In Akorn v. Fresenius (Del. Ch. Oct. 1, 2018), the Delaware Court of Chancery found for the first time ever that a target company had suffered a “material adverse effect” (MAC) between the signing and closing of a merger agreement, which entitled the acquiror to terminate the agreement. Importantly, the company's decline in performance in this case and the “durational significance” of the decline were far more dramatic than in previous cases in which the court has evaluated whether a MAC had occurred. This suggests that it will continue to be difficult for an acquiror to establish the occurrence of a MAC.
The 246-page opinion by Vice Chancellor Laster also serves essentially as a primer on how the court may interpret certain standard provisions in merger agreements and in corporate contracts generally--including MAC and MAE clauses, covenants to operate in the ordinary course, hell-or-high-water commitments to obtain regulatory approval, efforts and materiality standards, and more. The court's emphasis in Akorn on the plain language of the agreement to resolve issues between the parties should stimulate consideration of modifying the drafting of certain standard provisions.
Below, we provide (i) a summary of Key Points relating to the decision; (ii) a summary of the factual background and the court's holdings; and (iii) a review of the court's discussion of various agreement provisions. We also offer practice points, including specific drafting considerations, that arise from the opinion.