April 7, 2025
Lost Premium Damages After Delaware’s Statutory Crispo Fix
Last year, the Delaware General Assembly added Section 261(a)(1) to the DGCL in response to the Chancery Court’s 2023 decision in Crispo v. Musk. That statute provides, among other things, that a target company may include in a merger agreement a provision that allows the target to seek lost premium damages against a buyer that has breached its obligations to close. It’s been nearly a year since Section 261(a)(1) was adopted, and this recent White & Case memo analyzes the extent to which lost premium provisions have been included in merger agreements.
The authors reviewed merger agreements for public deals announced between August 1 and December 32, 2024 that were governed by Delaware law, had a minimum equity value of $250 million and provided for the acquisition of 100% of the target company’s equity. This excerpt summarizes their conclusions about the prevalence of lost premium damages provisions and the reasons why they may not have been included in some deals:
Of the 38 merger agreements reviewed, 22 of them (58%) provided for lost premium damages and 16 (42%) did not. The fact that slightly less than one-half of the agreements did not provide for lost premium damages is presumably due to the following reasons:
1. As discussed in greater detail below, of the 16 merger agreements that did not provide for lost premium damages, 13 of them (81%) followed the private equity model, which generally limits the target company’s remedies in the event the buyer fails to close the transaction in breach of the agreement to a reverse termination fee from the buyer and the right to sue the buyer for damages capped at the amount of that fee;
2. The outcome of arms’ length negotiations between the parties regarding the issue; or
3. An oversight by the parties in light of the relatively recent adoption of the amendments to Section 261(a)(i).
The memo also discusses the interplay among lost premium damages, other remedies and reverse termination fees, and identifies some key practice pointers.
– John Jenkins