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Yes, Virginia, there is an MAE
2 October 2018
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The Delaware Court of Chancery, for the first time, has allowed a buyer to walk away from an acquisition of a public company on the basis of a Material Adverse Effect, or MAE.
The decision upheld the right of Fresenius to terminate its merger agreement with Akorn on the basis that Akorn had suffered an MAE, that Akorn’s regulatory compliance representations were incorrect to a level of an MAE, and that Akorn failed to operate in the ordinary course of business after signing the merger agreement.
The court’s decision was based on its finding that Akorn suffered a material and durationally significant decline in performance after signing the merger agreement, that its regulatory compliance problems would cost approximately 20% of Akorn’s stand-alone value to remediate, and that it failed to maintain appropriate regulatory compliance procedures after signing.
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