Delaware Court Issues Important COVID-Related M&A Opinion: COVID-19 Effects Do Not Qualify as Material Adverse Effect; Buyer May, However, Terminate For Breach of Interim Operating Covenants

Sullivan & Cromwell LLP - December 4, 2020
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In its first decision dealing substantively with the impact of COVID-19 on busted deal litigation, the Delaware Court of Chancery held that a buyer was within its rights to terminate an agreement to purchase a business owning 15 luxury hotels for $5.8 billion. In the 242 page Opinion in AB Stable VIII LLC v. Maps Hotels and Resorts One LLC et al., Vice Chancellor J. Travis Laster held that although the effects of COVID-19 did not qualify as a Material Adverse Effect (“MAE”), the buyer was nonetheless entitled to cancel the transaction because the seller breached its interim operating obligations. 

Being the first word from the Court of Chancery on these M&A COVID-related issues, this decision provides some useful guidance on the interpretation of MAE and ordinary course covenants that are ubiquitous in transaction agreements.

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