Mergers are complex business transactions that often have high stakes. Unfortunately, mergers do not always proceed as planned, and sometimes fail altogether. A failed merger may happen because the parties underestimate the costs of integrating the two companies, the acquiror cannot obtain financing, or state or federal regulators simply do not permit the merger or present insurmountable roadblocks. When a merger fails, a business can lose substantial assets and its shareholders’ interests may substantially diminish in value. For a business that has already been experiencing financial difficulties, a merger can cause the business to falter and even totally cease operations.
Typically, the companies planning a merger enter into a merger agreement, which is a contract that outlines the purchase price and the timeframe of the merger, as well as other conditions that govern the transaction. If one party breaches the agreement and delays or even calls off the merger, then the other party may claim that a breach of the contract has occurred. This is one way to wind up in litigation.
A merger agreement will often contain provisions that address merger failure. For example, a reverse termination fee, or financing failure fee, may be included to allocate risk. If, say, the necessary financing cannot be obtained, the acquiring company may be required to pay the target a predetermined negotiated fee—akin to liquidated damages. Depending on the language of the agreement, it may or may not be the target company’s sole remedy. Also, the target company’s right to relief will depend on the language of the contract and common law contract principles. For example, if the target company did something to prevent the merger, the acquiring company may allege that it thereby breached the implied covenant of good faith and fair dealing and, therefore, should not recover the reverse termination fee.
Williams Commercial Law Group, L.L.P., has the experience and reputation that you want when you are dealing with a business-related lawsuit. We are here to obtain the best possible outcome for your situation. Do not hesitate to contact Williams Commercial Law Group, L.L.P., at (602) 256-9400, and see how we can help you resolve your legal matter.