 million break-up fee as well.

  • No representations or warranties survive the Closing pursuant to Section 10.2. Similarly, there are no indemnification provisions in the agreement. As a result, neither party is protected if breaches of representations or warranties are discovered after the Closing.


Agreement Terms, Hedge Fund M&A, Investment Manager M&A