Last year’s blockbuster opinion in Akorn, Inc. v. Fresenius Kabi AG—the first Delaware case to find the existence of a Material Adverse Effect (“MAE”)— provided corporate litigators a roadmap for establishing an MAE to avoid closing a merger transaction. In the first post-Akorn MAE opinion, Channel Medsystems, Inc. v. Boston Scientific Corporation, released on December 18, 2019, the Delaware Court of Chancery refused to allow Boston Scientific to terminate its merger with Channel based on its assertion of an MAE and required Boston Scientific to close—confirming after a full evidentiary trial that a buyer still has a “heavy burden” when attempting to invoke an MAE clause to avoid closing. Chancellor Andre G. Bouchard’s opinion confirms that proving an MAE requires more than the existence of a “bad” event relating to the seller: there must be strong evidence that its effects on the seller will be significant and long-lasting. The Channel decision also confirms that, absent settlement, MAE cases are likely to require a full evidentiary hearing or trial, following extensive discovery. Channel also provides new insights for M&A practitioners.
When Boston Scientific and Channel announced their merger agreement (the “Agreement”) on November 1, 2017, Channel was a privately held medical technology company with just one product, the “Cerene” device intended to treat heavy menstrual bleeding, which had not yet obtained FDA approval. The court found that executives at Boston Scientific were having second thoughts about the merger soon after signing.