Reed Smith Client Alerts

The Delaware Court of Chancery ruled in an October 1, 2018, post-trial opinion that a buyer could terminate the parties’ merger agreement due to a material adverse effect (MAE) suffered by the seller between signing and closing. Akorn, Inc. v. Fresenius Kabi AG1 is the first Delaware case to have found that a buyer was justified in terminating an acquisition agreement on the basis of a claimed MAE.

Authors: Michael P. Lee

Exterior of NY court


In April 2017, Fresenius Kabi AG (the buyer), a German pharmaceutical company, signed a merger agreement committing to purchase Akorn, Inc. (the seller), a generic pharmaceuticals manufacturer. Shortly after signing, Akorn’s financial performance drastically declined. Akorn reported that year-over-year second quarter revenue declined 29 percent, operating income declined 84 percent, and earnings per share declined 96 percent. Akorn’s financial results continued to significantly decline for the remainder of the year. Compounding those financial difficulties, Fresenius received whistleblower letters in fall 2017 alleging deficiencies in Akorn’s compliance with Food and Drug Administration (FDA) rules and regulations. Further, Fresenius learned that Akorn had provided misleading information to the FDA. Fresenius conducted a lengthy investigation and ultimately decided to exercise its contractual right to terminate the agreement and not close the transaction. Akorn filed suit in response to Fresenius’s actions, seeking specific performance of Fresenius’s obligations under the merger agreement.