ABSTRACT
What remedies can a merger target pursue against a breaching buyer? In a recent case of Crispo v Musk, the Delaware Chancery Court ruled that the target may not be able to collect damages on behalf of its shareholders from a breaching buyer. This paper investigates the impact of the decision. After describing the legal significance of the case, the paper first presents a theoretical model to generate a number of empirical predictions. Second, through an event study analyzing mergers that are announced but not closed at the time of the decision, the paper shows that the decision led to a decrease in the firm value of targets in mergers governed by Delaware law, contrasting with those governed by the laws of other jurisdictions. Third, we manually collect relevant provisions from the merger agreements that were executed before and after the decision and find that the agreements governed by Delaware law increasingly include target-friendly, non-price terms after the decision, and the change was more pronounced against financial buyers and for larger deals. Overall, the paper demonstrates how remedy provisions play an important role in merger transactions and how contracting parties respond to an exogenous legal change.
Aggarwal, Dhruv and Choi, Albert H and Min, Geeyoung, Contractual Remedies in Mergers: Lessons from Crispo v Musk (April 27, 2024), Northwestern Law and Economics Research Paper No 24-03; Northwestern Public Law Research Paper No 24-09.
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