is a merger an assignment under delaware law

• What’s New on the Watch?
• COVID-19 Updates
• Private Equity Webinar Series
• Private Equity Finance
• Global PE Update
• Glenn West Musings
• Quarterly Private Funds Update
• Ancillary Agreements
• Co-investments
• Cybersecurity
• Going Privates
• Legal Developments
• Minority Investments
• Portfolio Company Matters
• Purchase Agreements
• R&W Insurance
• Secondaries
• Securities Laws
• Shareholder Agreements
• Specialist Areas
• Contributors
• Global Team
• Privacy Policy

Private Equity

Watch your inbox.

Get the latest views and developments in the private equity world from the Global Private Equity Watch team at Weil.

A Fresh Take

Insights on US legal developments

Delaware Court holds anti-assignment clause prevents enforcement of contract after merger

Get in touch.

On September 16, 2020, the Superior Court of Delaware issued an order with potential implications for companies contemplating acquisitions of businesses or assets.  In MTA Can. Royalty Corp. v. Compania Minera Pangea , S.A. De C.V. , No. N19C-11-228 AML CCLD, 2020 Del. Super. LEXIS 2780 (Sept. 16, 2020), Judge Abigail M. LeGrow held that, following a merger,[1] the surviving company lacked standing to enforce a contract entered into by its predecessor (the non-surviving company in the merger) because the contract’s anti-assignment clause prohibited assignment “by operation of law”. 

Companies considering acquisitions should carefully review their target’s contracts for anti-assignment clauses that prohibit assignment “by operation of law”, which Delaware courts interpret to include certain mergers.  In addition, where a target’s key contracts contain anti-assignment clauses with such language, companies should carefully consider the preferred transaction structure.  In a reverse triangular merger, the acquirer’s newly formed subsidiary is merged into the target, with the result being that the target survives and becomes the acquirer’s subsidiary.  By contrast, in a forward triangular merger, the target does not “survive” and its rights are transferred to the existing subsidiary, which may implicate anti-assignment clauses.  Reverse triangular mergers do not face the same issue because the target continues its corporate existence as a subsidiary of the acquirer.

Background of the contract and subsequent merger

In 2016, Compania Minera Pangea, S.A. de C.V. (“CMP”) purchased mineral rights in the El Gallo Mine from 1570926 Alberta Ltd. (“Alberta”).  In exchange, CMP paid Alberta $5.25m in cash at closing and agreed to pay Alberta an additional $1m in 2018 subject to certain conditions.  Of note, the agreement contained the following anti-assignment clause (the “Anti-Assignment Clause”):

Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by [Alberta] without the prior written consent of each other party, and any such assignment without such prior written consent shall be null and void. . . . [T]his Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

In July 2017, Alberta merged with Global Royalty Corp. (“Global”), a subsidiary of Metalla Royalty & Streaming Ltd., and Global was the surviving entity.  Following that transaction, Global changed its name to MTA Canada Royalty Corp. (“MTA”).  In November 2019, MTA brought a breach of contract claim against CMP based on CMP’s alleged failure to pay the $1m in consideration due in 2018.

Superior Court holds that anti-assignment clause extends to certain mergers

CMP argued that MTA lacked standing to enforce Alberta’s contract with CMP because, per the Anti-Assignment Clause, Alberta was required to obtain CMP’s written consent before assigning its rights to MTA.  MTA argued that the Anti-Assignment Clause was meant to prevent third-party assignments, not “successor assignments” like Alberta’s merger.   Id. at *11-12.  To make this argument, it relied on a 1993 Chancery decision, in which then-Vice Chancellor Jacobs had held that, subject to certain conditions, anti-assignment clauses do not apply to mergers unless mergers are explicitly prohibited.   Star Cellular Tel. Co. v. Baton Rouge CGSA ., 1993 Del. Ch. LEXIS 158, at *25 (July 30, 1993).  According to MTA, because the last sentence of the Anti-Assignment Clause referred to “successors”, it was clearly not intended to extend to mergers.

The Superior Court disagreed.  It explained that, as a result of the merger, Alberta had ceased to exist, so MTA could only enforce the contract if it showed that the Anti-Assignment Clause did not apply.   MTA , at *6.  It then held that the Anti-Assignment Clause clearly barred Alberta’s transfer of rights through a merger because the clause prevented assignment “by operation of law”, which Delaware case law had interpreted as referring to forward triangular mergers.   Id.  at *7-14.  In light of what it regarded as a straightforward application of the Anti-Assignment Clause, the Superior Court did not engage in the  Star Cellular analysis.  The Superior Court found that the reference to “successors” in the Anti-Assignment Clause meant only that “valid successors” had the right to enforce the contract.   Id. at *13.

Potentially at odds with Chancery precedent?

Of special relevance is the Superior Court’s treatment of existing Delaware case law on anti-assignment clauses and forward triangular mergers.  Existing precedent from the Court of Chancery held that anti-assignment clauses containing both a prohibition on assignment “by operation of law” and a reference to “successors” were ambiguous.  Under the Star Cellular test, this ambiguity was construed against the application of the anti-assignment clause. 

Specifically, MTA  appears at odds with the Chancery ruling in Tenneco Auto. Inc. v. El Paso Corp. , which also involved the impact of an anti-assignment clause following a forward triangular merger.  C.A. No. 18810-NC, 2002 Del. Ch. LEXIS 26 (Mar. 20, 2002).  The language of the anti-assignment clause in Tenneco  was similar to that in MTA :  both clauses prohibited assignment “by operation of law” while also referencing “successors”.  In Tenneco , Vice Chancellor Noble found that those conflicting references made the anti-assignment clause ambiguous, meaning that, under the Star Cellular test, the successor company could enforce the contract.   Id. at *7-10.  The MTA Court did not explain why it reached the opposite result.

Similarly, in ClubCorp, Inc. v. Pinehurst, LLC , Vice Chancellor Parsons held that, following a forward triangular merger, an anti-assignment clause with language like that in Tenneco was ambiguous because the agreement both referenced “successors” and prohibited assignment “by operation of law”.  No. 5120-VCP, 2011 Del. Ch. LEXIS 176, at *26-29 (Nov. 15, 2011).  Again, the ambiguity militated in favor of finding that the anti-assignment clauses did not apply to the merger.   MTA did not address Pinehurst.

Insights from MTA

MTA has several significant implications for practitioners.  The first is a reminder to carefully review a target’s contracts for anti-assignment clauses.  Such clauses in important contracts should be flagged and thoughtfully evaluated. 

In addition, practitioners should remain aware that Delaware courts interpret the phrase “by operation of law” in assignment clauses to refer to mergers in which the target company does not survive.  The presence of this language in anti-assignment clauses in a target’s important contracts (if those contracts are governed by Delaware law) should prompt a discussion about the appropriate transaction structure.  For example, in MTA , the Court suggested that MTA would have had standing to enforce the contract with CMP if it had been merged through a reverse triangular merger rather than a forward triangular merger.  The Superior Court cited a 2013 Chancery decision, Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH , in which Vice Chancellor Parsons found that “a reverse triangular merger does not constitute an assignment by operation of law”.  62 A.3d 62, 83 (Del. Ch. 2013). 

If dealing with similar language in anti-assignment clauses in important agreements, practitioners should consider alternative transaction structures that would allow the target to retain its corporate existence.  According to MTA , such alternatives should allow successor companies to enforce agreements without running afoul of anti-assignment clauses prohibiting “assignment by operation of law”.[2]

[1] The transaction was an amalgamation under Canadian law, which the parties and the Court agreed was the equivalent of a merger under Delaware law.  The transaction structure was equivalent to a forward triangular merger. 

[2] This may not be true in other jurisdictions.  For example, under California law, a reverse triangular merger has been found to be a transfer of rights by operation of law .  See SQL Sols. v. Oracle Corp. , 1991 U.S. Dist. LEXIS 21097, at *8-12 (N.D. Cal. Dec. 18, 1991). 

Country Selector

Our regional experience.

• Netherlands
• Scandinavia
• Switzerland
• United Kingdom
• Latin America and the Caribbean
• United States

Asia-Pacific

• Southeast Asia
• South Korea

Middle East

• Saudi Arabia

International language sites

• Chinese | 汉语/漢語
• German | Deutsch
• Japanese | 日本語

Delaware Court Rules on Reverse Triangular Mergers and Anti-Assignment Provisions

Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn alert by David H. Kennedy , Brian M. Gingold ,  Phil Kenny ,  Travis P. Davis , and  James D. Lee . This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here .

