Delaware Chancery Court Holds that a Reverse Triangular Merger Is Not an Assignment by Operation of Law

April 2013

On February 22, 2013, the Delaware Chancery Court in Meso Scale v. Roche restored a degree of certainty to M&A planning by holding that the acquisition of a company through a reverse triangular merger (RTM) did not constitute an assignment by operation of law. The plaintiff, Meso Scale, had argued that the merger of Roche’s acquisition subsidiary into target company BioVeris Corporation violated an anti-assignment clause in an agreement between BioVeris and Meso Scale. The Court’s decision reaffirmed the traditional understanding of practitioners and commentators that an RTM does not involve an assignment, but the opinion also confirms that the parties’ intent will be part of the analysis where the anti-assignment clause at issue is ambiguous.

Anti-Assignment Clauses and Change of Control Provisions
Anti-assignment provisions prohibit a party from assigning its rights and obligations under a contract without the consent of the other party. Change of control provisions give one party to a contract certain rights (e.g., the right of consent, the right to additional payment, or the right of termination) in the event that ownership or control of the other changes hands. Agreements sometimes contain both provisions or may combine both concepts into a single clause. A key consideration for any acquisition is whether the preferred choice of transaction structure will trigger any such restrictions found in the target company’s contracts. Legal analysis of the issue depends on the transaction structure to be used in the acquisition and the specific language of the relevant contractual provision(s).

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