[T]he Delaware Court of Chancery held that, following a post-merger purchase-price adjustment that benefited the seller, the buyer may still receive indemnification from the seller for that adjustment payment if the adjustment was caused by a misrepresentation in the agreement or a warranty breach. The case shows that the Delaware courts recognize that contractual purchase-price adjustments and contractual indemnification processes are not mutually exclusive, but they can complement each other in a way that allows the processes to proceed according to their terms while effectuating the commercial intent of the parties.
Here are the facts as summarized by Sidley. There were a few issues and challenges leading up to this dispute, so buckle up.
The buyer acquired the seller in 2019 for a $750 million base purchase price, subject to a post-closing purchase-price adjustment based on whether certain accounting metrics at closing exceeded or fell short of agreed-upon targets. One such metric was “tangible net worth” — which the parties agreed would be determined in accordance with GAAP’s revenue recognition standard: ASC 606. Although the standard was new at the time, the seller represented that it had already been adopted and would have an immaterial impact on its pre-closing financials.
The merger agreement also naturally contained financial-statement representations. Among other things, the seller represented that its financial statements were prepared in accordance with GAAP and fairly presented, in all material respects, the company’s financial condition and results of operations. And as part of the post-closing purchase-price adjustment, the merger agreement also required that the estimated balance sheet and tangible net worth calculations be prepared in accordance with agreed accounting principles, which specifically required application of ASC 606.
After closing, it became known that the seller had misapplied ASC 606 in its pre-closing financials. Correcting that treatment produced a different tangible net worth adjustment by approximately $38.3 million, compared to what the buyer would have paid without the correct application of ASC 606. Thus, the seller sought a purchase-price adjustment. In response, the buyer filed a complaint in the Delaware Court of Chancery seeking a declaration and injunction to prevent the seller from asking the designated accountant to calculate the “Final Adjustment Amount” using an application of ASC 606 that was inconsistent with the pre-closing financial statements. The court reasoned that the parties’ agreement required ASC 606 to be applied correctly and, thus, the agreement did not prohibit the seller from asking the accounting firm to calculate the Final Adjustment Amount.
Given the concededly incorrect application of ASC 606, the outcome in the purchase-price adjustment process was that the buyer was obligated to pay the extra $38.3 million to the selling shareholders. Following the accounting proceeding, the buyer filed a new lawsuit, this time for indemnification. The buyer alleged that it overpaid the Final Adjustment Amount due to the seller’s breach of representations and warranties regarding the accuracy of its financial statements.
Ultimately, Vice Chancellor Fiorvanti held that the seller breached the merger agreement representation that its financial statements were prepared in accordance with GAAP and its estimated balance sheet obligations for the purchase-price adjustment provision. Seller tried to argue that the no-duplication provision prevented the claims. VC Fiorvanti disagreed since the no-duplication provision was intended to prevent double recovery, not bar indemnification claims generally, and that buyer proved that, if seller had applied GAAP correctly in the pre-signing and interim period, buyer would have avoided the entire $38.3 million upward adjustment. Sidley concludes:
Golden Rule teaches that while a purchase-price adjustment settles the final price, it does not decide who bears the risk that a representation was false or encroach on the purpose of indemnification. Absent language making the adjustment the exclusive remedy, a broadly drafted indemnity paired with a no-duplication provision aimed at true double recovery can provide a buyer a path to recovery where the adjustment payment itself is traceable to a breached representation, warranty, or covenant.
Earlier this week, the FTC announced a proposed settlement involving record fines ($12 million) for a failure to make a mandatory filing under the HSR Act. Here’s information from the announcement:
Under the terms of a proposed final judgment, Edwards, including former Genesis subsidiary JC Medical, will pay a $10 million penalty. Genesis will pay a $2 million penalty. Edwards will also be subject to additional terms including prior notice requirements. The combined $12 million penalty is the largest ever for failing to make an HSR filing [. . .]
According to the complaint, Edwards and Genesis intentionally structured their deal to avoid complying with the HSR Act, which requires parties to submit an HSR form to the federal antitrust agencies and observe a waiting period before completing a transaction. The waiting period provides the antitrust agencies with time to evaluate the transaction for potential competitive harm.
In July 2024, Edwards acquired JC Medical without filing under HSR and then, just one day later, attempted to acquire JC Medical’s only competitor, JenaValve Technology Inc. Had the transaction succeeded, Edwards would have owned the only two companies in the United States with TAVR-AR devices in clinical trials.
