In a recent opinion, the Delaware Court of Chancery held that a party to a merger agreement properly terminated the merger agreement when its counterparty failed to extend the merger deadline by providing the required notice. In Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc., two parties to the merger agreement negotiated a provision providing that the merger must be completed within an initial six-month deadline or either party could terminate the merger agreement at will and receive a termination fee. The merger agreement granted each party the unilateral right to extend the merger deadline upon written notice of extension to its counterparty prior to the deadline.
As detailed in the opinion, the parties to the merger agreement worked together to seek the necessary regulatory clearance required to close the merger. During this period it became clear that the closing date would not occur until after the merger deadline provided in the merger agreement. When the closing deadline passed without either party providing the contractually required written notice to extend the deadline, Rent-A-Center, LLC (“Rent-A-Center”) exercised its right to terminate the merger agreement. In response, Vintage Rodeo Parent, LLC, and its affiliates (collectively, “Vintage”), filed suit challenging Rent-A-Center’s purported termination on multiple grounds, including, that terminating the merger transaction (and failing to inform Vintage of its intent to terminate) constituted a failure to use commercially reasonable efforts to close the transaction, as required by the merger agreement, and that Rent-A-Center breached the implied covenant of good faith and fair dealing by so terminating.
The Court disagreed, holding that Rent-A-Center properly exercised its bargained for contractual right in the merger agreement to terminate the transaction. Notwithstanding the Court’s finding that the parties had “committed much time and effort” working together to consummate the merger, the Court found that the parties were bound to their contractual bargain. The merger agreement included a robust break-up fee provision, and the Court left open the question of the enforceability of that provision. Nonetheless, the Court’s ruling underscores the vital importance of following the technical notice requirements in transaction documents rather than relying on course of dealing and good faith arguments.
The complete text of the Court’s opinion in this case is set forth below.