Delaware Business Litigation Report

Court of Chancery Rejects Claim of Financial Support for Merger

James Cable LLC v. Millennium Digital Media Systems LLC, C.A. 3637-VCL (June 11, 2009)

When a party to a merger agreement must rely on the financial support of a third party to complete the deal, that must be spelled out in written agreement.  Absent that written commitment, the deal is then just an option to close held by the party without assets who is then fee to back out.

This decision rejects some clever attempts to make up for the lack of an agreement to fund the deal.  The Court held that the "affiliate privilege" bars a claim that a parent entity wrongly caused its subsidiary to back out of the transaction by refusing funding.  Other theories of recovery such as a contract claim were also dismissed for want of facts to support them.

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