On February 22, 2013, in Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, C.A . No. 5589-VCP (Del. Ch. 2013), Vice Chancellor Parsons of the Delaware Court of Chancery ruled that a provision in a license agreement prohibiting an assignment by operation of law did not apply to a reverse triangular merger. This ruling eliminates the uncertainty Vice Chancellor Parsons created in his April 2011 motion to dismiss decision in which he indicated that there may be circumstances where a reverse triangular merger could be considered an assignment by operation of law for purposes of an anti-assignment clause.

On June 22, 2010, the plaintiffs filed a complaint alleging that the acquisition by Roche Diagnostics GmbH, C.A. (“Roche”) of BioVeris Corporation (“BioVeris”) through a reverse triangular merger violated the anti-assignment clause found in a 2003 agreement between the plaintiffs and the predecessor entity to BioVeris, among others. The anti-assignment clause that the plaintiffs alleged was breached 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 . . .

The Court, in its earlier Memorandum Opinion dated April 8, 2011, denying a motion to dismiss, ruled that there may be circumstances where a provision prohibiting assignment of an agreement by operation of law could be triggered by a reverse triangular merger. [1]

In support of its summary judgment motion, Roche argued that, because the target entity in a reverse triangular merger remains intact and continues to own its own assets, BioVeris did not assign anything at the time it was acquired through a reverse triangular merger. Roche further argued that a reverse triangular merger structure is analogous to a sale of the stock of a target corporation, and Delaware courts had repeatedly held that such a stock sale would not violate an anti-assignment provision that did not expressly prohibit a change in control.

The plaintiffs countered that Delaware case law regarding forward triangular mergers compels the conclusion that a provision covering assignment “by operation of law” extends to all mergers, regardless of their form. [2] The plaintiffs further argued that the Court should embrace an unreported California federal court decision, SQL Solutions Inc. v. Oracle Corporation , 1991 WL 626458 (N.D. Cal. Dec. 19, 1991), that held that an anti-assignment provision in a software license agreement that did not contain a change of ownership or control provision was triggered by a reverse triangular merger. [3]

The Court concluded that Delaware law, and specifically Section 259 of the Delaware General Corporation Law (the “DGCL”), supported Roche’s position that a reverse triangular merger generally is not an assignment by operation of law or otherwise. Section 259 provides that:

When any merger or consolidation shall have become effective under this chapter, for all purposes of the laws of this State the separate existence of all the constituent corporations, or of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged , as the case may be, shall cease and the constituent corporations shall become a new corporation, or be merged into 1 of such corporations . . . the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed, and all debts due to any of said constituent corporations on whatever account . . . shall be vested in the corporation surviving or resulting from such merger or consolidation ; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the surviving or resulting corporation as they were of the several and respective constituent corporations. (emphasis added)

The Court pointed to cases holding that Section 259 results in only the transfer of the non-surviving corporation’s rights and obligations to the surviving corporation by operation of law. On the other hand, the language “except the one into which the other or others of such constituent corporations have been merged” in Section 259 implies that the surviving corporation would not have effected any assignment.

As to the plaintiffs’ arguments, the Court distinguished Tenneco and Star Cellular as cases involving forward triangular mergers where the target company was not the surviving entity, whereas in this case BioVeris was the surviving entity in a reverse triangular merger. Further, the Court declined to follow SQL Solutions because doing so would conflict with Delaware’s well-settled law that stock acquisitions, by themselves, do not result in an assignment by operation of law.

The Court also observed that its interpretation of the anti-assignment clause is consistent with the reasonable expectations of the parties, noting that the vast majority of commentary discussing reverse triangular mergers indicates that a reverse triangular merger does not constitute an assignment by operation of law.

This ruling is noteworthy because it confirms the view that, until the first Meso Scale Diagnostics ruling, practitioners had long taken for granted: a reverse triangular merger does not result in an assignment by operation of law of the acquired corporation’s contracts or other assets. The decision should provide comfort to would-be acquirors that they can structure transactions to which the DGCL is applicable in a manner that ensures that consents to assignment do not need to be obtained where there is no change of ownership or control language in the relevant anti-assignment clause. However, the decision also serves as a reminder that, outside of the confines of the DGCL, there remains uncertainty as to the risks associated with anti-assignment clauses–it may be prudent to require that consents be obtained from applicable third parties where a license or other agreement containing such a clause is important to the target’s business.

[1] At this earlier motion to dismiss stage the Vice Chancellor was required to assume the truthfulness of the plaintiff’s allegation and afford the plaintiff the benefit of all reasonable inferences. The Court declared that it could grant Roche’s motion to dismiss only if Roche’s interpretation of the anti-assignment clause was the only reasonable construction as a matter of law. Although noting that stock acquisitions do not, in and of themselves, constitute an assignment, the Court noted that the plaintiffs had alleged that the transaction in question involved more than just a change of ownership because the plaintiffs had alleged that, within months of the merger, all of BioVeris’s 200 employees were laid off, its Maryland facility was closed and its existing customers were notified that its product lines were being discontinued. These additional circumstances, in the Court’s view, created a plausible argument “that ‘by operation of law’ was intended to cover mergers that effectively operated like an assignment, even if it might not apply to mergers merely involving changes of control.” (go back)

[2] See Tenneco Automotive Inc. v. El Paso Corporation , 2002 WL 453930 (Del. Ch. 2002) and Star Cellular Telephone Company, Inc. v. Baton Rouge CGSA, Inc. , 19 Del. J. Corp. L. 875 (Del. Ch. 1993) ruling that forward mergers do trigger anti-assignment provisions prohibiting assignments by operation of law. (go back)

[3] Since Vice Chancellor Parson’s motion to dismiss ruling in April 2011, a New Jersey federal court decision, DBA Distribution Services, Inc. v. All Source Freight Solutions, Inc. , 2012 WL 845929 (D.N.J. Mar. 13, 2012), cited SQL Solutions in support of its holding that, under New Jersey law, a reverse triangular merger does constitute an assignment by operation of law. The issue was one of first impression in New Jersey. No other court appears to have cited with approval the SQL Solutions holding that the acquisition of a licensee under a license agreement through a reverse triangular merger results in an assignment of the license agreement. (go back)

Supported By:

Subscribe or Follow

Program on corporate governance advisory board.

• William Ackman
• Peter Atkins
• Kerry E. Berchem
• Richard Brand
• Daniel Burch
• Arthur B. Crozier
• Renata J. Ferrari
• John Finley
• Carolyn Frantz
• Andrew Freedman
• Byron Georgiou
• Joseph Hall
• Jason M. Halper
• David Millstone
• Theodore Mirvis
• Erika Moore
• Morton Pierce
• Philip Richter
• Elina Tetelbaum
• Marc Trevino
• Steven J. Williams
• Daniel Wolf

HLS Faculty & Senior Fellows

• Lucian Bebchuk
• Robert Clark
• John Coates
• Stephen M. Davis
• Allen Ferrell
• Jesse Fried
• Oliver Hart
• Howell Jackson
• Kobi Kastiel
• Reinier Kraakman
• Mark Ramseyer
• Robert Sitkoff
• Holger Spamann
• Leo E. Strine, Jr.
• Guhan Subramanian
• Roberto Tallarita

• Announcements
• Newsletters
• Diversity, Equity, and Inclusion
• LawExchange International
• Why Choose Morse?

Articles | By Joseph C. Marrow | 03/18/13

Does a Reverse Triangular Merger Constitute An Assignment by Operation of Law?

In a Delaware Court of Chancery decision dated February 22, 2013, Vice Chancellor Parsons held that a reverse triangular merger does not constitute an assignment by operation of law under Delaware law. The decision, Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH , C.A. No. 5589-VCP (Del. Ch. 2013) helped to clarify some uncertainty created by the same court in an earlier decision involving the same parties.  As a result of the decision, M&A practitioners should feel more comfortable that Delaware courts will find that a reverse triangular merger will not be considered an assignment by operation of law when interpreting a contract.

