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Business Law Today

September 2023

September 2023 in Brief: Mergers & Acquisitions

Chauncey Lane and Yelena Dunaevsky

September 2023 in Brief: Mergers & Acquisitions

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DE Court Rejects Specific Performance Push in a Broken SPAC Merger

By Yelena Dunaevsky, Esq., SVP & Partner, Transactional Insurance, Woodruff Sawyer

In a September 7, 2023, opinion Vice Chancellor Laster of the Delaware Chancery Court held that the remedy of specific performance was unavailable for a plaintiff special purpose acquisition company or SPAC (26 Capital Acquisition Corp.) in its efforts to compel its chosen target (Tiger Resort Asia Ltd., et al., subsidiaries of a Japanese conglomerate Universal Entertainment Corp.) to consummate a merger.

The dispute involves a broken deal where the target breached its obligation to use reasonable best efforts to close a previously announced merger. The set of facts leading to the dispute is fairly complex, involving double-dealing by a related party and a platoon of Philippine police forcibly ejecting the target’s management from casino premises.

Judge Laster noted that although specific performance is an extraordinary remedy, it is one that is suited well for the extraordinary situation of a broken deal and normally would be the best solution. However, in this situation, he rejected specific performance as a suitable remedy based on the fact that: (1) the target is under the purview of the Philippines government and has questionable political ties, both of which would make enforcement of specific performance incredibly difficult, (2) coercive sanctions that would effectively be used to back up a decree of specific performance in the United States could not be “deployed effectively in the Philippines,” (3) closing of the transaction “could violate a status quo ante order issued by the Philippine Supreme Court,” and (4) the SPAC engaged in “conduct that should not be rewarded with a decree of specific performance.”

The court emphasized that despite its ruling on the unavailability of specific performance, the SPAC may still be able to recover damages. A follow-up trial will determine if the SPAC will be entitled to damages, assuming it proves breach, the defendants fail to establish their affirmative defenses, and the SPAC properly supports a sum of causally related damages.