Reed Smith Client Alerts

The Delaware Chancery Court ruled in a March 11, 2019 opinion that a party to a merger agreement had the right to terminate after a “drop-dead date”, even though the other party’s failure to exercise its right to extend the term was inadvertent.

Authors: Marc D. Hauser

Background:

Plaintiff Vintage Capital Management, LLC (“Vintage”) and Defendant Rent-A-Center, Inc. (“RAC”) had entered into a merger agreement to join Vintage’s investment in the rent-to-own industry – Buddy’s - with RAC. Due to Vintage’s existing investment in Buddy’s, the merger required approval from the Federal Trade Commission (“FTC”) for antitrust review. Knowing that the FTC process would take a long time, Vintage and RAC agreed in the merger agreement to a six-month “End Date”, namely, a date on which either party could terminate the agreement. However, since the FTC process was not fully in their control, they agreed that each party could unilaterally extend the “End Date” for a three-month period, twice, by written notice, if the FTC review process was still ongoing.

When the End Date came and passed, and neither party chose to extend, RAC sent notice of termination to Vintage – RAC’s board had determined that it was “no longer in the corporate interest to proceed under the terms of the merger agreement”. Vintage was “blindsided” and did not expect RAC to terminate the agreement. Vintage then sued, arguing that the parties had effectively extended by virtue of their continuing to work diligently towards FTC approval and close. Vintage also claimed that RAC had engaged in a fraud by acting as if they (RAC) were willing to consummate the merger, but concealing its actual intent of terminating immediately after passing of the end date.