November 1, 2005

2nd Circuit: Former Target Stockholder Can’t Bring Action for Lost Merger Premium

Some of you will recall the 2004 decision in Consolidated Edison v. Northeast Utilities by the US District Court for the SDNY holding that former shareholders of the target could bring an action for a lost merger premium as a result of the buyer’s wrongful repudiation of the merger agreement. Because such claim was vested in shareholders as of the date of the repudiation – and not the target or transferees of their shares – the target could not settle such claims (e.g., by amending or revising the terms of the original merger agreement).

Thankfully, the 2nd Circuit has overturned the decision on appeal concluding that, under the terms of the merger agreement between Consolidated Edison and Northeast Utilities, target stockholders become third party beneficiaries – with the right to enforce the buyer’s obligation to pay the contracted merger consideration, only upon consummation of the merger.

This important decision confirms that claims of wrongful repudiation of a typically constructed merger agreement will not deprive the principal parties of the ability to amend – or otherwise settle disputes – by vesting claims in the hands of target shareholders at the time of the breach. Thanks to Kevin Miller of Alston & Bird for the heads up!

The Convergence of Hedge Funds and Its Impact on M&A

We have posted the transcript for the popular webcast: “The Convergence of Hedge Funds and Its Impact on M&A.”