March 18, 2019

Busted Deals: Chancery Tells Vintage Capital “You Snooze, You Lose”

Late last week, Vice Chancellor Glasscock issued his much anticipated post-trial ruling in Vintage Rodeo Parent v. Rent-A-Center (Del. Ch.; 3/19). The case involved the validity of Rent-A-Center’s exercise of a contractual right to terminate a  merger agreement under which it would have been acquired by Vintage Capital, and was one of the more closely watched pieces of “busted deal” litigation in recent years.

Both parties participated in the rent-to-own market, and they anticipated a potentially lengthy antitrust review. As a result, the merger agreement gave either party the right to unilaterally extend the agreement’s “drop dead” date if the FTC ‘s review was still ongoing. In order to exercise that right, the party desiring to extend had to provide notice to the other by the original drop dead date. Over time, the deal became less compelling to Rent-A-Center, and its board decided that if Vintage didn’t exercise its right to extend, Rent-A-Center would terminate it once the drop dead date passed.

Sure enough, Vintage didn’t send the notice, and Rent-A-Center promptly terminated the agreement. Vintage freaked out, and sued to compel Rent-A-Center to move forward. Rent-A-Center poured a healthy dose of salt into the wound by filing a counterclaim alleging that Vintage owed it a $126.5 million reverse termination fee. Last month, the case went to trial. The trial produced some heated testimony, with one Vintage representative referring to Rent-a-Center’s management as “a bunch of crooks.”

Vitriol aside, Vintage’s case boiled down to two allegations. First, it said that the parties’ course of conduct served as either Vintage’s notice of its intent to extend or as a waiver of notice by Rent-A-Center. Second, it contended that by continuing to work to move the deal forward while “concealing” its board’s decision to terminate the deal if the opportunity arose, Rent-A-Center behaved in a fraudulent manner.  Vice Chancellor Glasscock’s opinion made it clear that he wasn’t buying any of this:

Vintage’s arguments are after-the-fact rationalizations as to why failure to give written notice of election to extend is excused. I am left to the startling conclusion that, having vigorously negotiated a provision under which Vintage was entitled to extend the End Date simply by sending Rent-A-Center notice of election to do so by a date certain, Vintage and B. Riley personnel, in the context of this $1 billion-plus merger, simply forgot to give such notice.

VC Glasscock found that the drop dead date and the methods by which it could be extended were heavily negotiated deal terms, and he was not inclined to rewrite the parties’ deal. In other words, when it came to Vintage’s missing the deadline for the notice requirement, his answer was: “you snooze, you lose.”

Rent-a-Center’s reverse termination fee claim remains unresolved. The Vice Chancellor’s opinion expressed some discomfort with the idea that payment could be triggered under the circumstances & asked the parties to brief the issue of whether the implied covenant of good faith & fair dealing applied – so stay tuned.

John Jenkins