The FTC sued to block Edwards’ acquisition of JenaValve alleging that the deal was anticompetitive and, in January 2026, the U.S. District Court for the District of Columbia granted the FTC’s request for a preliminary injunction after a six-day hearing.
As you can tell from the above, the FTC alleged that avoidance tactics were used here. The announcement goes on to say:
According to the complaint, Edwards was concerned that HSR review would significantly delay closing on the acquisition of JC Medical, especially in light of its concurrent negotiations to acquire JenaValve.
To avoid HSR review, Edwards and Genesis agreed that Edwards would pay $115 million, plus milestone payments, for JC Medical, which fell just below the minimum size-of-transaction threshold of $119.5 million required at the time to trigger HSR review. Edwards, however, also agreed to a contemporaneous $25 million investment in Genesis in connection with the JC Medical acquisition, according to the complaint.
In substance, the transactions between Edwards and Genesis met the thresholds for mandatory reporting under HSR, as the combination amounted to more than $119.5 million, the complaint further alleges.
This Fried Frank article discusses the Delaware Chancery’s early July decision in WSP USA Services Inc. v. Versar, Inc. (Del. Ch.; 7/26), granting a motion to dismiss claims by a seller that the buyer breached their SPA by treating an undisclosed current liabilities disagreement as a purchase price adjustment dispute rather than a breach-of-representations dispute. The article summarizes the facts as follows:
In 2023, Versar (“Buyer”) acquired facility management company Louis Berger Services, Inc. (the “Company”) from WSP USA Services, Inc. (Seller”). Post-closing, Buyer alleged that the Company had not materially performed certain of its government contracts (the “Florida Contracts”). Seller had represented in the SPA that the Company had materially complied with and performed all of its government contracts. Under the post-closing purchase price adjustment process set forth in the SPA, Buyer proposed a purchase price adjustment of about $9.7 million, of which about $5.3 million was attributable to the alleged nonperformance of the Florida Contracts.
Seller did not argue that liabilities associated with underperformance of the Florida Contracts were not current liabilities within the SPA’s definition of “Net Working Capital”—but Seller argued that the SPA prohibited Buyer from treating the dispute over the Florida Contracts as the basis for a purchase price adjustment. Seller argued that the proper source of recovery was through the R&W insurance, given the representation in the SPA covering compliance with government contracts. Seller brought suit, claiming that Buyer breached the SPA by submitting the dispute to the SPA’s independent arbiter process for Net Working Capital disputes.
Chancellor McCormick disagreed and found that, because the SPA lacked a provision dictating a “hierarchy” of the post-closing remedies (the purchase price adjustment and R&W insurance recovery), the buyer was able to choose between them. The Fried Frank alert says:
The decision reinforces the need for careful drafting of post-closing purchase price adjustment and indemnification provisions. Where, as is typical, a purchase agreement (i) provides for a post-closing purchase price adjustment based on net working capital (or another metric), and (ii) requires that the seller indemnify the buyer for breaches of representations and warranties (or that the buyer obtain an R&W insurance policy to cover such breaches), the buyer may be entitled to elect between seeking recovery under (i) or (ii) if a post-closing dispute falls within the purview of both—unless the parties have specified in their agreement a “remedy hierarchy” stating that, in case of conflict between the two provisions, one would supersede the other. We note that these two remedies typically provide for different recoveries, particularly as indemnification usually is subject to caps and deductibles.
It goes on to suggest:
Drafters of purchase agreements should consider specifying a “remedy hierarchy” as between a purchase price adjustment and indemnification. Where a purchase agreement provides for (a) a purchase price adjustment based on net working capital (or other metric) and (b) indemnification (or recovery under R&W insurance) for breaches of representations, the drafters should consider specifying, with respect to disputes that implicate both, which remedy supersedes the other.
Drafters should consider carefully how the purchase price adjustment provisions interrelate with the indemnification provisions. Typically, an agreement will: specify that indemnification is the exclusive remedy for breaches of the seller’s representations under the agreement; carve out purchase price adjustment amounts (as well as fraud and other specified matters) from the exclusive remedy provision; and prohibit double recoveries by excluding purchase price adjustments from indemnification claims. Many agreements provide that a purchase price adjustment is the sole remedy for net working capital inaccuracies and that indemnification is the sole remedy for breaches of representations and warranties—but, as noted, the agreement should specify which of these remedies takes precedence over the other when the dispute falls under both. For additional clarity, parties could consider providing specific, hypothetical examples of how they intend that specific situations would be treated where both a post-closing purchase price adjustment and indemnification could be implicated.
