The Delaware Court of Chancery’s recent decision in Verisk Analytics, Inc. v. ExactLogix, Inc. d/b/a AccuLynx.com sheds light on how the Delaware courts will interpret contractual language, balance equities and grant specific performance. The outcome of this case should move the specific performance provision out of the merger agreement’s “boilerplate” section and into the boardroom.
Vice Chancellor Bonnie W. David held that Verisk could not terminate its $2.35 billion agreement to acquire AccuLynx after a Federal Trade Commission (FTC) second request pushed the transaction beyond its outside date. The court determined that, under the language of the negotiated contract, Verisk’s willful conduct was the primary cause of the delay in obtaining antitrust approval and, as such, ruled that Verisk’s termination was not valid, and ordered Verisk to continue using commercially reasonable efforts to obtain Hart-Scott-Rodino (HSR) Act clearance and close the transaction if the FTC approves it.
The striking part is what the court did not find. This was not a classic buyer’s-remorse case where the purported termination was a way to get out of a deal that the buyer regretted post-signing. The court found virtually no evidence that Verisk intended to scuttle the acquisition. Verisk met with the FTC nearly 30 times, hired experienced advisers and lobbyists, and spent almost $8 million responding to the agency.
Verisk lost anyway. Under the language the parties negotiated in the merger agreement, an intentional business decision terminating negotiation of an enhanced integration with a competitor of AccuLynx, was enough to eliminate Verisk’s right to validly terminate the merger agreement if that decision was the “primary cause” of the failed closing condition. This was so, even if that decision was not made in bad faith, not an action constituting a breach of the agreement and not undertaken as a deliberate effort to kill the deal.
For boards and CEOs, that makes Verisk more important than another bad-buyer morality tale. It shows that ordinary post-signing conduct can have extraordinary contractual consequences. A key question that board members should ask their counsel before signing is now: “If the transaction encounters obstacles to closing, what are each party’s continuing performance obligations?” Well-seasoned outside counsel should be able to give precise rationale for each provision’s language and how they interrelate and ensure that the rules of the road between signing and closing are communicated all the way down the chain.
Background
Verisk’s business, providing software and data analytics products to participants in the insurance industry, includes “integrating” software with customers to support insurance claims estimation.[1] Before signing the AccuLynx merger agreement, Verisk had been discussing a bespoke “enhanced integration” with an AccuLynx competitor that would have provided it with pricing functionality beyond Verisk’s standard offering. When Verisk agreed to acquire AccuLynx, it decided to discontinue the enhanced-integration discussions and offer the AccuLynx competitor only its standard integration. Six days after the transaction was announced, a Verisk employee emailed that decision, expressly tying the change in direction to the AccuLynx deal. This email – the court defines it as the “August 5 Termination Email” – became the lightning rod for the court’s analysis.[2]
The competitor told the FTC. That prompted the agency to develop what the court called a novel “market reset” theory: After the acquisition, Verisk might give AccuLynx a more sophisticated integration while withholding comparable functionality from AccuLynx’s competitors. Due to a string of subsequent miscommunications, the August 5 Termination Email was ultimately disclosed too late to stop the FTC from issuing a second request.[3] Once the second request was issued and the outside date passed, Verisk attempted to terminate the merger agreement.
The merger agreement did not allow a party to terminate the agreement if its failure to perform its obligations – or its “other willful conduct” – was the “primary cause” of a failed closing condition. The court concluded that Verisk’s decision to end talks with a competitor of AccuLynx on an enhanced integration fit that language.
The court’s analysis
‘Willful conduct’ did not mean ‘willful breach’
The agreement used both formulations. It separately defined a knowing and willful breach as conduct undertaken with the intent to cause a breach, but left “willful conduct” undefined. Giving the different words different meanings, the court held that “willful conduct” required only voluntary and intentional action – not wrongdoing, malice or an intent to violate the agreement.
That distinction proved decisive. Verisk intentionally changed the “enhanced” integration plan with an AccuLynx competitor, even though it did not intend to create an antitrust issue, breach the merger agreement or delay closing. The decision remained willful because it was voluntary rather than accidental.
Merger agreement imposed a demanding causation test; AccuLynx met it
The court contrasted the contract’s “primary cause” language with the common-law prevention doctrine. The latter generally provides that a party cannot rely on the failure of a condition when such party wrongfully caused the non-occurrence of such condition; this standard language was used elsewhere in the termination provision. The agreement raised the causation bar by requiring Verisk’s conduct to be the primary cause of the condition’s failure.
