Ecclesiastes on deals: from generation to generation: buyer's remorse.(QUIDDITIES)

MY COLUMN "The Strange Nature of 'Fiduciary Outs' " (Fall 1999) analyzed some of the marked asymmetries of mergers and acquisitions contract law. True, it is basic that directors cannot contract away their fiduciary duties. But non-enforcement of "no shop" (and the later emergence of "go shop") provisions have, in effect, permitted sellers to use signed contracts with contractually-bound buyers merely as a tool to solicit higher bids from others. A common result: The jilting of a good-faith buyer in a way that would not be countenanced under traditional legal and equitable notions of contract.

It can and does occur in the other direction, too. Sometimes buyers, bound by signed agreement to close an acquisition, realize that they were dumb to have promised to pay a purchase price they recognize, too late, is too high. What to do in this annoying situation? Some elect to try to evade their obligations.

In an important Delaware case, Tyson Foods tried to get out from under its contractual obligation to purchase IBP. In "No Chickening Out" (Summer 2001), I reviewed how Delaware Vice Chancellor Leo Strine sharply clipped Tyson's wings; he ordered it to close the transaction.

In late September 2008, there was another example of the non-efficacy of tactics motivated by "buyer's remorse." In a multibillion-dollar merger where Hexion Specialty Chemicals (controlled by LBO firm Apollo) had agreed to acquire Huntsman Corp., Delaware Vice Chancellor Stephen Lamb ruled that Hexion had improperly refused to close; he emulsified essentially all of its legal and corporate financial arguments.

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Hexion argued that it was justified in refusing to close because a) there had occurred a material adverse effect on Huntsman's business, and b) Hexion had obtained an opinion from consultants Duff & Phelps that the merged entity would be insolvent, which meant, realistically, that no bank funding to finance the deal would be obtainable.

There were several infirmities with this approach, however. One was that the language of the contract did not support the "material adverse effect" tack; that language had been highly negotiated and was narrowly drawn. Another was that Hexion had no right to terminate the deal on the basis of claimed insolvency of the combined entity or, indeed, even for lack of financing.