Delaware Court Issues Landmark Decision Regarding MAC Clause

Earlier this month, in Akorn, Inc. v. Fresenius Kabi A.G., the Delaware Court of Chancery sustained a would-be buyer's termination of a merger agreement because, among other things, the target company had suffered a material adverse effect (MAE). The 246-page decision is notable for several reasons:

• First, although MAE clauses (also called "MAC" clauses, for material adverse change) are ubiquitous in merger agreements and litigation of MAE clauses is not uncommon, only rarely has a party been successful in terminating a merger agreement in reliance on an MAE clause alone. In fact, Akorn is the first time that a Delaware court has permitted a buyer to rely upon a MAE to walk away from a deal.