In Channel Medsystems, Inc. v. Boston Scientific Corporation, C.A. No. 2018-0673-AGB (Del. Ch. December 18, 2019), the Delaware Court of Chancery ordered specific performance of a merger agreement, finding that breaches of the representations and warranties arising from the fraud of a key employee of the seller did not rise to the level of a “Material Adverse Effect.” As a result, the buyer was not entitled to terminate the merger agreement and breached the further assurances provision of the merger agreement by failing to meaningfully engage with seller upon seller’s discovery of the fraud.Read More
In a landmark decision, a Delaware court has, for what is widely believed to be the first time ever, found that a material adverse effect actually occurred in an acquisition transaction, giving the buyer a right to terminate the pending transaction. In Akorn, Inc. v. Fresenius Kabi AG, the Delaware Court of Chancery (the “Court”) held, following a trial, that the buyer properly terminated the parties’ merger agreement, due to such a material adverse effect between signing and closing, under the terms of the agreement and the pertinent Delaware case law. Unlike prior decisions rejecting buyer material adverse effect claims, the Court found that a pre-closing decline in the business of the target – Akorn – was not merely a “cyclical trend” and was likely to have a post-closing, durationally-significant effect that was “material when viewed from the longer-term perspective of a reasonable acquiror.” Although groundbreaking, the Akorn decision reflects that the Delaware courts will still approach the question of whether an MAE has occurred on a case-by-case basis and does not establish a particular “bright line” test.