Contractual Remedies in Mergers: Lessons from Crispo v. Musk

The Delaware Chancery Court recently restricted a merger target's ability to recover damages on behalf of its shareholders from a breaching buyer. This paper investigates the impact of the decision. First, we present a theoretical analysis to generate empirical predictions. Second, we show that the decision led to a decrease in the firm value of targets in mergers governed by Delaware law. Third, we hand-collect relevant provisions from merger agreements and find that the agreements governed by Delaware law increasingly include target-friendly non-price terms after the decision. We also present evidence suggesting deal price responds to the inclusion of novel non-price terms. Overall, the paper demonstrates how remedy provisions play an important role in merger transactions and how contracting parties respond to an exogenous change in deals jurisprudence.