Cadwalader, Wickersham & Taft LLP
MONTH-IN-BRIEF (Sep 2021)
[lwptoc]
Business Litigation
Target Company’s Decision to Terminate Merger Agreement Extinguished Breach of Contract Claims
By Lakshmi Muthu and Skyler Speed, Young Conaway Stargatt & Taylor, LLP
In Yatra Online, Inc. v. Ebix, Inc., 2021 WL 3855514 (Del. Ch. Aug. 30, 2021), the Court of Chancery determined that under the terms of a merger agreement, plaintiff and target company Yatra Online Inc. (“Yatra”) extinguished its breach of contract claims when it elected to terminate a merger agreement before suing defendant buyer Ebix, Inc. (“Ebix”) for breach.[1]
In July 2019, the parties executed a merger agreement whereby the buyer agreed to acquire Yatra through a stock-for-stock reverse triangular merger. “[E]ach share of Yatra stock would be converted into the right to receive shares of [Ebix’s] convertible preferred stock[.]” 2021 WL 3855514, at *1. With the convertible preferred stock, former Yatra stockholders would receive a put right, which could be exercised 25 months following closing and used to force Ebix “to redeem any unconverted shares of Convertible Preferred Stock for $5.31 per share.” Id. At the time of signing, the convertible preferred stock had not been registered with the Securities and Exchange Commission (SEC); an effective Form S-4 registration statement was one of several closing conditions. Ebix delayed preparing the Form S-4. By late March 2020, shortly before the closing date, Ebix was severely impacted by the COVID-19 pandemic. Ebix sought repeated extensions of the closing date, and Yatra agreed with the hope of closing the merger. Meanwhile, Ebix and its lenders negotiated an amendment to Ebix’s credit agreement, which “essentially would prohibit [Ebix] from issuing the Put Right.” Id. at *5. On June 5, 2020, “Yatra terminated the Merger Agreement and filed [an] action for breach of contract against Ebix.” Id. at *6. As of that date, the Form S-4 had not been declared effective by the SEC, and there was no “hint” as to whether Ebix was prepared to close. Id. Yatra later amended its action to assert that Ebix committed fraud by intentionally delaying the consummation of the merger and that the lenders tortiously interfered with the merger agreement by amending the credit agreement to frustrate the put right. Defendants moved to dismiss Yatra’s action.