## Facts

- Akorn, Inc., a generic pharmaceutical manufacturer, agreed to be acquired by Fresenius Kabi AG and related entities for $34 per share (approximately $4.75 billion).
- The merger agreement conditioned closing on, among other things: (1) no “Material Adverse Effect” (MAE) on Akorn (General MAE Condition); (2) accuracy of Akorn’s representations except where inaccuracies would not reasonably be expected to result in an MAE (Reps MAE Condition); and (3) Akorn’s use of commercially reasonable efforts to operate in the ordinary course consistent with past practice between signing and closing (Ordinary Course Covenant).
- After signing, Akorn’s business performance declined sharply over multiple quarters, including an 86% drop in EBITDA, with continuing negative projections.
- Fresenius received whistleblower allegations of serious quality-control and data-integrity problems affecting FDA-regulated activities at Akorn.
- Fresenius investigated using contractual access rights and concluded that Akorn had pervasive data-integrity and compliance failures affecting regulatory submissions and quality systems.
- Fresenius terminated the merger agreement by notice, citing failure of closing conditions and Akorn’s breaches of representations and covenants.
- Akorn sued for specific performance to compel closing; Fresenius counterclaimed for declaratory relief that termination was valid.

## Issues

1. Whether Akorn experienced a durationally significant, company-specific MAE that excused Fresenius from closing under the General MAE Condition.
2. Whether Akorn’s regulatory and data-integrity representations were inaccurate at signing and closing, and whether the resulting exposure was reasonably expected to constitute an MAE under the Reps MAE Condition.
3. Whether Akorn materially breached the Ordinary Course Covenant by failing to operate consistent with past practice between signing and closing.
4. Whether Fresenius materially breached its own contractual obligations such that it was barred from terminating the agreement.

## Decision

- The court held Fresenius validly terminated the merger agreement and had no obligation to close.
- Akorn’s request for specific performance was denied; judgment was entered for Fresenius on its counterclaims.
- The court found Akorn suffered a General MAE based on a sustained, company-specific collapse in financial performance.
- The court found Akorn’s regulatory representations were inaccurate and the resulting expected consequences were reasonably likely to rise to an MAE, causing the Reps MAE Condition to fail.
- The court found Akorn materially breached the Ordinary Course Covenant by deviating from operations consistent with past practice.
- The court rejected claims that Fresenius’s conduct (including its investigation and closing efforts) constituted a material breach barring termination.

## Legal Principles

- An MAE under Delaware merger agreements requires a durationally significant adverse change that is material to a reasonable acquirer’s long-term view; short-term earnings volatility is insufficient.
- Where a merger agreement allocates firm-specific “business risk” to the target through an MAE definition and carve-outs, sustained target-specific deterioration can satisfy an MAE closing condition.
- Representation accuracy conditions that are qualified by an MAE standard permit termination when inaccuracies, assessed prospectively, are reasonably expected to produce MAE-level consequences.
- Ordinary-course covenants requiring operation “consistent with past practice” can be independent and enforceable closing conditions; material deviations may justify termination even apart from an MAE finding.
- A buyer invoking termination rights must not be in material breach of its own performance and efforts obligations; good-faith investigation and contract-based decisionmaking are consistent with enforcing negotiated risk allocation.

## Conclusion

The court refused to compel closing because Akorn’s sustained financial collapse, pervasive regulatory and data-integrity failures, and material departures from ordinary-course operations caused multiple closing conditions to fail, and Fresenius was not shown to have materially breached its own obligations.


Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. 2018)