The MAC is Back: Material Adverse Change Provisions After 'Akorn'

Abstract

On December 7, 2018, the Delaware Supreme Court upheld the Delaware Court of Chancery’s October 1, 2018 decision which held that Fresenius Kabi AG, a German pharmaceuticals company, had properly terminated its merger agreement with Akorn, Inc., a U.S. generic pharmaceuticals company. Akorn is the first time that a Delaware court has permitted the termination of a merger agreement on the basis of a material adverse effect, commonly known as a “MAC” or “MAE”. While the Delaware courts have previously opined on the scope and effect of MAC provisions in public merger agreements, no buyer had previously been able to successfully terminate a merger agreement on such grounds. Akorn upends a longstanding view among practitioners that the Delaware courts will generally decline to recognise a MAC and demonstrates, that given sufficiently egregious facts and relevant merger agreement provisions, the Delaware courts will allow a buyer to walk away from a merger agreement based on changed circumstances or contractual breaches. Akorn also provides new insights and guidance on how Delaware courts may interpret MAC provisions as well as practical considerations relevant to M&A negotiations, merger agreement drafting, and how to handle unexpected negative developments going forward. The Delaware Supreme Court’s twopage affirmation was as terse as the 246-page Court of Chancery opinion was exhaustive, so the discussion below is largely drawn from the latter opinion by Vice Chancellor Laster.

Keywords: MAC, Material Adverse Change, Material Adverse Effect, Termination of Merger, Akorn, Vice Chancellor Laster, J. Travis Laster

JEL Classification: K22