A reverse triangular merger is a transaction whereby the acquiring party forms a subsidiary and then merges the subsidiary into the target company with the target company being the surviving entity and a wholly-owned subsidiary of the acquiring party. At issue in theMeso Scale case was whether the reverse triangular merger structure triggered the anti-assignment language in a license agreement being acquired by the acquiring party. The anti-assignment provision in the license agreement provided 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 an earlier decision involving this matter, Vice Chancellor Parsons had declined to hold that the reverse triangular merger did not result in an assignment of the license agreement at issue. In the summary judgment proceeding, Roche argued that because the target in a reverse triangular merger survives and continues to own its assets, no assignment took place (the rights and obligations of the target are not transferred, assumed or impacted as a result of the structure of the transaction). The plaintiffs argued that mergers, including a reverse triangular merger, as a general proposition, result in an assignment by operation of law.

The Chancery Court concluded that a reverse triangular merger does not trigger the anti-assignment provision based on Delaware corporate law (and in particular Section 259 of the Delaware General Corporation Law) and since it does not result in the transfer of the rights and obligations of the non-surviving corporation to the surviving corporation.

The decision of Vice Chancellor Parsons confirms what most M&A lawyers have believed — that by using the reverse triangular merger structure, parties can avoid triggering anti-assignment clauses in licenses, contracts or other assets. The decision clarifies the state of the law in Delaware. As long as the parties structure the acquisition as a reverse triangular merger, they should not be required to obtain consents from third parties to a contract which contains a standard anti-assignment provision such as the one referenced above. It should be noted that if the anti-assignment provision at issue contains change of control or change of ownership language, this ruling will likely not be applicable. In addition, the ruling of the Chancery Court only addresses Delaware law. Other jurisdictions including California and New Jersey have held that in certain cases a reverse triangular merger does constitute an assignment by operation of law (requiring parties to obtain consents to assignments from third parties).

To discuss the potential benefits of a reverse triangular merger structure, please contact the author Joseph C. Marrow .

Share this Post

Related practices.

• Mergers & Acquisitions

We value your privacy

Privacy overview.

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog
• 2023 Delaware Code (here)
• 2022 Delaware Code
• 2021 Delaware Code
• View All Versions

2023 Delaware Code Title 8 - Corporations Chapter 1. GENERAL CORPORATION LAW Subchapter IX. Merger, Consolidation or Conversion § 251. Merger or consolidation of domestic corporations [For application of this section, see 79 Del. Laws, c. 327, § 8; 80 Del. Laws, c. 265, § 17; and 82 Del. Laws, c. 256, § 24].

(a) Any 2 or more corporations of this State may merge into a single surviving corporation, which may be any 1 of the constituent corporations or may consolidate into a new resulting corporation formed by the consolidation, pursuant to an agreement of merger or consolidation, as the case may be, complying and approved in accordance with this section.

(b) The board of directors of each corporation which desires to merge or consolidate shall adopt a resolution approving an agreement of merger or consolidation and declaring its advisability. The agreement shall state:

(1) The terms and conditions of the merger or consolidation;

(2) The mode of carrying the same into effect;

(3) In the case of a merger, such amendments or changes in the certificate of incorporation of the surviving corporation as are desired to be effected by the merger (which amendments or changes may amend and restate the certificate of incorporation of the surviving corporation in its entirety), or, if no such amendments or changes are desired, a statement that the certificate of incorporation of the surviving corporation shall be its certificate of incorporation;

(4) In the case of a consolidation, that the certificate of incorporation of the resulting corporation shall be as is set forth in an attachment to the agreement;

(5) The manner, if any, of converting the shares of each of the constituent corporations into shares or other securities of the corporation surviving or resulting from the merger or consolidation, or of cancelling some or all of such shares, and, if any shares of any of the constituent corporations are not to remain outstanding, to be converted solely into shares or other securities of the surviving or resulting corporation or to be cancelled, the cash, property, rights or securities of any other corporation or entity which the holders of such shares are to receive in exchange for, or upon conversion of such shares and the surrender of any certificates evidencing them, which cash, property, rights or securities of any other corporation or entity may be in addition to or in lieu of shares or other securities of the surviving or resulting corporation; and

(6) Such other details or provisions as are deemed desirable, including, without limiting the generality of the foregoing, a provision for the payment of cash in lieu of the issuance or recognition of fractional shares, rights or other securities of the surviving or resulting corporation or of any other corporation or entity the shares, rights or other securities of which are to be received in the merger or consolidation, or for any other arrangement with respect thereto, consistent with § 155 of this title.

The agreement so adopted shall be executed by an authorized person, provided that if the agreement is filed, it shall be executed and acknowledged in accordance with § 103 of this title. Any of the terms of the agreement of merger or consolidation may be made dependent upon facts ascertainable outside of such agreement, provided that the manner in which such facts shall operate upon the terms of the agreement is clearly and expressly set forth in the agreement of merger or consolidation. The term “facts,” as used in the preceding sentence, includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation.

(c) The agreement required by subsection (b) of this section shall be submitted to the stockholders of each constituent corporation at an annual or special meeting for the purpose of acting on the agreement. Due notice of the time, place and purpose of the meeting shall be given to each holder of stock, whether voting or nonvoting, of the corporation at the stockholder's address as it appears on the records of the corporation, at least 20 days prior to the date of the meeting. The notice shall contain a copy of the agreement or a brief summary thereof. At the meeting, the agreement shall be considered and a vote taken for its adoption or rejection. If a majority of the outstanding stock of the corporation entitled to vote thereon shall be voted for the adoption of the agreement, that fact shall be certified on the agreement by the secretary or assistant secretary of the corporation, provided that such certification on the agreement shall not be required if a certificate of merger or consolidation is filed in lieu of filing the agreement. If the agreement shall be so adopted and certified by each constituent corporation, it shall then be filed and shall become effective, in accordance with § 103 of this title. In lieu of filing the agreement of merger or consolidation required by this section, the surviving or resulting corporation may file a certificate of merger or consolidation, executed in accordance with § 103 of this title, which states:

(1) The name and state of incorporation of each of the constituent corporations;

(2) That an agreement of merger or consolidation has been approved, adopted, executed and acknowledged by each of the constituent corporations in accordance with this section;

(3) The name of the surviving or resulting corporation;

(4) In the case of a merger, such amendments or changes in the certificate of incorporation of the surviving corporation as are desired to be effected by the merger (which amendments or changes may amend and restate the certificate of incorporation of the surviving corporation in its entirety), or, if no such amendments or changes are desired, a statement that the certificate of incorporation of the surviving corporation shall be its certificate of incorporation;

(5) In the case of a consolidation, that the certificate of incorporation of the resulting corporation shall be as set forth in an attachment to the certificate;

(6) That the executed agreement of consolidation or merger is on file at an office of the surviving or resulting corporation, stating the address thereof; and

(7) That a copy of the agreement of consolidation or merger will be furnished by the surviving or resulting corporation, on request and without cost, to any stockholder of any constituent corporation.

(d) Any agreement of merger or consolidation may contain a provision that at any time prior to the time that the agreement (or a certificate in lieu thereof) filed with the Secretary of State becomes effective in accordance with § 103 of this title, the agreement may be terminated by the board of directors of any constituent corporation notwithstanding approval of the agreement by the stockholders of all or any of the constituent corporations; in the event the agreement of merger or consolidation is terminated after the filing of the agreement (or a certificate in lieu thereof) with the Secretary of State but before the agreement (or a certificate in lieu thereof) has become effective, a certificate of termination or merger or consolidation shall be filed in accordance with § 103 of this title. Any agreement of merger or consolidation may contain a provision that the boards of directors of the constituent corporations may amend the agreement at any time prior to the time that the agreement (or a certificate in lieu thereof) filed with the Secretary of State becomes effective in accordance with § 103 of this title, provided that an amendment made subsequent to the adoption of the agreement by the stockholders of any constituent corporation shall not (1) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of any class or series thereof of such constituent corporation, (2) alter or change any term of the certificate of incorporation of the surviving corporation to be effected by the merger or consolidation, or (3) alter or change any of the terms and conditions of the agreement if such alteration or change would adversely affect the holders of any class or series thereof of such constituent corporation; in the event the agreement of merger or consolidation is amended after the filing thereof with the Secretary of State but before the agreement has become effective, a certificate of amendment of merger or consolidation shall be filed in accordance with § 103 of this title.

(e) In the case of a merger, the certificate of incorporation of the surviving corporation shall automatically be amended to the extent, if any, that changes in the certificate of incorporation are set forth in the agreement of merger.

