Delaware Court of Chancery Rules Reverse Triangular Mergers Do Not Result in Assignments by Operation of Law

by Ropes & Gray LLP
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In an opinion published on March 8, 2013, the Delaware Court of Chancery ruled in Meso Scale Diagnostics v. Roche Diagnostics, C.A. No. 5589-VCP (Mar. 8, 2013) that a reverse triangular merger does not result in an assignment of the assets of the surviving entity, by operation of law or otherwise. Although this decision confirms long-held views of generations of corporate lawyers, it reverses a previous holding from April 2011 in this same case and contradicts two previous Federal District Court opinions interpreting California and New Jersey law.

This case of first impression in Delaware, the most important jurisdiction for U.S. corporate law, will likely be viewed with relief by corporate practitioners because it both resolves the ambiguity created by that earlier ruling in this same case and because it sits in stark conflict with two previous Federal District Court opinions: a much-debated, unpublished 1991 opinion of the United States District Court for the Northern District of California in SQL Solutions, Inc. v. Oracle Corp., 1991 WL 626458 (N.D. Cal. Dec. 18, 1991) and a 2012 opinion of the United States District Court for the District of New Jersey in DBA Distribution Services, Inc. v. All Source Freight Solutions, Inc., 2012 WL 845929 (D.N.J. Mar. 13, 2012). Each of these prior cases, which found the question to be one of first impression under the laws of California and New Jersey, respectively, held that a reverse triangular merger transferred a license by operation of law in violation of the anti-assignment provisions in the licenses in question. In declining to follow SQL Solutions, Vice Chancellor Parsons asserted that such a view would frustrate the parties’ intentions and conflict with Delaware jurisprudence on the effects of stock acquisitions.

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