Assignment provisions are included in many contracts, and they are an important area of review during a merger or acquisition of a company. Such provisions may prohibit assignment of a contract to a new party (i.e., the acquiror) without the consent of the other contacting party, and assignment without consent could result in a breach of the contract or a springing right to a designated party. However, in Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, 2013 WL 655021 (Del. Ch. Feb. 22, 2013), Vice Chancellor Parsons of the Delaware Court of Chancery held that a reverse triangular merger did not constitute an assignment by operation of law or result in such a breach or springing right.
In Meso, Roche, the defendant, had contracted in 2003 for a non-exclusive license to patented technology. The patent holder transferred its intellectual property rights to BioVeris Corporation (“BioVeris") in connection with that transaction. Roche later acquired BioVeris in 2007 through a reverse triangular merger, which resulted in BioVeris remaining as the surviving entity. The plaintiffs, who were involved in the 2003 transaction, sued Roche claiming that the merger breached a global consent provision preventing assignment of the intellectual property rights transferred to BioVeris, by operation of law, without their consent.
In finding for the defendants, the Court reasoned that there is no assignment when the entity that originally owned the assets is the surviving entity in the merger and continues to own the assets after the merger. The Court also noted that, under Section 259 of the Delaware General Corporation Law (the “DGCL”), only the non-surviving corporation’s rights and obligations are transferred by operation of law. Lastly, the Court stated that similar laws should reflect similar results, pointing out that reverse triangular mergers are similar to stock acquisitions, which also involve changes in legal ownership but do not trigger assignment provisions. Thus, where the DGCL governs the transaction, potential acquirors in a reverse triangular merger may not need to worry about obtaining consent due to assignment provisions in agreements of the surviving corporation, provided such contain no “change of control or ownership” language to the contrary.