(f) Notwithstanding the requirements of subsection (c) of this section, unless required by its certificate of incorporation, no vote of stockholders of a constituent corporation surviving a merger shall be necessary to authorize a merger if (1) the agreement of merger does not amend in any respect the certificate of incorporation of such constituent corporation, (2) each share of stock of such constituent corporation outstanding immediately prior to the effective date of the merger is to be an identical outstanding or treasury share of the surviving corporation after the effective date of the merger, and (3) either no shares of common stock of the surviving corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger, or the authorized unissued shares or the treasury shares of common stock of the surviving corporation to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of common stock of such constituent corporation outstanding immediately prior to the effective date of the merger. No vote of stockholders of a constituent corporation shall be necessary to authorize a merger or consolidation if no shares of the stock of such corporation shall have been issued prior to the adoption by the board of directors of the resolution approving the agreement of merger or consolidation. If an agreement of merger is adopted by the constituent corporation surviving the merger, by action of its board of directors and without any vote of its stockholders pursuant to this subsection, the secretary or assistant secretary of that corporation shall certify on the agreement that the agreement has been adopted pursuant to this subsection and, (1) if it has been adopted pursuant to the first sentence of this subsection, that the conditions specified in that sentence have been satisfied, or (2) if it has been adopted pursuant to the second sentence of this subsection, that no shares of stock of such corporation were issued prior to the adoption by the board of directors of the resolution approving the agreement of merger or consolidation, provided that such certification on the agreement shall not be required if a certificate of merger or consolidation is filed in lieu of filing the agreement. The agreement so adopted and certified shall then be filed and shall become effective, in accordance with § 103 of this title. Such filing shall constitute a representation by the person who executes the agreement that the facts stated in the certificate remain true immediately prior to such filing.

(g) Notwithstanding the requirements of subsection (c) of this section, unless expressly required by its certificate of incorporation, no vote of stockholders of a constituent corporation shall be necessary to authorize a merger with or into a single direct or indirect wholly-owned subsidiary of such constituent corporation if:

(1) Such constituent corporation and the direct or indirect wholly-owned subsidiary of such constituent corporation are the only constituent entities to the merger;

(2) Each share or fraction of a share of the capital stock of the constituent corporation outstanding immediately prior to the effective time of the merger is converted in the merger into a share or equal fraction of share of capital stock of a holding company having the same designations, rights, powers and preferences, and the qualifications, limitations and restrictions thereof, as the share of stock of the constituent corporation being converted in the merger;

(3) The holding company and the constituent corporation are corporations of this State and the direct or indirect wholly-owned subsidiary that is the other constituent entity to the merger is a corporation or limited liability company of this State;

(4) The certificate of incorporation and bylaws of the holding company immediately following the effective time of the merger contain provisions identical to the certificate of incorporation and bylaws of the constituent corporation immediately prior to the effective time of the merger (other than provisions, if any, regarding the incorporator or incorporators, the corporate name, the registered office and agent, the initial board of directors and the initial subscribers for shares and such provisions contained in any amendment to the certificate of incorporation as were necessary to effect a change, exchange, reclassification, subdivision, combination or cancellation of stock, if such change, exchange, reclassification, subdivision, combination, or cancellation has become effective);

(5) As a result of the merger, the constituent corporation or its successor becomes or remains a direct or indirect wholly-owned subsidiary of the holding company;

(6) The directors of the constituent corporation become or remain the directors of the holding company upon the effective time of the merger;

(7) The organizational documents of the surviving entity immediately following the effective time of the merger contain provisions requiring that (A) any act or transaction by or involving the surviving entity, other than the election or removal of directors or managers, managing members or other members of the governing body of the surviving entity, that, if taken by the constituent corporation immediately prior to the effective time of the merger, would require, for its adoption under this chapter or under the certificate of incorporation or bylaws of the constituent corporation immediately prior to the effective time of the merger, the approval of the stockholders of the constituent corporation, shall, by specific reference to this subsection, require, in addition to approval of the stockholders or members of the surviving entity, the approval of the stockholders of the holding company (or any successor by merger), by the same vote as is required by this chapter and/or by the certificate of incorporation or bylaws of the constituent corporation immediately prior to the effective time of the merger; provided, however, that for purposes of this paragraph (g)(7)(A), any amendment of the organizational documents of a surviving entity that is not a corporation, which amendment would, if adopted by a corporation subject to this chapter, be required to be included in the certificate of incorporation of such corporation, shall, by specific reference to this subsection, require, in addition, the approval of the stockholders of the holding company (or any successor by merger), by the same vote as is required by this chapter and/or by the certificate of incorporation or bylaws of the constituent corporation immediately prior to the effective time of the merger; and (B) the business and affairs of a surviving entity that is not a corporation shall be managed by or under the direction of a board of directors, board of managers or other governing body consisting of individuals who are subject to the same fiduciary duties applicable to, and who are liable for breach of such duties to the same extent as, directors of a corporation subject to this chapter; and

(8) The stockholders of the constituent corporation do not recognize gain or loss for United States federal income tax purposes as determined by the board of directors of the constituent corporation. Neither paragraph (g)(7)(A) and (B) of this section nor any provision of a surviving entity's organizational documents required by paragraph (g)(7)(A) and (B) of this section shall be deemed or construed to require approval of the stockholders of the holding company to elect or remove directors or managers, managing members or other members of the governing body of the surviving entity. The term “organizational documents”, as used in paragraph (g)(7) of this section and in the preceding sentence, shall, when used in reference to a corporation, mean the certificate of incorporation of such corporation, and when used in reference to a limited liability company, mean the limited liability company agreement of such limited liability company.

As used in this subsection only, the term “holding company” means a corporation which, from its incorporation until consummation of a merger governed by this subsection, was at all times a direct or indirect wholly-owned subsidiary of the constituent corporation and whose capital stock is issued in such merger. From and after the effective time of a merger adopted by a constituent corporation by action of its board of directors and without any vote of stockholders pursuant to this subsection: (i) to the extent the restrictions of § 203 of this title applied to the constituent corporation and its stockholders at the effective time of the merger, such restrictions shall apply to the holding company and its stockholders immediately after the effective time of the merger as though it were the constituent corporation, and all shares of stock of the holding company acquired in the merger shall for purposes of § 203 of this title be deemed to have been acquired at the time that the shares of stock of the constituent corporation converted in the merger were acquired, and provided further that any stockholder who immediately prior to the effective time of the merger was not an interested stockholder within the meaning of § 203 of this title shall not solely by reason of the merger become an interested stockholder of the holding company, (ii) if the corporate name of the holding company immediately following the effective time of the merger is the same as the corporate name of the constituent corporation immediately prior to the effective time of the merger, the shares of capital stock of the holding company into which the shares of capital stock of the constituent corporation are converted in the merger shall be represented by the stock certificates that previously represented shares of capital stock of the constituent corporation and (iii) to the extent a stockholder of the constituent corporation immediately prior to the merger had standing to institute or maintain derivative litigation on behalf of the constituent corporation, nothing in this section shall be deemed to limit or extinguish such standing. If an agreement of merger is adopted by a constituent corporation by action of its board of directors and without any vote of stockholders pursuant to this subsection, the secretary or assistant secretary of the constituent corporation shall certify on the agreement that the agreement has been adopted pursuant to this subsection and that the conditions specified in the first sentence of this subsection have been satisfied, provided that such certification on the agreement shall not be required if a certificate of merger or consolidation is filed in lieu of filing the agreement. The agreement so adopted and certified shall then be filed and become effective, in accordance with § 103 of this title. Such filing shall constitute a representation by the person who executes the agreement that the facts stated in the certificate remain true immediately prior to such filing.

(h) Notwithstanding the requirements of subsection (c) of this section, unless expressly required by its certificate of incorporation, no vote of stockholders of a constituent corporation that has a class or series of stock that is listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to the execution of the agreement of merger by such constituent corporation shall be necessary to authorize a merger if:

(1) The agreement of merger expressly:

a. Permits or requires such merger to be effected under this subsection; and

b. Provides that such merger shall be effected as soon as practicable following the consummation of the offer referred to in paragraph (h)(2) of this section if such merger is effected under this subsection;

(2) A corporation consummates an offer for all of the outstanding stock of such constituent corporation on the terms provided in such agreement of merger that, absent this subsection, would be entitled to vote on the adoption or rejection of the agreement of merger; provided, however, that such offer may be conditioned on the tender of a minimum number or percentage of shares of the stock of such constituent corporation, or of any class or series thereof, and such offer may exclude any excluded stock and provided further that the corporation may consummate separate offers for separate classes or series of the stock of such constituent corporation;

a.–d. [Repealed.]

