In 2014, Cigna v. Audax[1] raised at least two very important post-closing issues for M&A deals: (1) how to bind shareholders to post-merger obligations[2] and (2) enforceability of provisions in a letter of transmittal (LOT). To better understand what effects the latter has had on the M&A market, SRS Acquiom analyzed over 40 merger agreements from the first half of 2019 to determine how deal parties are utilizing LOTs subject to Delaware law post-Cigna. Cigna left a number of questions regarding how best to bind shareholders to obligations important to the buyer and what options merger parties may have with respect to shareholders that assert that they are entitled to their merger agreement without having to agree to any such obligations.

This article examines how frequently LOTs go beyond the basics and include provisions like general releases, withholding of funds such as holdbacks, escrows and expense funds, and dispute resolution terms.  It also looks at whether there might be issues with enforceability of such provisions.  Our analysis revealed that LOTs continue to include significant blocks of text regarding shareholders’ obligations in exchange for the merger consideration; these obligations typically are also included in the provisions of the merger agreement, as would be expected after Cigna, a significant amount of the time but not always.

Topics discussed in this white paper include:

  • M&A Deals: Cigna v. Audax
  • LOT in the Merger Agreement – Drafting Trends
  • General Releases
  • Other Merger Agreement Provisions Often Included in LOTs
  • Is there a Fool-proof Way to Enforce the Provisions of a LOT?
  • Conclusion

[1] Cigna Health and Life Insurance Co. v. Audax Health Solutions, Inc., 107 A.3d 1082 (Del.Ch. 2014).

[2] Understanding Changes in Shareholder Consent Requirements:

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