On February 22, 2013, in its Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH decision, the Delaware Court of Chancery held that a reverse triangular merger is not an assignment by operation of law, meaning that licensor consent is not required for the surviving entity to retain the target company’s rights, benefits and obligations under an existing technology license.
For background, in a prior post, we discussed the impact of common M&A structures, as well as the impact of common anti-assignment provisions, on the assignability of contracts of the target company (in other words, whether or not the target company is required to obtain a third party’s consent to “assign” a contract in a M&A transaction).
The Meso decision is of interest because it is contrary to the position taken by the Northern District of California court in its1991 decision, SQL Solutions, Inc. v. Oracle Corp., which held that a reverse triangular merger constitutes an assignment by operation of law in the context of a technology license. In SQL Solutions, the court held that a legal change in ownership of a business results in a transfer if “it affects the interests of the parties protected by the nonassignability of a contract.” Delaware courts have consistently held that a corporation may engage in a stock purchase transaction without effecting an assignment by operation of law. In its Meso decision, the Delaware court concluded that a reverse triangular merger is not an assignment by operation of law reasoning that “[b]oth stock acquisitions and reverse triangular mergers involve changes in legal ownership, and the law should reflect parallel results.”
Courtesy of John Reed, a partner in DLA Piper’s Delaware office, here is a more detailed summary of the case. The full text of the case is also available here: Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, C.A. No. 5589-VCP (Del. Ch. Feb. 22, 2013).