08 Apr Akorn Fresenius Merger Agreement
While it remains to be seen how the notice will be appealed, Akorn`s opinion provides important solutions to negotiators in structuring mergers and other agreements: a buyer`s rights prior to the conclusion of information in a merger transaction are common and generally not controversial. However, this case highlights the crucial role that these rights play when a transaction takes place laterally. Without them, it seems unlikely (despite the letters from informants) that Fresenius was able to reveal the degree of compliance that led to the conclusion that he could denounce the merger agreement. After Akorn, we expect buyers and target companies to focus again on extending or limiting these provisions. The Tribunal again rejected the argument that Fresenius had taken the risk of regulatory issues because he was generally aware of Akorn`s regulatory risk. The Tribunal found that such a risk was precisely the reason Fresenius wished to be represented in its merger agreement and that contractual representation exceeded any general knowledge of regulatory or potential regulatory issues on the scope of Fresenius` due diligence investigation. The court advanced Akorn`s argument (based on In re IBP, Inc. Shareholders Litig., 789 A.2d 1 (Del Ch. 2001) ] that, in this context, a widely written provision of MAE “can be best read as a backstop protecting the purchaser from the occurrence of “unknown events” and thus implicitly containing a complete carve-out for all risks that the buyer may have been aware of or problems identified by the purchaser or identified by the duty of care. Once again, the Tribunal found that the parties could have removed such excerpts from the contractual representation, but not this one. The Tribunal seriously considered Akorn`s argument that Fresenius was motivated by the buyer`s remorse and should have been excluded from the exercise of his right to terminate, on the basis of his inability to make the best appropriate efforts to complete the transaction.
Fresenius was able to refute this argument by stating that it continued its efforts to complete the transaction until it terminated the merger agreement, for example by stating on several occasions and publicly that it had committed to the transaction, giving Akorn additional time to deal with the problems found at Fresenius and maintaining its efforts to obtain antitrust authorization for the transaction. Therefore, even in the context of considering a possible termination, a buyer should not end its efforts to obtain regulatory approvals or comply with other positive pre-accession pacts and adopt a “double path” through which it will continue its efforts, 10 On October 1, in Akorn/Fresenius Kabi, the Delaware Court of Chancery found for the first time that a merger had had a significant negative effect – or MFA – that allowed the purchaser, in connection with other breaches of the merger agreement, to terminate the merger agreement and cancel the transaction. While Akorn is remarkable in that Fresenius has fulfilled the unprecedented and seemingly insurmountable task of finding that a DMA had taken place, the Court`s careful and thorough analysis of a relatively standardized merger agreement between state-owned enterprises emphasizes that the result was based on specific – and often monstrous – facts rather than a drastic reinterpretation of MSA clauses under delaware law.