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
- BA sustained and durationally significant decline in the target's operating performance combined with regulatory 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 — A sustained and durationally significant decline in the target's operating performance combined with regulatory 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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