INTRODUCTION TO MERGER COOPERATION AGREEMENT
When companies agree upon the scheme of compromise or arrangement between shareholders and company i.e. merger, in such case to define the road map of complete merger transaction, companies enter into the merger cooperation agreement. It is a pre-closing contract entered into between the companies that have agreed in principle to merge or combine, but where the merger has not yet legally completed. The intent of agreement is to ensure the execution of merger transaction as any such transaction involves critical stakes from both sides which ultimately affect not only the business from strategy perspective but sometimes it also endangers the smooth existence of a company even merger execution fails for one or another reason. Now consider it from the perspective of companies which are listed on stock exchange, any default or delay in merger may jeopardize the valuation which ultimately affects the company and its shareholders.
Now since the actual merger happens after the regulatory approvals, shareholders approvals, due diligence and compliance of condition precedents but to ensure everything aligns in a discipline manner and to ensure every party shall adhere to their obligation a merger cooperation agreement is executed.
MERGER COOPERATION AGREEMENT AND ITS OBJECTIVE
Since merger is a transaction that spans to a long period as the transaction involves a due diligence from financial, legal, business and strategic aspects and during this tenure both companies shall strictly adhere to the merger discipline by maintaining the status quo. Intent of such agreement is that since during transaction sensitive and critical information are being exchanged, therefore, this agreement ensures regulatory cooperation, protect deal value, prevent hostile or competing actions and enables smooth integration planning.
CRITICAL CLAUSES OF MCA
CONDITIONS PRECEDENT
Every merger transaction is subject to a long process that involves multiple regulatory approvals and this clause defines the conditions which each party shall perform to execute the merger transaction. For instance; CCI (Competition Commission of India) approval is one of the critical condition Precedent to execute the merger transaction. Now if one of the party to merger deliberately files incomplete data before the CCI and later misses the deadline now this is the case of contract breach as condition precedent failure is self-created.
REGULATORY STRATEGY
A regulator during the merger, may suggest or instruct certain changes to provide his consent upon the merger proposal and if the MCA agreement clearly states that any regulator direction should be complied with the immediate discussion with the other party to merger in such case if other party fails to comply with the direction of regulator and said fact has not been placed into the knowledge of other party, now this shall be interpreted as breach of merger cooperation agreement. For example; Company B filed an approval application to CCI and, CCI proposed the governance changes and board restructuring to which other party denied without any discussion with other company, resulted in the objection of CCI on merger. Now this is breach of agreement.
CONDUCT OF BUSINESS
A merger transaction involves the business strategy and every merger has an object and purpose which parties to the merger wants to attain, like merger will strengthen the market share with strong distribution network or merger will result in mega manufacturing and logistic capabilities or say merger involves the critical intellectual property which will provide the technological edge to the merged entities. Sometimes, merger success is deeply impacted with the fact that who shall continues to remain the top leadership of the company. Therefore, the regular conduct of business and maintenance of status quo on assets and liabilities or any other aspect which is critical to merger is the most important and prime intent behind the merger cooperation agreement. Now let’s take an example; suppose two companies decides to merge, wherein, one company is the manufacturer of EV chargers and EV bikes and other company is in the business of lease, license, operation and maintenance of EV station with a wide network of EV charging station. Both parties agreed upon the merger but company who owns EV stations decided to sell 100 major EV stations locations to third party and these stations accounts 25 percent of its total business. Now practically this will defeat the purpose of merger or at least jeopardize the intent of merger, therefore, MCA carries a condition that during the tenure of merger parties have decided to maintain the status quo on assets and liabilities but shall continues to conduct the business on regular basis.
EXCLUSIVITY AND NON-SOLICITATION
Now think of the present modern era where technology and precisely the artificial intelligence is the forefront of business success and sustainability, so in such case if two companies agree to merge this will result in the efforts from competitors to disrupt or derail and may provide better counter offers, therefore, exclusivity and non-solicitation turn into important aspects which shall be documented in detail.
REPRESENTATIONS & WARRANTIES
During the merger discussions both parties represent certain facts, stats, authority and strategy which many times turns into the decisive call for merger. A default or breach in compliance with these representation and warranties by any party may result in the deal failure. A detailed and elaborated documentation of representation and warranties not only place clarity in the merger transaction but shall also fix accountability without any ambiguity.
TERMINATION FEE AND DAMAGES
MCA object is to secure the circumstance when merger is withdrawn or derailed due to act of any party. Now since merger not only involves the cost associated to professionals but it also extends to the larger impact on company’s valuation and sometime strategically endanger the sustainability and survival of one party to the merger, therefore, affixing a cost for damage and fee for MCA breach in practical sense is a cushion for the company from impact created by the failed merger. It is instead practical for companies to support this clause with a registered valuer determined valuation report.
THE ZEE SONY FAILED MERGER: A PRACTICAL EXAMPLE OF MCA FAILURE
Background
Zee Entertainment Enterprises Limited and Sony’s Indian broadcasting arm (Culver Max Entertainment Pvt. Ltd.) entered into a proposed merger in December 2021, accompanied by a Merger Cooperation Agreement. The MCA governed the parties’ obligations to cooperate in obtaining regulatory approvals, including approval from the Competition Commission of India (CCI) and other authorities.
What Went Wrong
Despite the commercial intent and public announcement of the merger, regulatory delays and governance-related issues arose during the approval process. Over time, the relationship between the parties deteriorated, with each side alleging that the other had failed to comply with its cooperation obligations under the MCA. Sony eventually issued notices purporting to terminate the Merger Cooperation Agreement, alleging that conditions precedent had not been satisfied within the agreed timeline. Zee, on the other hand, alleged that Sony had wrongfully failed to cooperate, had contributed to delays, and had strategically exited the transaction in breach of the MCA. Zee consequently invoked a termination fee claim of approximately USD 90 million, asserting that Sony’s conduct amounted to a will full breach of the cooperation obligations.
Legal Significance
The dispute did not turn on whether the merger itself was commercially sound. Instead, the core legal question was:
Did one party breach the Merger Cooperation Agreement by failing to cooperate in good faith, thereby causing the merger to fail?
This question led to arbitration proceedings, regulatory disclosures, and prolonged litigation risk, demonstrating how an MCA can become the most litigated document in a failed merger, even when the merger never closes. Ultimately, the parties chose to amicably settle their disputes and withdraw claims, without the merger being consummated.
CONCLUSION
A Merger Cooperation Agreement is not a ceremonial or ancillary document in a merger transaction; it is the central behavioural contract that governs the period between deal announcement and deal consummation. While the commercial merger terms are contained in a scheme of arrangement or definitive transaction documents, the MCA determines how parties must conduct themselves while regulatory approvals are pursued. In practice, the MCA does not obligate parties to complete the merger at any cost. Instead, it creates a legally enforceable duty of good faith cooperation, requiring parties to actively pursue regulatory approvals, refrain from conduct that frustrates the transaction, and adhere to agreed timelines and processes. The failure of a merger therefore does not automatically amount to a breach of the MCA; however, failure caused by lack of cooperation, delay, or strategic withdrawal can trigger serious legal consequences, including termination fees, damages, and arbitration. Modern merger disputes increasingly focus not on whether a transaction was commercially viable, but on whether one party wrongfully caused the transaction to fail. In that sense, the MCA has become the primary document through which responsibility, blame, and liability are determined in failed mergers.
-Dixit Mehta, Ductus Legal
DUCTUS EDGE 