Leadership1 publisher3 min readPublished
Delaware court holds Verisk to its $2.35bn AccuLynx deal because its own choice caused the FTC delay
Delaware's Court of Chancery barred Verisk from exiting its $2.35bn AccuLynx deal because its own willful conduct primarily caused the FTC delay. That conduct was an ordinary decision to end talks with a rival, so the clauses governing signing to closing are now a board matter.
The Board Room · Leadership desk
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What happened
- Before signing, Verisk had been negotiating a bespoke pricing integration with an AccuLynx competitor, then offered that rival only its standard integration once it agreed to buy AccuLynx.
- The competitor told the FTC, which developed a novel 'market reset' theory that Verisk might give AccuLynx richer integration while withholding it from rivals.
- Verisk must keep using commercially reasonable efforts to win Hart-Scott-Rodino clearance and must close the deal if the FTC approves it.
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Why it matters
- constraint Buyers with similar 'primary cause' language cannot count on the outside date as an exit once a second request issues; the right survives only if their own decisions did not cause the delay.
- exposure Staff below the board can create the record that removes a buyer's exit, so signing-to-closing rules have to reach the commercial teams who negotiate with the target's rivals.
- decision Boards approving a deal now face a choice at signing over pending talks with the target's competitors, knowing a court may weigh that choice as the cause of regulatory delay.
- precedent Chancery ordered a buyer to keep pursuing clearance despite finding virtually no intent to kill the deal, so sellers can expect negotiated specific-performance terms to be enforced as written.
In this contract, willful conduct did not require a motive. Cooley LLP's Polina Demina, Rishab Kumar and Miguel Vega wrote an account of the ruling. In it, Verisk's intentional decision to end talks on an enhanced integration with an AccuLynx competitor was enough [15][6]. It cost Verisk the termination right once the court found that decision was the primary cause of the failed closing condition [6]. The decision did not have to be made in bad faith, breach the agreement or aim to kill the deal [6]. Vice Chancellor Bonnie W. David applied the language the parties had negotiated [1][2].
Verisk's best facts were about effort. It met with the FTC nearly 30 times, hired experienced advisers and lobbyists, and spent almost $8 million responding to the agency [5]. The court found virtually no evidence that Verisk intended to scuttle the acquisition [4]. The $8 million was about 0.34% of the $2.35 billion price [1]. None of it changed the court's finding that Verisk's own willful conduct was the primary cause of the antitrust delay [2].
Verisk made the choice that cost it its exit at signing, and the effect arrived at the outside date. It dropped the bespoke integration when it agreed to acquire AccuLynx [7]. Six days after the deal was announced, an employee put that decision in an email that tied it expressly to the acquisition [8]. That email was at the centre of the court's analysis [8]. Verisk tried to terminate only after the FTC had issued its second request and the outside date had passed [10].
The trade-off sits in the termination clause. Broad "other willful conduct" language protects a seller against a buyer that changes its business after signing. The buyer, in turn, accepts that any such change can later be weighed as the cause of a missed closing condition [11]. Demina, Kumar and Vega wrote that the outcome should take the specific performance provision out of the merger agreement's boilerplate and make it a matter for the boardroom [12]. They want directors to ask counsel one question before signing: "If the transaction encounters obstacles to closing, what are each party's continuing performance obligations?" [13] They also expect outside counsel to explain each provision's language and to make sure the rules between signing and closing are communicated "all the way down the chain" [14].
Closing now depends on the FTC, because the order requires Verisk to close only if the agency approves [3]. We do not know yet whether the FTC will approve, or on what terms. The Cooley commentary does not report the agency's position since the ruling, or whether Verisk will appeal [15].
What to watch
- Whether the FTC clears the deal under its HSR review, and on what conditions, since that decides whether Verisk must close.
- Any appeal by Verisk to the Delaware Supreme Court, which would test whether 'other willful conduct' reaches a good-faith decision that breaches nothing.
- Whether buyers' counsel begin narrowing 'other willful conduct' and 'primary cause' language in merger agreements signed after the ruling.