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Under either New York or Delaware law, the party seeking specific performance bears the burden of persuasion to justify its entitlement to specific performance.
IBP, Inc. attempted to back out of a merger, purportedly due to Tyson Foods, Inc.’s financial problems, largely related to one of its subsidiaries. The IBP-Tyson Merger Agreement resulted from a vigorous auction process that pitted Tyson against the nation's number one pork producer, Smithfield Foods. To say that Tyson was eager to win the auction is to slight its ardent desire to possess IBP. During the bidding process, Tyson was anxious to ensure that it would acquire IBP, and to make sure Smithfield did not. This is a post-trial demand for specific performance.
Should specific performance be granted to Tyson?
The court held the merger agreement and related contracts were valid and enforceable contracts, not induced by material misrepresentations or omissions. The merger agreement specifically allocated certain risks to IBP, including the risk of any losses or financial effects from the accounting improprieties at Tyson’s subsidiary, and those risks could not serve as a basis for IBP terminating the agreement. None of the non-subsidiary related issues the Security Exchange Commission raised constituted a contractually permissible basis for IBP to walk away from the merger. Tyson had not suffered a material adverse effect within the meaning of the agreement that excused IBP ‘s failure to close the merger. Specific performance was the decisively preferable remedy for IBP’s breach, as it was the only method by which to adequately redress the harm threatened to Tyson and its stockholders.