Wednesday, October 10, 2018
Sorry, catching up. It's a 247 page opinion for Chrissakes! It takes a guy some time to read that and the footnotes! What?! 800 plus footnotes? What are we doing here? Anyway, as this case is no doubt going up for appeal, the Chancery opinion is not going to be the last word on this. Nevertheless, here we go.
So, for those of you not paying attention, in Akorn v. Fresenius Vice Chancellor Laster found - for the first time - that a buyer properly terminated a merger agreement after finding that a seller had breached a representation and that a material adverse effect had occurred. There are a couple of things, I think, worth thinking about at least initially.
First, it's pretty clear that early on the seller, Akorn, was running into market headwinds. The business did not perform nearly as well as it had previously due to the entrance of new competitors in the generics business. This poor performance caused Fresenius to worry and to experience some "buyer's remorse." You'll remember from IBP v Tyson and other cases, buyer's remorse is never going to be enough to cause a MAC. Nevertheless, seeing the poor performance, Fresenius sought opinion of counsel whether that might be sufficient cause for them to walk away from the deal. Correctly, in my view, NY counsel told them, "No." They were in the business for all its ups and downs and the fact that others entered the market causing Akorn to suffer was not going to be the kind of thing that could permit Fresenius to walk away.
Then, a fraud was uncovered. An anonymous letter revealed that, basically, all of Akorn's quality assurance programs were basically a fraud. This is a whole different kettle of fish. The effect of having basically faked its quality assurance programs meant that all of the data sent to the FDA were unreliable and that approvals granted to Akorn's drugs and pipeline are now in jeopardy of being pulled. "How about now?", asked Fresenius of its outside counsel. Well, if you are buying a drug company that, post-signing, reveals that it lied to the FDA and that its drugs are no longer going to be marketable for a, what's the word?, a yes, "durationally significant" period of time, that starts to look like what a MAC should look like. A first for Delaware.
Actually, if the facts as outlined in this opinion aren't a MAC, then you'll never find one. This shouldn't even be close. I'm sure there's a line to be crossed - this is a MAC and this isn't - and if there is, these facts are well over that line.
In any event, I don't want to spend too much time on it. It's going to get appealed and the Delaware Supremes are going to want to have the last word on what a MAC looks like. Thankfully, they constrain themselves to opinions under 40 pages.