Analysis of Lost Premium Damages Provisions Following the Adoption of DGCL Section 261 Amendments
Effective August 1, 2024, Delaware adopted a set of amendments to the Delaware General Corporation Law (the “DGCL”) intended to address, among other things, the Delaware Chancery Court’s 2023 decision in Crispo v. Musk. In the Crispo decision, the Chancery Court stated in dicta that a Delaware target company in a merger could not collect […]
Thomas W. Christopher is a Partner and Jennifer Chu is an Associate at White & Case LLP. This post is based on their White & Case memorandum and is part of the Delaware law series; links to other posts in the series are available here.
Effective August 1, 2024, Delaware adopted a set of amendments to the Delaware General Corporation Law (the “DGCL”) intended to address, among other things, the Delaware Chancery Court’s 2023 decision in Crispo v. Musk. [1] In the Crispo decision, the Chancery Court stated in dicta that a Delaware target company in a merger could not collect damages from a breaching buyer reflecting any premium or other economic benefits that its stockholders would have been entitled to receive if the merger had been consummated (“lost premium damages”) where the agreement expressly provided that stockholders are not third-party beneficiaries of the agreement for such purposes. The Crispo decision took many Delaware practitioners by surprise as it has been widely assumed that such damages could be provided for in a merger agreement. The Delaware General Assembly and Governor moved swiftly to address the decision.
This article (i) reviews the background to the history of lost premium damages provisions, (ii) addresses the prevalence of lost premium damages provisions following the adoption of the amendments to Section 261 of the DGCL, (iii) discusses the interplay among lost premium damages, other remedies and reverse termination fees, and (iv) identifies some key practice pointers. The analysis contained herein is based on a survey of a selective set of definitive merger agreements executed between August 1, 2024 and December 31, 2024. [2]
