In Vintage Rodeo Parent, LLC v. Rent-A-Center, Inc., the Delaware Court of Chancery determined that Rent-A-Center, Inc. ("Rent-A-Center") properly ended its merger agreement with Vintage Capital Management LLC ("Vintage") after Vintage neglected to submit a notice to extend the drop-dead date for its pending $1.37 billion buyout of Rent-A-Center. The Court interpreted the language of the merger agreement strictly and allowed Rent-A-Center to terminate the merger unilaterally.

As described more fully in a Cadwalader memorandum, in concluding that Rent-A-Center's termination was valid and effective, the Court rejected Vintage's arguments that (i) Rent-A-Center's failure to provide written notice to extend the end date was obviated by the parties' conduct, (ii) Rent-A-Center breached its obligation to use commercially reasonable efforts to terminate the transaction by failing to remind Vintage of its obligation to submit an extension notice and (iii) Rent-A-Center fraudulently induced Vintage to believe that Rent-A-Center still wanted to consummate the merger.

Cadwalader attorneys noted several key takeaways for Mergers & Acquisitions practitioners and litigators regarding how the Court will interpret contractual agreements between merger parties, saying that:

  • the Court will not second-guess unambiguous drafting;
  • commercially reasonable efforts do not mandate reminding a counterparty of its contractual rights;
  • counterparties have no duty to warn of an impending termination;
  • Rent-A-Center's right to terminate was not limited by the implied covenant of good faith and fair dealing; and
  • the Court left open the possibility that the breakup fee may be payable based on the implied covenant of good faith and fair dealing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.