(3) Immediately following the consummation of the offer referred to in paragraph (h)(2) of this section, the stock irrevocably accepted for purchase or exchange pursuant to such offer and received by the depository prior to expiration of such offer, together with the stock otherwise owned by the consummating corporation or its affiliates and any rollover stock, equals at least such percentage of the shares of stock of such constituent corporation, and of each class or series thereof, that, absent this subsection, would be required to adopt the agreement of merger by this chapter and by the certificate of incorporation of such constituent corporation;

(4) The corporation consummating the offer referred to in paragraph (h)(2) of this section merges with or into such constituent corporation pursuant to such agreement; and

(5) Each outstanding share (other than shares of excluded stock) of each class or series of stock of such constituent corporation that is the subject of and is not irrevocably accepted for purchase or exchange in the offer referred to in paragraph (h)(2) of this section is to be converted in such merger into, or into the right to receive, the same amount and kind of cash, property, rights or securities to be paid for shares of such class or series of stock of such constituent corporation irrevocably accepted for purchase or exchange in such offer.

(6) As used in this section only, the term:

a. “Affiliate” means, in respect of the corporation making the offer referred to in paragraph (h)(2) of this section, any person that (i) owns, directly or indirectly, all of the outstanding stock of such corporation or (ii) is a direct or indirect wholly-owned subsidiary of such corporation or of any person referred to in clause (i) of this definition;

b. “Consummates” (and with correlative meaning, “consummation” and “consummating”) means irrevocably accepts for purchase or exchange stock tendered pursuant to an offer;

c. “Depository” means an agent, including a depository, appointed to facilitate consummation of the offer referred to in paragraph (h)(2) of this section;

d. “Excluded stock” means (i) stock of such constituent corporation that is owned at the commencement of the offer referred to in paragraph (h)(2) of this section by such constituent corporation, the corporation making the offer referred to in paragraph (h)(2) of this section, any person that owns, directly or indirectly, all of the outstanding stock of the corporation making such offer, or any direct or indirect wholly-owned subsidiary of any of the foregoing and (ii) rollover stock;

e. “Person” means any individual, corporation, partnership, limited liability company, unincorporated association or other entity;

f. “Received” (solely for purposes of paragraph (h)(3) of this section) means (a) with respect to certificated shares, physical receipt of a stock certificate accompanied by an executed letter of transmittal, (b) with respect to uncertificated shares held of record by a clearing corporation as nominee, transfer into the depository's account by means of an agent's message, and (c) with respect to uncertificated shares held of record by a person other than a clearing corporation as nominee, physical receipt of an executed letter of transmittal by the depository; provided, however, that shares shall cease to be “received” (i) with respect to certificated shares, if the certificate representing such shares was canceled prior to consummation of the offer referred to in paragraph (h)(2) of this section, or (ii) with respect to uncertificated shares, to the extent such uncertificated shares have been reduced or eliminated due to any sale of such shares prior to consummation of the offer referred to in paragraph (h)(2) of this section; and

g. “Rollover stock” means any shares of stock of such constituent corporation that are the subject of a written agreement requiring such shares to be transferred, contributed or delivered to the consummating corporation or any of its affiliates in exchange for stock or other equity interests in such consummating corporation or an affiliate thereof; provided, however, that such shares of stock shall cease to be rollover stock for purposes of paragraph (h)(3) of this section if, immediately prior to the time the merger becomes effective under this chapter, such shares have not been transferred, contributed or delivered to the consummating corporation or any of its affiliates pursuant to such written agreement.

If an agreement of merger is adopted without the vote of stockholders of a corporation pursuant to this subsection, the secretary or assistant secretary of the surviving corporation shall certify on the agreement that the agreement has been adopted pursuant to this subsection and that the conditions specified in this subsection (other than the condition listed in paragraph (h)(4) of this section) have been satisfied; provided that such certification on the agreement shall not be required if a certificate of merger is filed in lieu of filing the agreement. The agreement so adopted and certified shall then be filed and shall become effective, in accordance with § 103 of this title. Such filing shall constitute a representation by the person who executes the agreement that the facts stated in the certificate remain true immediately prior to such filing.

Get free summaries of new opinions delivered to your inbox!

• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

• > Legal Updates

Delaware Chancery Court Finds Reverse Triangular Merger Under Delaware Law Does Not Effect an Assignment of Rights of the Surviving Corporation, Pratt's Journal of Bankruptcy Law

On February 22, 2013, in a case titled Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH , 1  Vice Chancellor Parsons of the Delaware Chancery Court granted summary judgment for the defendants in a dispute over an intellectual property license, concluding that a reverse triangular merger is not an assignment “by operation of law or otherwise” insofar as the surviving corporation is concerned and does not result in a violation of an anti-assignment provision in an agreement of the surviving corporation that was a party to a merger under Delaware law. The Court thus removed concerns and uncertainty that had first arisen in connection with an earlier ruling in the same case that had declined to dismiss the plaintiffs’ claim that a reverse triangular merger breached that anti-assignment provision. 2

Prior to the Court’s first Meso Scale memorandum opinion in 2011, M&A practitioners were reasonably confident that a reverse triangular merger under Delaware law did not result in an assignment of the contractual rights of the surviving corporation. Such mergers were often used as the mechanism to accomplish an acquisition where there were otherwise concerns about the assignability of particular agreements. However, there was no Delaware precedent directly on point. In his 2011 Meso Scale opinion, Vice Chancellor Parsons created concerns among many M&A practitioners when he found that whether the parties intended that a reverse triangular merger resulted in an assignment of the surviving corporation’s rights presented a question of fact that could not be resolved at the motion to dismiss stage. Vice Chancellor Parsons’ 2013 decision rejecting plaintiffs’ claims that a reverse triangular merger resulted in an assignment is the first Delaware decision squarely addressing this important issue.

This client alert summarizes certain key components of the 2013 Meso Scale decision. The full text of the Court’s decision is available here .

The history of the disputes between the parties to the Meso Scale case is long and complicated, dating back to 1992. In an effort to be (relatively) brief here, we have tried as much as possible to confine this alert to the facts as they existed in 2006 and 2007.

As 2006 began, Roche Diagnostics GmbH and/or certain of its affiliates (Roche) held an irrevocable, perpetual, non-exclusive, worldwide and fully-paid license to certain electro­chemi­lum­inescent (ECL) technology in a narrowly-defined field of use (the Roche License). The Roche License had originally been granted in 2003 by IGEN International, Inc. (IGEN) though it got to Roche by a circuitous route. The Roche License was part of a series of transactions that were intended to settle significant intellectual property disputes between IGEN and Roche relating to an earlier license: first, IGEN created two new subsidiaries – IGEN LS and Newco; second, IGEN granted the Roche License to IGEN LS as licensee; third, IGEN assigned to Newco all of its business and operations (including its rights and obligations under the Roche License as licensor); fourth, IGEN spun off Newco as a new public company called BioVeris Corp. (BioVeris); and fifth, Roche acquired IGEN (including IGEN LS and the rights in the Roche License as licensee) for a total of $1.4 billion.