– Forty-one Second Request investigations were opened, and 18 transactions were contested by the Agencies, both down from fiscal year (FY) 2024. But certain industries, including agriculture and food, housing, electricity, and healthcare, remain priorities for the administration.
– Consent orders/decrees have returned as a viable pathway to closing a transaction with a negotiated remedy.
– The trend of increasingly large transactions, in excess of $1 billion, has continued.
– There were 2,006 Hart-Scott-Rodino Act (HSR Act) reportable transactions noticed, a number relatively flat year over year. Early Termination was reintroduced in February 2025, and it was granted for 29 percent of Early Termination requests across the entire year – a sizable increase year over year but still well below the 70+ percent grant rate that was typical before FY 2021.
Yesterday, Corp Fin issued a grab bag of new CFIs addressing beneficial ownership reporting, the proxy rules, Regulation Crowdfunding & the tender offer rules. Here are links to the CFIs, along with a brief description of what’s addressed in them:
Exchange Act Sections 13(d) & 13(g)
Section 105. Rule 13d-3 — Determination of Beneficial Ownership
New Question 105.08 – Cash-based total return equity swap (TRS) generally does not result in beneficial ownership of reference securities or plan or scheme to evade reporting.
New Question 105.09 – When a TRS swap will result in beneficial ownership of reference securities.
New Question 105.10 – Mental state required for a “plan or scheme” to evade reporting & application to a TRS.
Section 110. Schedule 13D
New Question 110.09 – Disclosure of identity of investors in an entity filing a 13D.
New Question 110.10 – Reporting obligations for general partners of a 13D reporting person that is a general or limited partnership.
Proxy Rules and Schedules 14A/14C
Section 155. Item 4
New Question 155.02 – Status of investors in an entity conducting a proxy contest as “participants” in a solicitation.
New Question 104.03 – Circumstances under which an issuer may use a widely disseminated press release to “publish, send, or give” the disclosure required by Rule 13e-4(d) to security holders.
New Question 131.04 – Circumstances under which a bidder may use a widely disseminated press release to “publish, send, or give” the disclosure required by Rule 14d-6 to security holders.
This Lazard report reviews global shareholder activism during the first half of 2022. Here are some of the highlights:
– Shareholder activism reached a new high in H1 2026, with campaign activity rising 20% year-over-year and 38% above the five-year H1 average
– Record activity in the U.S. and a sharp acceleration in APAC more than offset a moderation in Europe
– The top five targeted sectors globally accounted for 84% of all activity (vs. 68% historically): Industrials (39%), Technology (13%), Financial Institutions (12%), Healthcare (11%) and Consumer (9%)
– Capital Allocation demands arose in 39% of H1 2026 campaigns, up from 23% historically. The increase was principally driven by activity in Japan, which saw 29 Capital Allocation campaigns in H1 2026, more than double H1 2025’s total
– M&A and Board Change campaigns remained leading objectives, accounting for 40% and 35% of campaigns respectively (each elevated vs. historical levels)
– Strategy-focused campaigns accounted for 23% of H1 2026 activity, more than twice the historical share. In the Technology sector in particular, Strategy demands arose in 46% of campaigns, with many focused on how companies are approaching AI
The report also identifies trends to watch during the balance of 2026. These include the growing role of AI in campaigns, the continued momentum behind M&A-themed activism, evolving proxy voting and stewardship practices, regulatory developments & the US government as a potential equity investor, and the rise of activism in the APAC region.
I don’t know how we missed this one, but back in April, Wachtell issued the 2026 edition of its “Spin-Off Guide.” This 70-page publication is a terrific resource for getting up to speed on the wide variety of issues associated with spin-off transactions. Part I of the Guide provides an overview of the publication, and this excerpt summarizes the rest of the Guide’s contents:
This guide is intended to help companies navigate the spin-off process, from the preliminary phases through completion of the transaction. Part II of this guide describes some of the initial planning considerations relating to spin-offs, and includes a discussion of the principal reasons for spin-offs and a comparison to other separation transactions. Part III examines a broad array of general corporate separation issues that may arise in a spin-off. Part IV discusses the transaction agreements commonly executed to implement a spin-off and govern the post-spin relationship between the parent and the spin-off company.
Part V identifies the principal securities law matters associated with a spin-off. Part VI examines certain tax issues, which are critical given the tax-sensitive nature of separation transactions. Finally, Part VII reviews stock exchange listing and trading considerations. A sample illustrative timetable for a spin-off (that is not preceded by an initial public offering) is attached as Annex A. A discussion of certain tax-related postspin limitations on strategic transactions is attached as Annex B.
