In Landmark Victory, Delaware Supreme Court Affirms that Fresenius Can Terminate Akorn Deal

Paul, Weiss secured a landmark victory for German healthcare group Fresenius SE & Co. when the Delaware Supreme Court affirmed that Fresenius was justified in canceling its $4.8 billion agreement to acquire Illinois-based Akorn, Inc. The appellate decision, issued just two days after oral argument, affirms the lower court’s first-ever finding in Delaware that a Material Adverse Effect, or MAE, was justified based on post-signing financial decline and other factors.

In the Delaware Court of Chancery’s 247-page decision in October, Vice Chancellor Travis Laster found that Fresenius validly responded to a sharp downturn in Akorn’s business and Akorn’s blatant breaches of FDA data integrity requirements in deciding to terminate the deal under the Material Adverse Event clause in the merger agreement. Noting the many prior cases in which the court has criticized buyers who filed litigation after industry-wide or cyclical downturns made the acquisition less attractive, Vice Chancellor Laster called the Fresenius case “markedly different.” Writing that Fresenius “responded to a dramatic, unexpected, and company-specific downturn in Akorn’s business that began in the quarter after signing,” he held that Akorn suffered a MAE. He further held that Fresenius also validly terminated the acquisition because Akorn breached its representations and warranties regarding regulatory compliance and failed to operate in the ordinary course after signing the agreement. Laster’s finding was based on the “overwhelming evidence of widespread regulatory violations and pervasive compliance problems at Akorn.”

In oral arguments on December 5, litigation partner Lewis Clayton argued that the MAE finding was justified due to Akorn’s post-signing financial decline in addition to  intentional misconduct on the part of Akorn involving serious regulatory violations and use of fabricated data. In its three-page order signed by Chief Justice Leo E. Strine, Jr., the court, ruling en banc, wrote that the factual record “adequately supports the Court of Chancery’s determination,” based on precedent, that Akorn suffered two MAEs, the first arising from Akorn’s post-signing financial collapse, and the second from Akorn’s violations of FDA regulations, which gave rise to blatant breaches of its representations and warranties to Fresenius.

The Paul, Weiss team also included, among others, litigation partners Susanna Buergel, Andrew Gordon and Moses Silverman, counsel Daniel Mason, Jonathan Hurwitz and Daniel Levi, and associate Paul Paterson.