Delaware Court Finds Reverse Triangular Merger Does Not Violate Contractual Prohibition on Assignment by Operation of Law

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The Delaware Chancery Court, in Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH (Feb. 22, 2013), held that the acquisition of a company in a reverse triangular merger did not violate a restriction in an existing agreement of the target company that prohibited assignments by operation of law.

The decision reaffirms the traditional assumption that, in most circumstances, the acquisition of a company through a reverse triangular merger does not violate anti-assignment provisions in the target company’s underlying agreements. In part because of that assumption, reverse triangular mergers are one of the most common M&A structures. In a reverse triangular merger, the acquiror forms a shell company and merges the shell company into the target company, with the shell company disappearing and the target company surviving as a wholly-owned subsidiary of the acquiror.

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