Delaware Court Refuses to Hold that a Reverse Triangular Merger Does Not Violate Anti-Assignment Clause

Summary: In a recent case, Meso Scale Diagnostics, LLC and Meso Scale Technologies, LLC v. Roche Diagnostics GmbH et al., decided on April 8, 2011, the Delaware Chancery Court considered whether an anti-assignment clause applicable to intellectual property rights of an acquisition target would be triggered by a reverse triangular merger. A “reverse triangular” merger is an acquisition structure in which the acquirer forms a shell subsidiary and merges it into the target company, with the result that the target survives and becomes a wholly owned subsidiary of the acquirer.

In the absence of definitive case law, practitioners have generally considered this type of merger not to trigger anti-assignment clauses. In this case, the Court refused to find that a reverse triangular does not constitute an assignment, thereby allowing that a reverse triangular merger may constitute an assignment.

The attached Client Alert reviews the ruling and discusses the need for extreme caution when analyzing anti-assignment clauses in connection with a proposed merger transaction, especially in the context of licenses and other agreements governing intellectual property rights.