In the landmark Delaware Chancery Court case Akorn v. Fresenius (2018), the court found that a MAC had occurred. Which of the following factors was critical to the court's determination?
- AA temporary one-quarter decline in revenue
- BSustained operating decline plus compliance failures✓ Correct answer
- CAn industry-wide economic downturn affecting all companies in the sector
- DA decline in the target's stock price of more than 20%
Why B — Sustained operating decline plus compliance failures
Akorn v. Fresenius was the first case in which the Delaware Court of Chancery found that a material adverse effect had occurred, allowing the buyer to terminate. The court found that Akorn had experienced a sustained and durationally significant decline in operating performance (not a temporary blip) and had also suffered serious regulatory compliance issues including data integrity failures in FDA submissions. The court emphasized that a MAC requires more than a short-term earnings shortfall; it must substantially threaten the overall earnings potential of the target in a durationally significant manner.
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