DealLawyers.com Blog

Last month, Meredith blogged about Verisk Analytics v. ExactLogix, (Del. Ch.; 8/26), in which the Delaware Chancery Court held that because a prospective buyer’s actions were  the “primary cause” of the FTC issuing a second request that prevented the HSR waiting period from expiring prior to the “drop dead” date, it could not terminate the merger agreement.  The Court further ordered the buyer to continue using commercially reasonable efforts to obtain antitrust clearance and to close the transaction if it was obtained.

This Cooley blog says that the decision and the Chancery Court’s approach to the specific performance remedy are sufficient to take specific performance clauses out of the realm of boilerplate and into the boardroom. This excerpt focuses on what the Court did not find regarding the buyer’s conduct in reaching its decision and crafting its remedy, and the implications of that for buyers and their boards:

The striking part is what the court did not find. This was not a classic buyer’s-remorse case where the purported termination was a way to get out of a deal that the buyer regretted post-signing. The court found virtually no evidence that Verisk intended to scuttle the acquisition. Verisk met with the FTC nearly 30 times, hired experienced advisers and lobbyists, and spent almost $8 million responding to the agency.

Verisk lost anyway. Under the language the parties negotiated in the merger agreement, an intentional business decision terminating negotiation of an enhanced integration with a competitor of AccuLynx, was enough to eliminate Verisk’s right to validly terminate the merger agreement if that decision was the “primary cause” of the failed closing condition. This was so, even if that decision was not made in bad faith, not an action constituting a breach of the agreement and not undertaken as a deliberate effort to kill the deal.

For boards and CEOs, that makes Verisk more important than another bad-buyer morality tale. It shows that ordinary post-signing conduct can have extraordinary contractual consequences. A key question that board members should ask their counsel before signing is now: “If the transaction encounters obstacles to closing, what are each party’s continuing performance obligations?” Well-seasoned outside counsel should be able to give precise rationale for each provision’s language and how they interrelate and ensure that the rules of the road between signing and closing are communicated all the way down the chain.

– John Jenkins