Meso Scale Diagnostics, LLC (MSD) and Meso Scale Technologies, LLC (MST) – the plaintiffs – are relevant because they were prior licensees of certain ECL technology from IGEN. 3  Although the Roche License was signed by IGEN and IGEN LS (and they were designated as the sole “parties” to the license), a separate page (the Meso Consent) signed by MSD and MST, and attached to the Roche License, stated that MSD and MST:

consent to the [Roche License] … and … consent to and join in the license granted to [Roche] in the [Roche License]…. Furthermore, MSD and MST … represent and warrant to [Roche] that each of them … waive any right that either of them may have to in any way restrict or limit [Roche’s] exercise of the licenses granted in the [Roche License] during the term thereof. 4

In addition to the Meso Consent, MSD and MST (and various other parties including Roche) signed a further document (the Global Consent), which contained the following anti-assignment language:

Neither this Agreement nor any of the rights, interests or obligations under this Agreement 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; provided, however, that the parties acknowledge and agree that the conversion of Newco in accordance with Section 2.01 of the Restructuring Agreement and the continuation of Newco as a result thereof shall be deemed not to be an assignment and shall not require any consent of any party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 5

Also at the start of 2006, Roche found itself in dispute with BioVeris over Roche’s alleged non-compliance with the Roche License. In order to resolve the ongoing disputes, Roche again sought to acquire the owner of the ECL technology, this time for approximately $600 million. According to the merger proxy filed by BioVeris with respect to the proposed merger, Roche had initially demanded a formal agreement with MSD in connection with the proposed transaction, spelling out the scope of MSD’s remaining rights in the ECL technology. MSD was brought into the negotiations and demanded significant financial concessions from BioVeris. BioVeris “advised Roche that it did not believe that the proposed merger transaction should be conditioned upon obtaining any modifications from MSD and, in view of Roche’s concerns about the concessions being requested by MSD, suggested that Roche conduct further due diligence so that it could become comfortable with the extent of the Company’s existing obligations to MSD.” 6  Ultimately, Roche determined that it was prepared to proceed with the proposed transaction without any modifications or agreements regarding the Roche License from MSD. 7

The acquisition of BioVeris was structured as a reverse triangular merger whereby a newly created subsidiary of Roche would merge with and into BioVeris, with BioVeris surviving the merger. The holders of stock in BioVeris would receive the merger consideration and their stock would be cancelled. The stock of the merger subsidiary would become the stock of the surviving corporation. Roche, as holder of that stock, would thus become the sole owner of BioVeris after the merger closed in July 2007.

The Delaware Case

MSD and MST filed a complaint against Roche in Delaware Chancery Court in 2010. For the purposes of this alert, only one of the two counts in the complaint is relevant: the one asserting that the reverse triangular merger in 2007 constituted an assignment by operation of law and required their consent under the Global Consent. 8

Relying largely on the statutory text of Section 259 of the Delaware General Corporation Law (DGCL), Vice Chancellor Parsons concluded that “[g]enerally, mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger.” 9  In particular, Section 259 provides:

When any merger or consolidation shall have become effective under this chapter, for all purposes of the laws of this State the separate existence of all the constituent corporations, or of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged , as the case may be, shall cease and the constituent corporations shall become a new corporation, or be merged into 1 of such corporations . . . the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed, and all debts due to any of said constituent corporations on whatever account . . . shall be vested in the corporation surviving or resulting from such merger or consolidation ; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the surviving or resulting corporation as they were of the several and respective constituent corporations. 10

Relying on a substantial amount of legal scholarship and commentary in support of the proposition that reverse triangular mergers do not constitute an assignment by operation of law as it relates to the surviving corporation, the Court also observed that the foregoing interpretation was “consistent with the reasonable expectations of the parties.” 11  Furthermore, the Court noted that the principal effect of a reverse triangular merger on the surviving corporation is to effect a change in legal ownership of the survivor, which would not of itself result in an assignment by operation of law of the rights of the survivor. 12

Finally, the Court distinguished a handful of Delaware cases that plaintiffs claimed supported their position and rejected plaintiffs’ invitation to follow a California case that held that a reverse triangular merger effected an assignment by operation of law. The Delaware cases cited by plaintiffs involved forward mergers and – in that situation unlike in the case of a reverse merger – the party to the contracts in question is merged out of existence. 13  In the California case, SQL Solutions, Inc. v. Oracle Corp. , 1991 WL 626458 (N.D. Cal. Dec. 18, 1991), the U.S. District Court had found that a reverse triangular merger constituted an assignment for purposes of California law applying a line of California cases holding that whether “an assignment results merely from a change in the legal form of ownership of a business . . . depends on whether it affects the interests of the parties protected by the nonassignability of the contract.” 14  However, Vice Chancellor Parsons concluded that this line of cases (and thus the holding in SQL Solutions ) conflicted with Delaware’s jurisprudence surrounding stock acquisitions. Under Delaware law, stock purchases generally do not result in an assignment by operation of law of the assets of the target corporation because – despite changes in the identity of stockholders of the target corporation – the target corporation itself remains the same. 15

Although the Court’s 2013 decision in the Meso Scale case does not represent a major departure from prior Delaware case law, it is a useful judicial confirmation of the principle that a reverse triangular merger does not result in the assignment (by operation of law or otherwise) of the surviving corporation’s contracts. 16  In particular, it removes the uncertainty created by Vice Chancellor Parsons in his 2011 Meso Scale opinion. Lastly, parties intending that a reverse merger be treated as an assignment in violation of an anti-assignment provision should address that issue head on in their agreement (whether by specifying as a matter of contract that a reverse merger is an “assignment” or by including an express change of control provision that triggers the forfeiture of certain rights).

* * * 

1. C.A. No. 5589-VCP, 2013 WL 911118 (Del. Ch. Feb. 22, 2013, revised Mar. 8, 2013).

2. C.A. No. 5589-VCP, 2011 WL 1348438 (Del. Ch. Apr. 8, 2011).

3. MST was founded by Jacob Wohlstadter, the son of Samuel Wohlstadter, the founder, chairman and chief executive officer of IGEN (and later of BioVeris). MSD was a joint venture of MST and IGEN.

4. Meso Scale , slip op. at 13.

5. Id. at 14-15.

6. BioVeris Corp., Definitive Proxy Statement (DEFM14A) at 20 (May 21, 2007).

7. Id. at 22.

8. The second count asserted that Roche breached the Roche License by selling products and services outside of the authorized field. The Court denied summary judgment on the second count. Trial was scheduled to begin on that count on February 25, 2013.

9. Meso Scale , slip op. at 35. 

10. DGCL § 259 (emphasis in slip opinion). Interestingly, in reaching the decision that the merger in question did not result in an assignment “by operation of law or otherwise” under the Roche License, the Court reached a second important, but unstated, holding. Elsewhere in the opinion, the Court noted that the Roche License was governed by New York law . Thus, in applying DGCL § 259 to the question of whether a New York law-governed contract underwent “an assignment by operation of law or otherwise,” the Court implicitly concluded that – at least in the context of a merger between two Delaware corporations – this question was a matter of Delaware law.

11. Meso Scale , slip op. at 37. 

12. The Court noted that “Delaware courts have refused to hold that a mere change in the legal ownership of a business results in an assignment by operation of law…. In sum, Meso could have negotiated for a ‘change of control provision.’ They did not.” Id . at 48.

13. Id. at 41-44 (citing Tenneco Automotive Inc. v. El Paso Corp. , 2002 WL 453930 (Del. Ch. Mar. 20, 2002); and Star Cellular Telephone Co. v. Baton Rouge CGSA, Inc. , 647 A.2d 382 (Del. 1994)).

14. Id. at 46-47 (citations omitted). 

15. Id. at 47-48 (citing Baxter Pharm. Prods., Inc. v. ESI Lederle Inc. , 1999 WL 160148 (Del. Ch. Mar. 11, 1999); and Branmar Theatre Co. v. Branmar, Inc. , 264 A.2d 526 (Del. Ch. 1970)).

16. It is also worth noting that Texas reaches even further than Delaware law in protecting mergers from anti-assignment provisions. Under the Texas Business Organizations Code, neither a forward nor a reverse merger involving Texas corporations would result in an “assignment by operation of law.” It provides: “[A]ll rights, title, and interests to all real estate and other property owned by each organization that is a party to the merger is allocated to and vested, subject to any existing liens or other encumbrances on the property, in one or more of the surviving or new organizations as provided in the plan of merger without: (A) reversion or impairment; (B) any further act or deed; or (C) any transfer or assignment having occurred.” Tex. Bus. Org. Code § 10.008(a)(2). See also Philip M. Haines, The Efficient Merger: When and Why Courts Interpret Business Transactions to Trigger Anti-Assignment and Anti-Transfer Provisions, 61 Baylor L. Rev. 683 (2009).

Related People

Media Contact

Lisa Franz Director of Public Relations

Jeremy Heallen Public Relations Senior Manager mediarelations@HuntonAK.com

Trending News

Find Your Next Job !