The evidence nonetheless showed that the August 5 email gave the FTC tangible support for a theory that otherwise was unusual and largely theoretical. Verisk’s misunderstanding of the FTC’s questions regarding the change of course with the enhanced integration compounded the FTC’s misgivings regarding Verisk’s intentions. The court therefore found that, more likely than not, the email was the primary cause of the second request and the resulting failure of the HSR condition by the outside date.
Result did not depend on finding a breach of the efforts covenant
AccuLynx separately argued that Verisk had breached its commercially reasonable efforts obligations by mishandling the FTC process. The court described that theory as “an awkward fit,” noting that it failed to see how Verisk could have done better in fulfilling its obligations: Despite the misunderstanding regarding the August 5 email, Verisk “met with the FTC nearly 30 times during the [m]erger review process and spent $6 million on outside counsel, plus nearly $2 million in document vendor fees.” The termination right was unavailable because of the broader “willful conduct” provision, not because Verisk had intentionally or materially breached its regulatory efforts covenant.
Specific performance was available and equitable because the parties bargained for it
The merger agreement stated that a breach would cause irreparable harm, authorized specific performance and barred the parties from objecting to the availability of that remedy. Although such language does not eliminate the court’s equitable discretion, Delaware courts give it substantial weight.
Verisk argued that granting specific performance of a covenant, specifically supervising an ongoing FTC process, would be too complicated. The court rejected that argument, pointing to earlier decisions enforcing financing, regulatory and other efforts obligations. Given that Verisk could not exercise a valid termination right, it ordered Verisk to continue seeking HSR clearance and close if the FTC approves the transaction. It also awarded AccuLynx $3.85 million in direct costs.
From IBP to Verisk: Specific performance becomes a key deal term
Specific performance remains an equitable remedy, not an automatic contractual entitlement. A party seeking it must establish an enforceable contract, its readiness and ability to perform and equities favoring enforcement. But the direction of Delaware law is clear: When sophisticated parties expressly agree that specific performance is available, a party resisting that bargain needs a persuasive, case-specific reason.
IBP established the modern starting point
In 2001, the court ordered Tyson Foods to complete its acquisition of IBP. The court reasoned that the combined enterprise had a value that was difficult to quantify, and that money damages could not readily replicate the unique business combination. The case established mergers as a paradigmatic setting for specific performance because the unique nature of business combinations can make monetary damages inadequate.
United Rentals showed that drafting still controls
In 2007, the court declined to order specific performance where the merger agreement’s provisions conflicted and the parties lacked a shared understanding that the remedy was available. The lesson was straightforward: Delaware will enforce the agreement the parties actually negotiated, not the remedy one side later wishes it had negotiated.
Hexion expanded focus from a requirement to close a merger to the steps required to get there
The court enforced the buyer’s financing and other merger covenants even though the agreement did not permit the court to compel the closing itself under the circumstances presented. That demonstrated that specific performance can reach the deal mechanics – financing efforts, cooperation obligations and other covenants – not just the final exchange of consideration.
Channel Medsystems, Snow Phipps and Desktop Metal reinforced that approach
Channel Medsystems emphasized the importance of contractual acknowledgements of irreparable harm; Snow Phipps enforced an obligation to use reasonable best efforts to obtain alternative financing; and Desktop Metal ordered specific performance of “reasonable best efforts” obligations directed at consummating a merger.
The Musk-Twitter dispute showed the remedy’s leverage without producing a merits decision
Despite a major effort to terminate the merger agreement with Twitter, two weeks before trial, Elon Musk reversed course and offered to complete his $44 billion acquisition of Twitter at the original price – effectively settling the dispute on the specific performance terms Twitter was seeking. Contemporary legal commentary described Musk’s termination case as weak and an uphill battle, with a forced closing a live risk for him as a buyer. The dispute therefore generated no final Delaware ruling on the merits, but it delivered a very public demonstration of how the credible threat of specific performance can determine settlement behavior.
Krafton showed how far tailored relief can reach
The headlines focused on the buyer CEO’s AI chatbot‑assisted strategy to take control of the acquired video-game studio and avoid a potential $250 million earnout. But the remedy was more consequential. After finding that Krafton wrongfully terminated key employees and seized operational control, the court reinstated the seller-side CEO, restored his authority over the launch of the video game subject to the earnout, and prevented Krafton from using its subsidiary board to circumvent the parties’ agreement. The court also extended the earnout period by 258 days – the length of the CEO’s wrongful ouster – so that the specific-performance remedy would not be illusory.
