Home -> Law Blog Directory -> Corporate Governance Blogs -> The Harvard Law School Corporate Governance Blog

Corporate Governance

: The Harvard Law School Corporate Governance Blog

Chancery Declines to Require Specific Performance in a Case of Buyer’s Remorse

By Harvard Law School Program on Corporate Governance

On December 21, 2007, Chancellor William B. Chandler issued his post-trial opinion in United Rentals, Inc. v. RAM Holdings Corp. The suit, which has been closely monitored by members of the M&A bar and the business press, sought specific performance of a merger agreement whereby Cerberus (through wholly-owned subsidiaries known as “RAM”) would have acquired United Rentals (”URI”) for $34.50 per share in cash. As described by the court, “the dispute between URI and Cerberus [was] a good, old fashioned contract case prompted by buyer’s remorse.”

Nearly four months after agreeing to acquire URI on July 22, 2007, RAM sent URI a letter advising that it was not prepared to proceed with the acquisition on the original terms, but was willing to re-negotiate the price or simply pay URI a $100 million “reverse” termination fee to walk away from the deal. The central issue in the case was whether two terms of the merger agreement– section 9.10 (entitled “Specific Performance”) and section 8.2(e) (entitled “Termination, Amendment and Waiver”)–provided URI with the right to seek specific enforcement of the deal, or whether RAM had the ability to walk away from the deal upon payment of the $100 million termination fee.

Section 9.10 expressly invested URI with a right to seek specific performance. However, section 9.10 explicitly states that it is “subject in all respects to section 8.2(e) hereof, which Section shall govern the rights and obligations of the parties . . . under the circumstances provided therein.” Section 8.2(e) describes the $100 million termination fee payable to URI as the “sole and exclusive” remedy against RAM under the merger agreement in the event of a termination; and, critically, further stated that:

In no event, whether or not this Agreement has been terminated pursuant to any provision hereof, shall [RAM or Cerberus] . . . be subjected to any liability in excess of the [termination fee] for any or all losses or damages relating to or arising out of this Agreement or the transactions contemplated by this Agreement, . . . and in no event shall [URI] seek equitable relief or seek to recover any money damages in excess of such amount from [RAM or Cerberus].

URI contended that specific performance under section 9.10 remained a viable remedy despite the language of section 8.2(e), in part because the $100 million termination fee was the “sole and exclusive” remedy only in the event of a “Termination” (as defined in the merger agreement) and not a breach of the agreement. In contrast, RAM argued that because section 9.10 is “subject in all respects to section 8.2(e)”, the terms of section 8.2 control, and effectively nullify any right to specific performance that may have been authorized by section 9.10.

The Court held that the meaning of the provisions was ambiguous, and thus denied a motion for summary judgment filed by URI (calling it a “close call”). The parties proceeded to a two-day trial where extrinsic evidence (including the negotiating history between the parties and their respective advisors) was extensively scrutinized by the Court.

Full post as published by The Harvard Law School Corporate Governance Blog on January 04, 2008 (boomark / email).