As Law360 reported, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued a pathbreaking opinion allowing pharmaceutical company Fresenius Kabi AG to abandon its merger with Akorn Inc. The decision was pathbreaking because it is the first time a Delaware court has found a material adverse effect to have occurred, which excused a buyer’s obligation to close under a merger agreement. While Vice Chancellor Laster also found that Akorn had misrepresented its compliance with U.S. Food and Drug Administration regulations and improperly changed its internal audit procedures pending the merger, the finding of a “general MAE” did not rely on these findings. Rather, it was the change in the performance of the business alone that supported Vice Chancellor Laster’s ruling on the general MAE. Put differently, it is a result with wide-ranging implications because Akorn’s regulatory problems appear to have had no material impact on its business. It was a business decline from competition that the vice chancellor found severe enough to constitute a general MAE.

It seems likely that this decision will be appealed. At stake is a merger that would have seen Fresenius pay $34 a share for shares now trading below $6. Akorn issued a press release saying it will appeal, and its fiduciary duty probably compels it to do so. That appeal will determine whether Vice Chancellor Laster found that rare case destined to be the first general MAE merger case in Delaware, or whether he overreached on the law and the facts. It is likely to be a close call.

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