Delaware Chancery M&A Decision, Hexion vs. Huntsman (Del. Ch., Sept. 29, 2008)
"In July 2007, just before the onset of the ongoing crisis affecting the national and international credit markets, two large .... companies entered into a merger agreement contemplating a leveraged cash acquisition of one by the other...."
"Because the buyer and its parent were eager to be the winning bidder in a competitive bidding situation, they agreed to pay a substantially higher price than the competition and to commit to stringent deal terms, including a no “financing out.” In other words, if the financing the buyer arranged (or equivalent alternative financing) is not available at the closing, the buyer is not excused from performing under the contract. In that event, and in the absence of a material adverse effect relating to [Target’s] business as a whole, the issue becomes whether the buyer’s liability to the seller for failing to close the transaction is limited to $325 million by contract or, instead, is uncapped."
"[T]he buyer covenanted that it would use its reasonable best efforts to take all actions and do all things “necessary, proper or advisable” to consummate the financing on the terms it had negotiated with its banks and further covenanted that it would not take any action “that could be reasonably be expected to materially impair, delay or prevent consummation” of such financing....."
"In this post-trial opinion, the court finds that the seller has not suffered a material adverse effect, as defined in the merger agreement, and further concludes that the buyer has knowingly and intentionally breached numerous of its covenants under that contract. Thus, the court will grant the seller’s request for an order specifically enforcing the buyer’s contractual obligations to the extent permitted by the merger agreement itself."
The entire opinion can be found here.