Related Practices & Jurisdictions

• Mergers Acquisitions
• Corporate Business Organizations
• Litigation Trial Practice

A recent Delaware Court of Chancery decision examined whether a reverse triangular merger (“RTM”) qualified as a prohibited assignment by operation of law under Delaware law.  In Meso Scale Diagnostics, LLC v. Roche Diagnostics, GMBH ,  62 A.3d 62 (Del. Ch. 2013), defendants Roche Diagnostics and its affiliates and subsidiaries, including wholly-owned subsidiary BioVeris Corp., became parties to certain patent licensing agreements involving plaintiffs and their affiliates regarding certain patents owned by BioVeris.  As part of the transactions between the entities, the plaintiffs, Roche Diagnostics, BioVeris and certain other parties entered into a related Global Consent and Agreement under which the parties consented to, among other things, the transactions between certain of the parties and their affiliates and the consummation of those transactions.  The Global Consent contained an anti-assignment clause that provided 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 ; provided, however, that the parties acknowledge and agree that the conversion of [BioVeris] in accordance with Section 2.01 of the Restructuring Agreement and the continuation of BioVeris as a result thereof shall not be deemed to be an assignment and shall not require the consent of any party…”

Roche Diagnostics eventually acquired BioVeris through a reverse triangular merger involving a subsidiary of Roche Diagnostics, with BioVeris remaining intact as the surviving entity.  Roche Diagnostics did not seek the consent of plaintiffs prior to consummating the RTM involving BioVeris.  Plaintiffs thereafter commenced suit against Roche Diagnostics, alleging, among other things, that the RTM involving BioVeris constituted a breach of the anti-assignment provisions of the Global Consent.  However, the language at issue in the Global Consent did not expressly prohibit a change of control or ownership of BioVeris.

Roche Diagnostics argued that because BioVeris remained as a surviving entity of the RTM with all of its prior assets, rights and liabilities intact, BioVeris never assigned the license agreements or anything else.  Roche Diagnostics also argued that a RTM was very similar to a stock acquisition, and that Delaware case law generally held that stock acquisitions and other simple changes of ownership generally do not constitute assignments.  Plaintiffs, on the other hand, contended that mergers generally, including RTMs, can result in an assignment by operation of law.  Among other things, plaintiffs argued that Delaware case law on forward triangular mergers (“FTMs”) suggested that a merger could be treated as an assignment by operation of law and cited to a California federal court case holding that a RTM resulted in an assignment by operation of law.

In a 2011 ruling on a preliminary motion to dismiss filed by defendants, the Court of Chancery initially found a lack of clear guidance on the issue under Delaware law.  The Court of Chancery also found that the parties had two competing, but reasonable, constructions of the term assignment “by operation of law” and that there was ambiguity as to whether such terms were intended to apply to RTMs.  The Court of Chancery therefore denied defendants’ preliminary motion to dismiss.

However, in a 2013 ruling on a motion for summary judgment filed by defendants regarding the anti-assignment language, the Court of Chancery, after further examination of the applicable Delaware law and the parties’ arguments, granted Roche Diagnostic’s motion, finding that the language in the Global Consent prohibiting assignment “by operation of law or otherwise” should not be construed to encompass RTMs.  In the 2013 ruling, the Court of Chancery rejected plaintiffs’ arguments regarding the applicability of Delaware cases examining FTMs, finding, among other things, that those cases involved contracts with non-surviving entities that were forward-merged out of existence and into a separate surviving entity.  The Court of Chancery also rejected plaintiffs’ pleas to apply California federal court precedent in this Delaware case.

In support of its determination, the Court of Chancery looked to guidance found in Section 259 of the Delaware General Corporation Law, which provides as follows:

“When any merger or consolidation shall have become effective under this chapter, for all purposes of the laws of this State the separate existence of all the constituent corporations, or of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged , as the case may be, shall cease and the constituent corporations shall become a new corporation, or be merged into 1 of such corporations, as the case may be, possessing all the rights, privileges, powers and franchises as well of a public as of a private nature, and being subject to all the restrictions, disabilities and duties of each of such corporations so merged or consolidated; and all and singular, the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed, and all debts due to any of said constituent corporations on whatever account, as well for stock subscriptions as all other things in action or belonging to each of such corporations shall be vested in the corporation surviving or resulting from such merger or consolidation ….

The Court of Chancery also examined existing Delaware case law examining stock acquisitions and mergers and other outside legal commentary indicating (by a vast majority) that a RTM, like other mere changes in ownership of a business, generally does not constitute an assignment by operation of law as to the surviving entity.  Based upon these findings and an examination of the anti-assignment language in the Global Consent, the Court ultimately found that plaintiffs’ assertions that the contracting parties intended the anti-assignment language in the Global Consent regarding assignments “by operation of law” to apply to RTMs was not reasonable.

The Meso Scale Diagnostics decision serves to reaffirm the understanding that under Delaware law, anti-assignment provisions are generally not triggered by RTMs, even when such anti-assignment provisions reference assignments by operation of law.  In light of the ruling in Meso Scale Diagnostics , parties to contracts (whether in Delaware, New Jersey or elsewhere) wanting a right to consent to an RTM involving any of the other contracting parties would be well-served to include change of control provisions in those contracts.

This blog update is not considered to be legal advice, and is intended for educational purposes only. 

Current Public Notices

Discover how Trellis AI helps litigators evaluate cases, automate brief drafting, suggest winning strategies, and more. Click this link to request the Trellis AI Guide .

Current Legal Analysis

More from giordano, halleran & ciesla, p.c., upcoming events.

More Upcoming Events

Sign Up for e-NewsBulletins

Wiggin and Dana LLP — Attorneys At Law

• Diversity, Equity and Inclusion
• Wiggin Opportunity Initiative

Publications

Delaware Clarifies Impact of Common Merger Structure on Contractual Anti-Assignment Clauses

In a long-awaited decision, the Delaware Court of Chancery recently held in Meso Scale Diagnostics v. Roche Diagnostics [1] that the acquisition of a company by reverse triangular merger does not result in an assignment (whether by operation of law or otherwise) of the target company’s agreements. Thus, the Court put to rest the uncertainty that it created two years ago in the same case.

Reverse Triangular Mergers

A reverse triangular merger is a common form of merger in which the acquirer creates a wholly-owned subsidiary that then merges into the acquisition target. As a result, the target entity remains intact, while the “merger subsidiary” ceases to exist. The net effect is the same as a stock sale of the target, but with the advantage that a merger does not require action by all target stockholders as in a stock sale – a majority vote is typically sufficient. The reverse triangular merger is often used because of its relative simplicity and its ability to allow acquiring companies to obtain control of the target’s non-assignable contracts… or so everyone thought until April 2011.

Transaction Background… and Uncertainty

In 2007, Roche Diagnostics GmbH acquired BioVeris Corp. through a reverse triangular merger. BioVeris had previously licensed certain intellectual property from Meso Scale under an agreement that contained the following anti-assignment language:

“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 2010, Meso Scale filed a complaint against Roche alleging that Roche’s acquisition of BioVeris caused a de facto assignment of BioVeris’ intellectual property rights, and that, as a result of the above prohibition on assignment, a breach of contract occurred when BioVeris merged into the Roche merger subsidiary. Roche moved to dismiss the complaint.

In a surprise April 2011 ruling, the Delaware Court of Chancery denied Roche’s motion to dismiss. The Court’s opinion injected uncertainty into the realm of Delaware corporate law by indicating that, for purposes of interpreting an anti-assignment clause, there may be circumstances in which a reverse triangular merger should be considered an assignment “by operation of law.” [2]

Order is Restored

In its motion for summary judgment, Roche analogized reverse triangular mergers to transactions in which all target company shares are acquired. In both transactions, Roche argued, the target company remains intact and continues to own its assets. Accordingly, BioVeris did not assign any of its assets at the time of the merger. As Roche made clear, Delaware courts have long held that the stock sale of a company does not violate anti-assignment provisions that do not expressly prohibit a change of control.

Drawing upon Delaware case law regarding forward triangular mergers, Meso Scale countered that the BioVeris reverse triangular merger constituted an assignment “by operation of law,” urging the Court to embrace an unreported 1991 decision by the U.S. District Court for the Northern District of California, SQL Solutions v. Oracle Corp. [3] SQL Solutions also involved a reverse triangular merger and anti-assignment language in the target company’s inbound license agreement. The SQL Solutions court found, in that case, that the third-party licensor would have been “adversely impacted” because the acquiring company was one of the licensor’s direct competitors. The court suggested that third-party consents should be obtained even in the reverse triangular merger context, especially when the intellectual property licensed to the target company is an essential part of its business.

The Delaware Court of Chancery granted Roche’s motion for summary judgment, concluding that Section 259 of the Delaware General Corporation Law supported Roche’s position that a reverse triangular merger does not result in an assignment by operation of law or otherwise. [4] Specifically, the Court held that “mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger.”

