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Chancery Court Refuses to Dismiss Action to Enforce Post-Merger Covenant Due to Ambiguities in Merger Agreement

Posted by on Wednesday, January 15, 2020 in Delaware Corporate Law Bulletins, En Banc.

Robert S. Reder & Faisal Q. Haider | 73 Vand. L. Rev. En Banc 27 |

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“Notwithstanding the disavowal of covenant survival and third-party beneficiary rights, there are circumstances in which publicly traded targets bargain for post-merger covenants in public merger agreements. For instance, where a significant amount of acquiring company stock is used as merger consideration, the public merger agreement may contain post-merger covenants required of the acquiring company relating to so-called “social issues.” These may include representation of members of the target board of directors on the acquiring company board, identification of post-merger senior management, location of company headquarters, etc. It is rare, however, to see enforcement provisions relating to these social issues in a public merger agreement.

It is noteworthy, therefore, that the enforceability of a post-merger covenant in a public merger agreement was precisely the issue before the Delaware Court of Chancery (the “Chancery Court”) in Dolan v. Altice USA, Inc., C.A. No. 2018-0651-JRS, 2019 WL 2711280 (Del. Ch. June 27, 2019) (“Dolan”). In Dolan, Vice Chancellor Joseph R. Slights III refused to dismiss at the pleading stage an effort by former target company stockholders to enforce certain promises made by an acquiring company in a public merger agreement, despite the absence of provisions either (i) providing for the post-merger survival of these promises or (ii) granting third-party enforcement rights to the former stockholders.”

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