Hille R. Sheppard is partner and Charlotte K. Newell is an associate at Sidley Austin LLP. This post is based on their Sidley memorandum, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? by John C. Coates, Darius Palia, and Ge Wu (discussed on the Forum here); and The New Look of Deal Protection by Fernan Restrepo and Guhan Subramanian (discussed on the Forum here).
Last Friday [April 30, 2021], soon-to-be Chancellor McCormick issued a decision in Snow Phipps Group, LLC v. KCake Acquisition, Inc. that ordered the defendant buyers to specifically perform their agreement to acquire DecoPac Holdings, Inc. (“DecoPac” or the Company), which sells cake decorations and technology for use in supermarket bakeries. The 125-page decision, which opens with a quote from the incomparable Julia Child (“A party without cake is just a meeting”), and is rightly described by the Court as a “victory for deal certainty,” offers a detailed analysis of several common contractual provisions in the time of COVID-19. Despite its length, it is a must-read for those interested in the drafting and negotiation of M&A agreements generally, and their operation during the COVID-19 pandemic specifically.
Factual Background
The stock purchase agreement at issue was negotiated in early 2020, as the COVID-19 pandemic was unfolding. At least two key matters were discussed in the 48 hours before the agreement was signed on March 6, 2020. First, on March 4, buyers reduced their offer from $600 million to $550 million; sellers accepted, believing COVID-19’s impact on the market and other potential buyers left only a failed process as the alternative. Second, that same day, the sellers sought to carve “pandemics” and “epidemics” out from the definition of a “Material Adverse Event” (MAE). The buyers refused, though buyers’ counsel assuaged sellers’ counsel that the other broad carveouts (e.g., for an economic downturn) would provide protection if caused by the COVID-19 pandemic.