Merger Remedies Unbound

Summary

This piece, based on a forthcoming paper by Dhruv Aggarwal, Albert H. Choi, and Geeyoung Min, examines a recent shift in Delaware merger law that dramatically expands parties’ freedom to contractually set remedies in merger agreements. The catalyst was the Chancery Court’s decision in Crispo v. Musk, which applied contract law’s anti-penalty doctrine to bar enforcement of a “lost premium” provision. Delaware’s legislature then amended the corporate code to permit lost-premium recovery when the agreement so provides, signalling broader deference to negotiated remedies. At the same time, Delaware courts have become more willing to enforce specific performance clauses as written.

The authors argue that these developments create an environment of near-unchecked contractarianism that may conflict with core contract and corporate-law limits. The amendment risks permitting punitive reverse termination fees and produces a bifurcated regime where the anti-penalty doctrine applies differently depending on whether a fee was triggered by a breach. This unpredictability can increase litigation and produce economically inefficient outcomes: buyers may be over-committed, managers can lock in deals for private benefit, and third parties — including regulators and competing bidders — can be harmed. The paper recommends legislative clarification to restore traditional limits, judicial preservation of discretion over specific performance, and rejection of excessive reverse fees tied to regulatory outcomes.

Key Points

Delaware amended its corporate code after Crispo v. Musk to allow enforcement of “lost premium” provisions when included in merger agreements.
Delaware courts have increasingly enforced negotiated specific performance clauses in mergers, signalling greater deference to private ordering.
The statutory change risks shielding liquidated-damages clauses from anti-penalty scrutiny, potentially permitting punitive reverse termination fees.
The law now appears “bifurcated”: anti-penalty analysis may depend on whether a termination fee was triggered by a breach, increasing uncertainty for deal planners.
Unchecked contractarianism can produce inefficient outcomes: buyers may over-commit, managers can entrench self-interested deals, and third-party bidders may be deterred.
Large reverse termination fees tied to regulatory approval can prompt buyers to challenge regulators aggressively, risking more anticompetitive mergers.
The authors urge clarifying legislation to harmonise merger remedies with traditional contract and corporate-law limits and recommend courts retain discretion on specific performance.
Practical consequence: greater litigation risk over whether a “breach” occurred and whether the statutory exemption applies to a given termination fee.

Why should I read this?

Because if you do M&A deals, advise on them, or track competition policy, this directly affects the rules you must live with. The authors have read the fine print so you don’t have to — and they show why the new rules could make deals riskier, more litigious and, yes, more expensive. Short version: the law just gave parties more power to write their own remedies — and that can bite back.

Context and relevance

This article matters for transactional lawyers, corporate boards, investors and regulators. Delaware’s shift towards contractarian enforcement alters the predictability of remedies in merger agreements, a core element of deal structuring. The change interacts with broader trends: increased use of reverse termination fees, intensified antitrust scrutiny of large deals, and persistent agency conflicts between managers and shareholders. The piece links legal doctrine to economic effects — showing how permissive remedies can distort incentives and harm third parties, including competition authorities and consumers.