HControl Holdings LLC vs. Antin Infrastructure Partners S.A.S., C.A. 2023-0283-KSJM (Del. Ch. May 29, 2023)

In Delaware, buyers bear the burden of proving by a preponderance of the evidence their claims for breach of a merger agreement, and sellers bear the burden of proving that buyers could not exercise their termination rights because buyers were in breach of their own obligations. In this case, the Court finds for the Buyers and determines that they were entitled to terminate the deal because the Sellers breached representations in the Merger Agreement.

The Court addressed the Buyers' claims for a breach of the Capitalization Representations, which they argued were not "true and correct in all respects," giving them the right to terminate the Agreement. The Court agreed with the Buyers that at least one of the Sellers' former employees held a "phantom equity" interest in the Target Company by virtue of an agreement to provide the employee with "5% ownership … to be distributed upon a liquidation event." This breached the Capitalization Representations. The fact that the Company was in the middle of dissolution did not cure this breach; under Florida law, the filing of a dissolution action did not deprive the employee of his phantom equity interest. The Court also addressed theBuyers'’ basis for the termination based on the allegations that the Sellers breached interim covenants by not operating the Company Group in the ordinary course of business between signing and closing, by not causing the Company Group to use commercially reasonable efforts to preserve intact the business organizations, by entering into a contract without theBuyers'’ consent, and by engaging with other potential buyers. The Court found that the Company operated in the ordinary course of business despite several significant changes, such as the selling of valuable assets and even the dissolution because the business as a whole remained the same. The Court also concluded that an agreement with the Company Group’s affiliate the Sellers entered into was a response to an unforeseen emergency and did not violate the interim covenant.

Additionally, the Buyers failed to establish that the Sellers actually contacted other potential bidders despite the fact that they requested leave to do so. Finally, the Court found that the Buyers used the required best efforts to consummate the transaction because they took steps to move forward with the deal even after learning about the Sellers' potential breaches. The best efforts clause did not require "Buyers to sacrifice their negotiated contractual [termination] rights to solve a breach." Accordingly, the Court found that the Buyers properly terminated the deal.