A Delaware Court Issues Additional Guidance on Busted Deals

According to the court, the buyer developed a case of buyers remorse in mid-March 2020 when it believed that celebrations and related cake orders would decline during the pandemic and as it considered the capital needs of its other portfolio companies and opportunities to pursue distressed debt inve...

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Bibliographic Details
Published in:Insights; the Corporate & Securities Law Advisor 2021-05, Vol.35 (5), p.17-19
Main Authors: Simmerman, Amy L, Cleary, Todd, Schnell, Douglas K, Greecher, Ryan J
Format: Article
Language:English
Subjects:
Advisors
Agreements
Cost reduction
COVID-19
Debt financing
Pandemics
Price cuts
Purchasing
State court decisions
Trials
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Summary:According to the court, the buyer developed a case of buyers remorse in mid-March 2020 when it believed that celebrations and related cake orders would decline during the pandemic and as it considered the capital needs of its other portfolio companies and opportunities to pursue distressed debt investing opportunities. [...]the target promptly notified the buyer of the draw request, and the buyer had not given the target the opportunity to cure any alleged breach of the covenant, as the agreement required. Because the target never spent the funds, the court reasoned that the target could clearly cure any breach. The court applied the "prevention doctrine," which excuses non-occurrence of a condition if a party's breach materially contributed to the non-occurrence. Because the court found that the buyer breached its obligation to use reasonable best efforts to arrange and obtain debt financing, it was therefore precluded from refusing to perform its obligations under the acquisition agreement due to the non-occurrence of financing. [...]carve-outs to MAC clauses (including "carve-outs to carve-outs" related to disproportionate effects on a target) should be considered carefully and appropriately tailored.
ISSN:0894-3524