Specific Performance, Monetary Damages and Reverse Breakup Fees in M&A: Mitigating Risks if a Counterparty Refuses to Close

Description

Parties to M&A transactions should plan for the risk that their counterparty may refuse to close the deal even if the closing conditions are all satisfied. Fortunately, for a party confronting this scenario, courts have been receptive to demands that the party refusing to close should be forced to perform its obligations, respecting the parties’ intent in the M&A agreement that the specific performance remedy should be granted.

However, the specific performance remedy is not always granted. For example, in a recent Delaware decision (26 Capital Acquisition Corp. v. Tiger Resort Asia Ltd.), the court declined to grant specific performance to a buyer seeking to force a non-U.S. target to perform certain obligations. The panel will discuss how the Delaware courts view the specific performance remedy and drafting tips to increase the chance that the specific performance remedy will be granted.

An alternative remedy to specific performance is monetary damages. A recent Delaware decision (Crispo v. Musk) raised serious questions about a target's right to recover monetary damages reflecting the lost premium that its stockholders would have received if the buyer had closed the transaction. The panel will review this decision, its implications, and the proposed Delaware General Corporation Law amendment in response to this court decision.

Finally, the panel will review the structure and latest trend on the reverse termination fee, which is usually framed as liquidated damages payable by a buyer to a seller or target company in specified circumstances when a deal does not close.

Listen as our authoritative panel discusses the legal issues surrounding specific performance, reverse breakup fees and monetary damages, the seminal cases in this area, and practical considerations for deal lawyers when drafting these remedy provisions in M&A agreements.