Lost-Premium Damages in M&A: Delaware's New Legal Landscape

Abstract

In the event of a buyer's willful breach of a merger agreement, lost-premium provisions allow a target corporation to claim damages that include the lost premium or economic entitlements that its stockholders would have received had the deal closed. While the Delaware Chancery Court in Crispo v. Musk held these provisions to be unenforceable under the anti-penalty doctrine, in this Article we argue that lost-premium provisions are doctrinally defensible, economically sensible, and supported by a host of policy considerations. Lost-premium provisions have become enforceable in Delaware effective from August 1, 2024, following amendments to the Delaware General Corporation Law, but the issue may well crop up again in other jurisdictions. Should this occur, this Article explains why courts in other states without similar statutory provisions still have a credible way of upholding lost-premium provisions and increasing transaction certainty.

Keywords: M&A, damages, remedies, lost premium, Crispo v. Musk, mergers, breach of contract, Con Ed provisions, corporate law, DGCL

JEL Classification: K20, K22, K12, G34