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“A Reverse Triangular Merger Does Not Result In An Assignment”

Middle Market Legal Toolbox Blog Kevin Slaughter

The Delaware Court of Chancery recently ruled that a license agreement provision prohibiting an assignment by operation of law did not apply to a reverse triangular merger. In Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, C.A., No. 5589-VCP (Del. Ch. 2013), the plaintiffs alleged that the acquisition by Roche Diagnostics GmbH, C.A. (“Roche”), of BioVeris Corporation (“BioVeris”) by way of a reverse triangular merger violated an anti-assignment clause of a 2003 agreement between the plaintiffs and a predecessor entity of the target. The anti-assignment provision stated as follows:

Neither this Agreement nor any of the rights, interests or obligations under [it] shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties…

In response to the plaintiff’s allegation, Roche argued that, because the target entity survives and continues to own its assets in a reverse triangular merger, it makes no assignment at the time it is acquired. As a result, Roche argued that BioVeris did not make any assignment at the time it was acquired by reverse triangular merger. The Court agreed that, under Section 259 of the Delaware General Corporation Law (the “DGCL”), a reverse triangular merger generally is not an assignment by operation of law or otherwise and pointed to cases wherein only the non-surviving corporation’s rights and obligations transfer to the surviving corporation by operation of law.

Because the case confirms that a reverse triangular merger does not result in an assignment by operation of law of the target corporation’s assets or agreements, potential purchasers should be reassured that they can structure acquisitions as reverse triangular mergers without having to obtain assignment consents so long as relevant anti-assignment provisions contain no change of ownership or control language. Outside of the DGCL, however, the answer may be less clear, and a purchaser may be well advised to obtain consents from applicable third parties. For the full case, click here.