DealLawyers.com Blog

Last week in Desktop Metal v. Nano Dimension (Del. Ch.; 3/25), Chancellor McCormick ordered the specific performance of a merger agreement — requiring a buyer that got cold feet to stop dragging its feet — as she puts it, “chalking up yet another victory for deal certainty!”  The target argued that the buyer was avoiding its obligations by delaying signing a national security agreement with CFIUS, which would have satisfied the final closing condition.

The specific performance isn’t a surprising result given that, as the opinion notes, “the contractual scheme seemed designed to ensure deal certainty and speed.” And buyers get cold feet often. But the events leading up to buyer’s attempts to get out of the deal are somewhat unique.

As Bloomberg’s Matt Levine notes, while a target’s shareholders usually have an opportunity to vote on a deal, buyer’s shareholders often do not, so what do they do if they don’t like an acquisition? Theoretically, he says:

– The buyer’s shareholders can launch a proxy fight to replace the board of directors of the buyer.

– If they win the proxy fight, the shareholders’ newly elected directors can replace the executives who approved the deal with new executives who want out.

Well, that’s exactly what the buyer’s second-largest shareholder did in this case.

“After Nano’s Board approved the Merger Agreement, Murchinson launched a proxy contest premised primarily on Nano’s opposition to the Desktop merger,” arguing that the Desktop deal was “overpriced” and “misguided” and destroyed (Nano) shareholder value. Murchinson won the proxy fight and got a total of four directors on the board. “. . . “The new board started terminating Nano executives, seeming to focus on those who supported the Merger.” Nano was now looking to do what Murchinson had argued for all along: Wait for Desktop to go bankrupt and buy its assets more cheaply.

But, as Matt points out, they’ve got a problem.

Uh … then what? There is a signed merger agreement. The target can get out of the merger if its shareholders vote it down, but there is no similar out for the buyer. If the buyer’s new executives show up at the weekly integration meeting and say “actually sorry the deal’s off,” the target’s executives will say “no it isn’t.” The buyer doesn’t get to change its mind just because its shareholders don’t like the deal.

Well, that’s what Chancellor McCormick concluded.

The problem with Murchinson’s plan for Nano to purchase Desktop out of bankruptcy was that Nano had already agreed to purchase Desktop pursuant to the Merger Agreement . . . Nano, meanwhile, failed to prove a failure of any covenant or condition.

The buyer probably saw this coming, and after the decision announced that it is considering all options, but, despite the ongoing litigation, has been diligently preparing for integration.

– Meredith Ervine