Merger Termination Provisions Mean What They Say In Delaware

The Delaware Court of Chancery has ruled that a party to a merger agreement validly terminated the agreement after the out-date passed when the other party failed to give notice that it extended the agreement even though the parties were continuing to discuss the proposed merger.[1]  Thus, once again the Delaware courts have shown that they enforce contracts between sophisticated parties as they are written.

This case involved Vintage Capital Managements’ proposed acquisition of Rent-A-Center, Inc., a larger rent-to-own retailer.  As is typical, the merger agreement had an out-date, after which either party could terminate the agreement.  As is also typical when there is concern about the ability to satisfy a condition by the out-date, in this case antitrust regulatory approval, the agreement permitted a party to extend that date in order to satisfy the condition.  Although Rent-A-Center anticipated that Vintage would extend the out-date, its board concluded because Rent-A-Center’s performance had improved that it would terminate the agreement if Vintage failed to extend it.  Immediately following the out-date, not having received notice of extension from Vintage, Rent-A-Center terminated the agreement.

Vintage brought suit on the grounds that the termination was ineffective and that the parties’ course of conduct was sufficient to extend the agreement.  Vice Chancellor Glasscock rejected this and other arguments and held that Rent-A-Center’s termination was proper, stating that he was “left to the startling conclusion that, having vigorously negotiated a provision under which Vintage was entitled to extend the [out-date] simply by sending Rent-A-Center notice of election to do so by a date certain, Vintage…, in the context of this $1 billion-plus merger, simply forgot to give such notice.”

This decision is a stark reminder that provisions of an agreement have meaning and will be enforced by the courts in accordance with their specific terms, including notice requirements and deadlines.

[1] Vintage Rodeo Parent, LLC v. Rent-A-Center Inc., C.A. No. 2018-0928-SG (Del. Ch. Mar. 14, 2019).

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