DealLawyers.com Blog

In August, I 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 before the “drop dead” date, it could not terminate the merger agreement, and ordered the buyer to continue using commercially reasonable efforts to obtain antitrust clearance and to close the transaction if it was obtained. As Vice Chancellor David’s decision indicates:

The facts of this case stand apart from other broken deal cases in which a buyer tried to avoid its obligation to close. The trial record here revealed virtually no evidence suggesting that Verisk intended to scuttle the deal. Verisk witnesses credibly testified that but for the uncertainty and cost presented by a lengthy Second Request process, AccuLynx remained an attractive acquisition target for Verisk, and no contemporaneous evidence suggests otherwise [. . .]

Verisk met with the FTC nearly 30 times; hired experienced legal advisors, expert economists, and a government affairs firm to advocate for FTC clearance; and spent nearly $8 million in legal fees to review roughly four million documents from 16 custodians under the quick look agreement.

VC David still ordered specific performance because the merger agreement foreclosed termination by a party whose “willful conduct” was the “primary cause” of “the failure to satisfy any condition to the obligations of the Parties,” and “willful conduct” required neither breach nor impropriety. Verisk appealed, and on Friday, in Verisk Analytics v. ExactLogix (Del.; 10/26), the Delaware Supreme Court affirmed the Chancery Court’s decision in a one-paragraph order.

The Cooley blog John shared after the Chancery Court decision had some drafting tips to consider:

Define mental state language deliberately. “Willful conduct,” “willful breach,” “knowing breach” and “intentional breach” are not interchangeable decorations. In Verisk, using different formulations in the same termination section caused the court to assign them different standards. A party that intends termination to be blocked only by deliberate contractual misconduct should say that clearly. Conversely, a seller seeking maximum deal certainty may want a broader conduct-based blocker.

Negotiate the causation standard with the same care. “Prevented,” “materially contributed,” “primarily resulted in” and “primary cause” can produce different burdens. Verisk paired a relatively low mental state threshold with a relatively high causation threshold. The buyer cleared the first hurdle for the seller simply by acting voluntarily; the factual record cleared the second by tying a throughline from one communication by Verisk directly to the FTC’s subsequent investigation.

– Meredith Ervine