Showing 2 posts in MAEs.
Chancery Finds Change in Product’s Medicare Reimbursement Rate Was Not A Material Adverse Effect Excusing Buyer From Closing
Bardy Diagnostics, Inc. v. Hill-Rom, Inc. C.A. No. 2021-0175-JRS (Del. Ch. Jul. 9, 2021)
Bardy manufactures a patch that measures heart rate. Its reimbursement rate for the patch had for years been set around $365 per patch. When Hill-Rom acquired Bardy in early January 2021, the parties understood that this reimbursement rate might change, and prior to closing had built an earnout provision into their merger agreement to address this risk. The parties also included a Material Adverse Effect clause, giving Hill-Rom the ability to walk from the deal for any development that could “reasonably be expected to have a material adverse effect on … the Business of [Bardy] taken as a whole.” Yet any industry-wide change in the industries or markets in which Bardy operated, or any change in any “Health Care Law” would not constitute an MAE, unless such development had a “materially disproportionate impact on [Bardy] as compared to other similarly situated companies ….” More ›
Material adverse effect clauses provide a form of buy-side protection in merger agreements. These often are complex provisions permitting the buyer to avoid closing under the right circumstances, usually involving an actual or reasonably expected serious business deterioration. Channel Medsystems represents the latest decision from the Delaware courts interpreting and applying a material adverse effect clause. Here, the Court of Chancery held that a buyer’s termination of a merger agreement was invalid because the fraudulent conduct of an officer of the seller, which rendered certain contractual representations materially false, did not have, nor was reasonably expected at the time of termination to have, a material adverse effect on the seller. More ›Share