Sweetheart Deal Definition

What is a love agreement?

A sweetheart deal is any type of agreement that typically involves one party presenting another party with a proposal so attractive and potentially lucrative that it is hard to refuse.

Love offers tend to be secretive and controversial in nature. In many cases they can be immoral and disadvantage those who are unaware.

Key points to remember

  • A sweetheart deal is one in which one party presents another party with an offer that is so attractive that it is hard to refuse.
  • In many cases, a sweetheart deal can be unethical and disadvantage those who are unaware of it.
  • It could be insider trading, authority letting one entity get away with something bad, or getting something beneficial at the expense of others.
  • Public companies that engage in dodgy sweetheart deals may later face legal action from disgruntled shareholders.

Understanding a Love Agreement

Many types of businesses transactions can be described as offers of love. They can arise for various reasons and are subject to different interpretations.

When the term “in love” is used to describe a deal, it often implies that something unethical or fishy is afoot. For example, it could refer to all kinds of insider trading: the purchase or sale of a listed company stock by someone who has non-public material information about it. Alternatively, it may describe an authority responding to an entity that has done something dishonorable with a slap on the wrist or looking away approach, rather than inflicting appropriate punishment.

In other cases, a favor agreement can refer to an arrangement in which someone gets something that is for their benefit only after agreeing to give up something else. The term can also express an agreement between two organizations that provides benefits to both, but is unfair to competitors or another third party.

A Mergers and Acquisitions (M&A) transaction, or an attempt to lure a new executive with bonuses and perks, for example, could be “soft” for key players as they can secure substantial buyout packages. However, other interested parties could suffer, including many junior employees, if the agreement leads to a restructuring program and the dismissal of staff.

Important

Agreements labeled as “darling” are often synonymous with unethical behavior.

Review of a Love Agreement

A good deal can often, but not always, be bad for you. shareholders.

These arrangements can be very expensive to execute, with high legal fees, etc. In other words, this means that if a company does not put the interests of its shareholders first, instead using its money to finance the operation, then the investors it has fiduciary duty representing and protecting could suffer financial consequences.

In addition to discovering that the company they invested in spent money on dodgy projects without a reasonable explanation and full disclosureshareholders could also suffer a loss if the market reacts badly to the transaction, and the share price falls.

Such developments can lead to things going wrong. Board of directors (B of D) is obligated to act in the best interests of its shareholders, so if an amicable settlement it helped orchestrate, or at least voted in favor of, is clearly unethical and not in the interest of the majority of investors, legal action may be taken.

Concrete example of a love agreement

In early 2017, the press learned that then-President Donald Trump’s nominee for secretary of the US Department of Health and Human Services (HHS), the national pharmaceutical regulator, had secured a discounted offer on shares of an Australian biotechnology company seeking Food and drug administration (FDA) for its new drug.

Innate Immunotherapeutics (Innate Immuno) needed to raise funds. But instead of issue of shares on the open market, he offered a sweetheart deal to a couple of “sophisticated” American investors, selling nearly $1 million worth of stock at a discount to two members of the United States Congress who had the potential to advance the interests of Innate Immuno.

One of those members of Congress was the HHS nominee cited above; the second – who also owned around 20% of Innate Immuno – served on a key health subcommittee. These congressional investors paid 18 cents a share for a stake in a company whose value at the time had risen rapidly to over 90 cents and climbing higher. Ultimately, on paper, these buyers achieved over 400% profit!

The “sweetheart” part of this deal is obvious: it 1) circumvented normal procedures; 2) contained serious conflicts of interest; 3) solicited industry insiders, who were also well-placed politicians; and 4) only (greatly) benefited a handful of people at the top.

Disclaimer: Curated and re-published here. We do not claim anything as we translated and re-published using Google translator. All ideas and images shared only for information purpose only. Ideas and information collected through Google re-written in accordance with guidelines and published. We strictly follow Google Webmaster guidelines. You can reach us @ chiefadmin@tipsclear.com. We resolve the issues within hour to keep the work on top priority.