In its follow-up proceedings in Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (Del. Oct. 1, 2018), the Delaware Court of Chancery found that an acquirer had effectively terminated a merger contract for limited partnerships, in part because the objective had suffered a “substantial negative effect” (MAE, sometimes also considered an adverse fundamental amendment or mac). The notice received a great deal of attention because it is likely that the Court of Chancery would authorize an acquirer to terminate a merger with a public limited company on the basis of an EMA. This decision is an essential point for AM practitioners, as the court analyzes several important provisions and concepts, often included in research and development agreements, including essential qualifiers and stress-based qualifiers. This aspect of the case may ultimately be the strongest for the practitioners of AM. Unlike the infusion fees generally levied in Delaware, reverse termination fees of this type are not limited by the fiduciary duties of the target commission and raise only a question of private contract between the parties to the merger. It is not uncommon for the quantum of these royalties to exceed 5% or 10% of the value of the agreement, unlike the demerger fees paid by the target companies, which are generally between 2 and 4% of the value of the agreement. Sellers often charge significant termination fees when antitrust authorities are expected to require substantial divestitures or conduct that the buyer does not agree to explicitly consent to and/or that there is a significant risk that the agencies will object to the merger.
While Rent-a-Center will probably show its negotiated remedy, vintage can be expected to feature the reverse termination tax as a liquidated damages provision, which is not applicable as a “penalty.” In the event of a court agreement, a separation clause in the merger treaty requires parties to “negotiate in good faith … Amend this agreement so that, where possible, the parties` original intention is implemented in an acceptable manner, where possible, so that the transactions in this agreement are carried out as far as possible. In order to justify the termination, the Court concluded that a reasonable expectation of a DEA should be expected at the expected time of the closing of the transaction.