Law School Case Brief
Hexion Specialty Chems., Inc. v. Huntsman Corp. - 965 A.2d 715 (Del. Ch. 2008)
For the purpose of determining whether a material adverse effect has occurred, changes in corporate fortune must be examined in the context in which the parties were transacting. In the absence of evidence to the contrary, a corporate acquirer may be assumed to be purchasing the target as part of a long-term strategy. The important consideration therefore is whether there has been an adverse change in the target's business that is consequential to the company's long-term earnings power over a commercially reasonable period, which one would expect to be measured in years rather than months.
Plaintiffs, the buyer corporation in a merger agreement and an equity group that owned most of the buyer, brought a declaratory judgment action against defendant seller corporation. The buyer argued that its obligation to close the merger was excused because of a material adverse effect (MAE) in the seller's business. The seller filed counterclaims, including one for specific performance. The court held a trial on certain of the claims for declaratory and injunctive relief.
Did the defendant seller suffer a material adverse effect (MAE) that warranted the enforcement of buyer’s contractual obligations under the merger agreement?
The court held that the seller was not entitled to specifically enforce the buyer's duty to consummate the merger. It held that the issue of the solvency of the combined entity was not ripe for decision The burden of proof with respect to an MAE rested on the party seeking to excuse its performance under the contract, and the evidence did not show that the seller had suffered an MAE as defined in the merger agreement. It was appropriate, however, to require the buyer to specifically perform its other obligations under the merger agreement.
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