Gail Weinstein is senior counsel, and Amber Banks (Meek) and Maxwell Yim are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Ms. Banks, Mr. Yim, Andrea Gede-Lange, Shant P. Manoukian, and Bret T. Chrisope, 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 Allocating Risk Through Contract: Evidence from M&A and Policy Implications by John C. Coates, IV (discussed on the Forum here).
The Delaware Court of Chancery’s recent decision in Yatra Online v. Ebix (Aug. 30, 2021) serves as a reminder that, under the “Effect of Termination” provision in most merger agreements, a party’s termination of the agreement extinguishes all liability of both parties for pre-termination breaches of the agreement, except as the parties may have otherwise specifically provided in the agreement. The Ebix case illustrates that, depending on how the parties have drafted the provision, a party can be left with no remedy for the willful breaches and wrongful failure to close of the other party.
Ebix, Inc. allegedly had a change of heart about proceeding with its agreed acquisition of Yatra Online, Inc. after the deal became less attractive to Ebix when the COVID-19 pandemic emerged. Allegedly, Ebix then blatantly breached its representations and covenants in the Merger Agreement and “strung along” Yatra with pretextual delays while in fact Ebix never intended to close. Yatra ultimately became “fed up” with Ebix’s misconduct, and, when several renegotiated end dates had passed with no sign that Ebix intended ever to close, Yatra sued Ebix for damages and exercised its right to terminate the Merger Agreement. The court held, however, that Yatra had no remedy because it had terminated the Merger Agreement and the Effect of Termination provision, as drafted, extinguished liability for pre-termination breaches without any carveout for liability for willful breaches.
