Cadwalader Attorneys Analyze Delaware Chancery Court Decision On Termination Of Merger Agreement

In Vintage Rodeo Parent, LLC v. Rent-A-Center, Inc., the Delaware Court of Chancery determined that Rent-A-Center, Inc. ("Rent-A-Center") properly ended its merger agreement with Vintage Capital Management LLC ("Vintage") after Vintage neglected to submit a notice to extend the drop-dead date for its pending $1.37 billion buyout of Rent-A-Center. The Court interpreted the language of the merger agreement strictly and allowed Rent-A-Center to terminate the merger unilaterally.

As described more fully in a Cadwalader memorandum, in concluding that Rent-A-Center's termination was valid and effective, the Court rejected Vintage's arguments that (i) Rent-A-Center's failure to provide written notice to extend the end date was obviated by the parties' conduct, (ii) Rent-A-Center breached its obligation to use commercially reasonable efforts to terminate the transaction by failing to remind Vintage of its obligation to submit an extension notice and (iii) Rent-A-Center fraudulently induced Vintage to believe that Rent-A-Center still wanted to consummate the merger.

Cadwalader attorneys noted several key takeaways for Mergers & Acquisitions practitioners and litigators regarding how the Court will interpret contractual agreements between merger parties, saying that:

• the Court will not second-guess unambiguous drafting;
• commercially reasonable efforts do not mandate reminding a counterparty of its contractual rights;
• counterparties have no duty to warn of an impending termination;
• Rent-A-Center's right to terminate was not limited by the implied covenant of good faith and fair dealing; and
• the Court left open the possibility that the breakup fee may be payable based on the implied covenant of good faith and fair dealing.

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