In a landmark decision, a Delaware court has, for what is widely believed to be the first time ever, found that a material adverse effect actually occurred in an acquisition transaction, giving the buyer a right to terminate the pending transaction. In Akorn  v. Fresenius Kabi AG, the Delaware Court of Chancery held, following a trial, that the buyer properly terminated the parties’ merger agreement, due to such a material adverse effect between signing and closing, under the terms of the agreement and the pertinent Delaware case law. Unlike prior decisions rejecting buyer material adverse effect claims, the court found that a pre-closing decline in the business of the target—Akorn—was not merely a “cyclical trend” and was likely to have a post-closing, durationally significant effect that was “material when viewed from the longer-term perspective of a reasonable acquiror.”

Although groundbreaking, the Akorn decision reflects that the Delaware courts will still approach the question of whether an MAE has occurred on a case-by-case basis and does not establish a particular “bright line” test.

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