This Cleary blog discusses some of the lessons and trends from this year’s activist campaigns and what we might expect for the balance of the year. One of the trends the blog highlights is the prominence of M&A themed campaigns. Here’s an excerpt:
M&A leads the activist agenda so far in 2026. M&A demands appeared in 39 of the 84 campaigns this year, more than double the 19 in the same period last year. That moved M&A from second place, behind governance reform a year ago, to first this year. Governance reform fell slightly as a share of campaigns, slipping to second. Operational demands also rose and now ranks third. As the chart below shows, activists have centered their campaigns on transactional and strategic outcomes, such as calls to sell, spin off, or separate businesses, while continuing to press governance demands as a complementary lever.
The authors attribute the increase to a strengthening M&A market and investor pressure to simplify complex corporate structures, and they expect that both forces will keep M&A demands front and center for activists during the remainder of the year.
Here’s the latest edition of our “Understanding Activism” podcast. This time around, Cleary’s J.T. Ho and I were joined by Joshua Black, Editor in Chief of Diligent Market Intelligence, to discuss Diligent’s recent activism publications. Topics covered in this 23-minute podcast include:
– Identification of the most prolific activists this proxy season.
– How to evaluate and weigh activist rankings.
– The dominance of settlements over proxy fights.
– The shift toward financial versus operational activism.
– The rise of digital campaigning by activists.
– Regional divergence in activism trends, especially Japan versus Europe.
– The increase in “sell the company” activism.
– The growth and evolution of short activism.
– Key takeaways from data on activism challenging M&A deals.
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. We continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
InParagon Metals Holdings v. Smith, (Del.; 7/26), the Delaware Supreme Court reversed a Superior Court decision precluding buyers from relying on seller’s reps & warranties in a common law fraud claim due to due diligence gaps that the lower court concluded amounted to their “willful blindness” to the inaccuracy of those reps.
The case arose out of a 2018 acquisition of Paragon Metals from its founder and CEO by an investor group. In the purchase agreement, the founder represented that he was unaware of any material changes in business terms with the company’s major customers. Despite that representation, two of Paragon’s largest customers had in fact indicated plans to significantly reduce their business with the company. The buyers failed to discover the customers’ plans during due diligence, despite several warning signs. After the closing, the buyers learned of the impending loss of business and ultimately sued the founder for common law fraud based on his alleged misrepresentations.
The Superior Court agreed that the founder had made false representations to the buyers, but it held that the buyers were unable to justifiably rely on those allegedly fraudulent representations because their failure to conduct reasonable due diligence constituted “willful blindness” with respect to the falsity of those warranties.
In rejecting the Superior Court’s conclusion, the Supreme Court observed that willful blindness requires a party to “take deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts.” The Court said that the lower court went to far in applying that stringent standard in these circumstances:
Determining what constitutes “reasonable” reliance can be difficult, as the line lies somewhere between actual knowledge and negligence. On one hand, “it is axiomatic that a plaintiff does not justifiably rely on a defendant’s misrepresentation if the plaintiff knows that the representation is false.” On the other, a plaintiff’s “failure to discover the fraud through due diligence does not excuse it.”
Although Delaware reveres freedom of contract, “contracts may not insulate a party from damages or rescission resulting from the party’s fraudulent conduct.” Nothing on the face of §§ 3.23 or 3.8 gave [the buyers] reason to doubt the truth of the warranties. Instead, when [the buyers] raised questions, Smith concealed the truth. When [the buyers] questioned Smith about the strike-through language that said ZF was “going to decrease their purchases,” Smith was untruthful. He told [the buyers] that ZF and FCA were going to shift their purchase orders from one bracket type to another and would not decrease the total quantity of brackets they purchased.
Smith stresses that he placed [the buyers] on notice of Paragon’s declining orders by sending it an email that referred to the ZF Letter and that [the buyers] should have read the email. Yet, in the same email, Smith wrote that he would review the listed items with [the buyers] in ten days. It therefore should not have altered the court’s analysis that [the buyers] did not prioritize reading and digesting the email when Smith stated in the same email that he would discuss it with [them] at a later date.
Ultimately, the Supreme Court concluded that the record didn’t establish that the buyers took deliberate actions to avoid learning of the changes in Paragon’s business terms with its customers, and that while their trust in the founder may have been naïve, it did not amount to deliberate action to avoid discovering the truth.