Explore a legal battle over a $126.5 million reverse breakup fee resulting from a missed merger deadline. Delve into the complexities of M&A agreements and antitrust issues.
M&A Stories
March 28, 2019
Introduction:
In the world of business acquisitions, sellers and buyers often negotiate termination clauses to safeguard their interests. When a more appealing offer arises or financing falls through, these clauses come into play, typically involving breakup or termination fees. This article delves into a case where a missed deadline triggered a legal battle over a substantial $126.5 million reverse breakup fee.
The Deal:
This particular case revolved around a merger agreement in which the buyer intended to acquire the seller for $1.38 billion. Both parties were major players in the rent-to-own store industry. However, the deal’s closure hinged on resolving complex antitrust issues with the federal government.
The merger agreement stipulated a closing deadline, but due to the intricate nature of the antitrust concerns, meeting this deadline seemed uncertain. To address this, the buyer had the option to extend the deadline by providing the seller with timely notification. Failure to do so gave the seller the right to cancel the deal and demand a hefty $126.5 million reverse termination fee.
The Lawsuit:
As the parties worked to resolve antitrust matters, the deadline passed without the buyer sending the required extension notice. Consequently, the seller canceled the deal and requested the $126.5 million reverse termination fee. The buyer took the matter to a Delaware court but did not contest the failure to send a timely notice.
The court acknowledged that the seller was aware that the buyer had not withdrawn from the deal. Still, it ruled that the buyer’s failure to provide a timely extension notice had consequences. The court left open the question of whether the seller was entitled to the $126.5 million reverse breakup fee, citing uncertainties in the contract and Delaware’s implied covenant of good faith and fair dealing doctrine.
Comment:
The Delaware Court of Chancery expressed disapproval of the seller’s actions and the case’s outcome. It noted that the buyer had invested six months of effort and substantial funds into the deal and sympathized with the buyer’s frustration. Nevertheless, it pointed out that the contract’s requirement for a timely extension notice was clear, even if it seemed more like guidelines than strict rules, akin to Captain Hector Barbossa’s pirate code.
The court also raised concerns about the size of the reverse breakup fee, describing it as “enormous.”
Case Reference:
Manfre v. May, No. 1:18-cv-2184, United States District Court, N.D. Illinois, Eastern Division, (March 12, 2019)
By John McCauley: I help businesses minimize risk when buying or selling a company.
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