Pursuant to the agreement and merger plan of April 24, 2017 (merger agreement), Fresenius Kabi AG has agreed to acquire Akorn, Inc. In the merger agreement, Akorn made full statements on compliance with applicable regulatory requirements and undertook to make economically reasonable efforts to operate in normal business between signature and conclusion. Akorn and Fresenius entered into the merger agreement shortly after the announcement of their results for the first quarter of 2017. In the second quarter of 2017, Akorn`s business development fell by a hurdle and produced significantly lower results than Akorn the previous year year-on-year. The gloomy results shocked Fresenius, because on the same day that the parties had signed the merger treaty, Akorn, at Fresenius` request, had confirmed its forecasts for the whole of 2018. Fresenius debated with Akorn the reasons for the sudden drop that Akorn attributed to unexpected competition and the loss of a key order. In October 2017, Fresenius received a letter asking if Akorn`s statements to comply with the legislation were correct and whether Akorn was working normally. Fresenius` study highlighted serious and pervasive data integrity issues that made Akorn`s compliance submissions so imprecise that the discrepancy between Akorn`s actual condition and his present state would reasonably have a significant adverse effect. On 22 April 2018, Fresenius announced the merger agreement.
Fresenius argued that Akorn`s statements regarding compliance were so false that this derogation could reasonably be expected to have a significant adverse effect. Akorn responded with a complaint seeking a declaration that Fresenius` attempt to terminate the merger contract was invalid and a decree on a specific service obliging Fresenius to conclude. On October 1, 2018, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued a 246-page expert opinion following the trial in Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL, rejecting the seller`s (Akorn)`s request to compel the buyer (Fresenius) to enter into a merger between the two companies. Following an expedited procedure, the General Court found that Fresenius had effectively terminated the merger contract because the conditions of the merger agreement were not fulfilled as regards the accuracy of Akorn`s statements, Akorn`s compliance with its obligations and the existence of a significant adverse effect (EFA) on Akorn. Akorn`s opinion is remarkable for several reasons, including: the General Court once again rejected an argument that Fresenius had taken the risk of regulatory matters because it was generally aware of Akorn`s regulatory risk. The General Court found that such a risk was precisely why Fresenius wanted it to be represented in the merger agreement, to be compliant, and that the contractual representation surpassed any general knowledge of any regulatory issues or issues relating to the scope of Fresenius` due diligence investigation.
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