In response to Meso Scale’s argument that the merger constituted a de facto assignment, the Court held that, under Delaware’s doctrine of “legal significance,” the fact that a forward triangular merger would have triggered the plaintiff’s consent rights did not have any bearing on the reverse triangular merger at issue.

The Court also found that the parties did not intend for the negotiated language to require third-party consent upon a change of control, since “the vast majority of commentary discussing reverse triangular mergers indicates that a reverse triangular merger does not constitute an assignment by operation of law as to the surviving entity.”

Finally, the Court rejected the approach suggested by SQL Solutions , stating simply that such an approach conflicted with Delaware’s jurisprudence regarding stock acquisitions, as well as Section 259.

Implications

The Court’s ruling confirms that, under Delaware law, reverse triangular mergers do not result in the assignment, by operation of law or otherwise, of agreements held by a target company. The decision offers comfort to practitioners and would-be acquirers that regularly engage in M&A transactions governed by Delaware law that they can structure deals in a manner that ensures that consents will not be required with respect to target company agreements that do not contain language expressly prohibiting a change of control.

The decision also highlights the fact that it is limited to transactions and agreements governed by Delaware law. There is still uncertainty as to the risks associated with contractual anti-assignment clauses in certain jurisdictions. As a result, it would be prudent in situations where Delaware is not the governing law (and there is ambiguity in the applicable jurisdiction) to obtain all third-party consents to the assignment of material agreements.

Finally, the decision also serves as a reminder to practitioners to include clear consent and assignment language when drafting licenses and other agreements to avoid a court having to infer the intent of the parties after the fact. The Meso Scale court specifically noted that the plaintiffs “could have negotiated for a change of control provision” but failed to do so.

[1] Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH , No. 5589-VCP (Del. Ch. Feb. 22, 2013).

[2] Reading the factual allegations in Meso Scale’s favor (as all courts must at the motion to dismiss stage), the Court found that Meso Scale had alleged sufficient facts to withstand Roche’s motion to dismiss. Meso Scale alleged that, within months of the merger, all of BioVeris’ employees were laid off, its Maryland facility was shut down and it was slated to cease all production. The Court found that these circumstances created a plausible argument “that ‘by operation of law’ was intended to cover mergers that effectively operated like an assignment, even if it might not apply to mergers merely involving changes of control.”

[3] SQL Solutions v. Oracle Corp. , 1991 WL 626458 (N.D. Cal. Dec. 18, 1991).

[4] Section 259 provides that: “When any merger or consolidation shall have become effective under this chapter, for all purposes of the laws of this State the separate existence of all the constituent corporations, or of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged, as the case may be, shall cease and the constituent corporations shall become a new corporation, or be merged into 1 of such corporations . . . the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed, and all debts due to any of said constituent corporations on whatever account . . . shall be vested in the corporation surviving or resulting from such merger or consolidation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the surviving or resulting corporation as they were of the several and respective constituent corporations.”

• Advisory Deleware Clarifies Impact of Common Merger Structure.pdf

Wiggin and Dana Receives National Recognition in the 2025 Edition of “Best Law Firms”

Wiggin and dana continues rapid growth of restructuring practice with addition of restructuring professionals scott griffin and frank eaton, wiggin and dana recognized by lmg life sciences 2024, benchmark litigation 2025 ranks wiggin and dana attorneys, 2024 new england legal awards honors wiggin and dana litigation department, wiggin and dana attorneys named to the best lawyers in america® 2025, privacy overview.

Delaware Court Finds That a Reverse Triangular Merger Does Not Result in an Assignment by Operation of Law

In Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, the Delaware Court of Chancery confirmed that a reverse triangular merger did not result in an assignment by operation of law. This affirms the traditional view often taken by practitioners that was called into question by an April 2011 ruling on a motion to dismiss where the Court implied that in some circumstances a reverse triangular merger may violate contractual language prohibiting assignment by operation of law.

Reverse Triangular Mergers and Anti-Assignment Language

Parties to acquisitions often review key contracts of the target company to determine whether the terms of a target’s key contracts prohibit the acquisition or require a third-party’s consent in connection with the acquisition. The requirement to obtain a waiver or third-party consent can be affected by the acquisition structure.

Practitioners have traditionally taken the view (at least until the first Meso Scale ruling in April 2011) that contractual language prohibiting an assignment by operation of law is not triggered by a reverse triangular merger because a reverse triangular merger does not involve a transfer or assignment of a target’s contracts, but instead involves a change in ownership of the target. In a reverse triangular merger, an acquiring company forms a subsidiary that is then merged into the target company, which results in the subsidiary formed by the acquiring company disappearing and the target company surviving the merger as a wholly-owned subsidiary of the acquiring company. Because obtaining third-party consents or waivers can be difficult and time-consuming, practitioners often view avoiding the application of contractual requirements or prohibitions regarding assignments as one of the benefits of the reverse triangular merger structure.

Background of Meso Scale

  In Meso Scale v. Roche , the plaintiffs alleged that the acquisition of BioVeris Corporation (“BioVeris”) by Roche Diagnostics GmbH, C.A. (“Roche”) via a reverse triangular merger violated the anti-assignment terms of a contract between the plaintiffs and a predecessor to BioVeris. The contract that the plaintiffs alleged was breached by the reverse triangular merger set forth that, “Neither this Agreement nor any of the rights, interests or obligations under this Agreement 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…” The Court, in an April 2011 ruling, denied Roche’s motion to dismiss because it noted that there may be circumstances where a reverse triangular merger violates a provision prohibiting assignment by operation by law or otherwise.

Analysis in Meso Scale

In Meso Scale v. Roche , the Court concluded that Section 259(a) of the Delaware General Corporation Law, which provides that the effect of a merger is the transfer of the assets and liabilities of the non-surviving corporation to the surviving corporation, supports the conclusion that a reverse triangular merger is generally not an assignment of the target’s contracts by operation of law or otherwise because the target is the surviving corporation.

Further, the Court declined to follow a California case, SQL Solutions Inc. v. Oracle Corporation , that held that an anti-assignment provision in a software license agreement similar to the provision in the contract between Roche and BioVeris was triggered by a reverse triangular merger.  

Finally, the Court noted that its interpretation of the anti-assignment clause was consistent with a view of the parties’ reasonable expectation regarding the contractual term at the time the parties entered into the contract. In doing so, the Court noted that a large majority of commentary and case law discussing reverse triangular mergers indicate that a reverse triangular merger does not constitute an assignment by operation of law with respect to the surviving company’s contracts.

Practical Implications of Meso Scale

There are several practical implications for companies and practitioners to remember as a result of the Court’s ruling.

Greater Certainty for Reverse Triangular Mergers but the Parties’ Intent is Still Relevant : Meso Scale v. Roche generally confirms the conclusion that, under Delaware law, a reverse triangular merger does not result in an assignment by operation of law. However, given the Court’s reasoning, which included a review of the parties’ intent, companies and practitioners should still consider the intent of the contractual parties to the target company’s agreements, particularly if the relevant terms are ambiguous and the contract is important.

Companies Should Carefully Consider “Boilerplate” Language in Key Contracts : Meso Scale v. Roche is a reminder of the potential importance of boilerplate language, particularly in a company’s key contracts. In Meso Scale v. Roche, the Court noted that the plaintiff could have negotiated for a provision prohibiting a change in control of its counterparty that would have provided the plaintiff with consent rights in connection with a reverse triangular merger, but instead agreed to a term that merely prohibited an assignment of the contract by operation of law or otherwise. In light of this, drafters and negotiators of commercial agreements should carefully consider a contractual party’s desired rights and attendant obligations in the event of an acquisition, regardless of the form of the acquisition structure and in order to ensure that the contractual language clearly reflects the parties’ intent in this regard.

Applicable Law is Relevant : While many jurisdictions view Delaware corporate case law as persuasive, the effect of a reverse triangular merger on anti-assignment language when the applicable law is not Delaware should be confirmed, especially if a contract is important. This is particularly true in light of cases such as SQL Solutions Inc. v. Oracle Corporation , where courts in some non-Delaware jurisdictions have indicated that a reverse triangular merger can trigger prohibitions on assignments by operation of law in certain circumstances.

Related Materials

Professionals.

Related Areas

This website uses cookies to enhance your browsing experience and improve functionality. To learn more, you may view our Privacy Policy . By continuing to browse Smith Anderson's website, you are accepting our use of cookies in accordance with our privacy policy.