Chancery Court Rejects Target Company Claim That Termination Fee Was Jilted Merger Partner’s Exclusive Remedy
Robert S. Reder & Alexandra Sasha Gombar | 73 Vand. L. Rev. En Banc 45 |
“Recently, in Genuine Parts Co. v. Essendant Inc., C.A. No. 2018-0730-JRS, 2019 WL 4257160 (Del. Ch. Sept. 9, 2019) (“Genuine Parts”), the Chancery Court had another opportunity to analyze standard public merger agreement provisions. Vice Chancellor Joseph R. Slights III was asked to consider whether receipt of a termination fee (sometimes called a “break-up fee”) was a jilted acquiring company’s “sole and exclusive remedy” when the target company exercised its “fiduciary out” to terminate the agreement and accept a “superior proposal.” Although the agreement expressly stated the termination fee was the “sole and exclusive remedy,” it also required the target company to follow a series of steps before exercising the fiduciary out. Because the acquiring company offered “well-pled” allegations that the target company materially breached the “non-solicitation” provisions of the merger agreement in securing the superior proposal, the Vice Chancellor refused to dismiss the acquiring company’s action for breach of contract.