Verisk expressly relied on Krafton for the proposition that Delaware will respect a negotiated specific performance provision absent a persuasive, case-specific reason not to. Together, the cases demonstrate that equity is not limited to a binary order to “close the deal.” It can require regulatory efforts, restore operational authority, neutralize board action, extend contractual deadlines and compensate for delay.
The contrast between the two cases is also important. Krafton involved findings of pretext and a concerted attempt to escape a contractual bargain. Verisk did not. The same strong enforcement principle applied to both.
Practical takeaways for boards and deal teams
Drafting points for deal teams to avoid the pitfalls of Verisk:
- Define mental state language deliberately. “Willful conduct,” “willful breach,” “knowing breach” and “intentional breach” are not interchangeable decorations. In Verisk, using different formulations in the same termination section caused the court to assign them different standards. A party that intends termination to be blocked only by deliberate contractual misconduct should say that clearly. Conversely, a seller seeking maximum deal certainty may want a broader conduct-based blocker.
- Negotiate the causation standard with the same care. “Prevented,” “materially contributed,” “primarily resulted in” and “primary cause” can produce different burdens. Verisk paired a relatively low mental state threshold with a relatively high causation threshold. The buyer cleared the first hurdle for the seller simply by acting voluntarily; the factual record cleared the second by tying a throughline from one communication by Verisk directly to the FTC’s subsequent investigation.
What boards and management teams should focus on to avoid pitfalls:
- Treat the specific performance provision as a negotiated allocation of business risk. At signing, the board should understand exactly when the counterparty can force continued performance or closing, whether financing or regulatory conditions limit the remedy, and how the clause interacts with termination and damages. It is not enough to know the size of the termination fees under the agreement.
- Put post-signing commercial decisions through deal governance. Decisions involving competitors, major customers, suppliers, pricing, distribution, interoperability, data access or product integration can alter the regulatory story. A business unit may view a change as routine, or even beneficial, while a regulator views it as evidence of post-closing incentives. Material changes touching the competitive landscape should receive M&A and antitrust review before implementation.
Boards and deal members should understand the regulatory and potential litigation risks up front:
- Undertake a robust regulatory analysis up front and identify risk areas. While there was not a horizontal or “vertical” relationship between Verisk and AccuLynx, the parties should have undertaken a robust analysis to determine if there were any risk factors that could cause antitrust scrutiny. Business teams should also consult with counsel before taking actions during the pendency of a deal that could cause concerns with competitors, customers or other industry players.
- Do not treat the outside date as a mechanical exit. Before approving a termination notice, the board should review the transaction, covenant compliance, and the record a regulator or court might scrutinize. The “date passed” is the beginning of the analysis, not the end.
- Expect equity to reconstruct the bargain. Verisk required continued regulatory efforts, a later closing if approved and reimbursement of direct costs with interest. Krafton restored the seller’s management authority and reset an earnout clock. A party evaluating whether to resist performance should account for the possibility that Delaware will do more than award damages – it may put the parties as close as possible to the position they would have occupied had the contract been performed.
Delaware still describes specific performance as discretionary. For practical boardroom purposes, however, well-drafted termination and specific performance clauses should be a focus of board inquiry. The key question is whether and when the agreement permits a party to walk away and what conduct forecloses that possibility.
Contributors
[1] The authors have read other articles about this case that simply note that Verisk terminated “enhanced integration” with the AccuLynx competitor, a term of art that may have led the reader to believe that the competitor was a prior acquisition target of Verisk’s. In fact, the relationship between the two parties was a commercial supplier-customer relationship, not acquisition-related.
[2] The email—sent by a VP of products, who had conferred with, among others, Verisk’s head of corporate development and strategy—stated in full: “Now that the [AccuLynx] acquisition has been announced publicly, more information has been coming to [another colleague] and me. Considering this new information, we will not be able to continue down the path of placing [Verisk’s] Xactimate’s pricing data directly into [your] estimating solution.”
[3] The court spills a lot of ink regarding Verisk’s responses to its questions: The FTC repeatedly asked Verisk whether it had rejected or discontinued an enhanced integration with an AccuLynx competitor. Verisk repeatedly failed to identify the August 5 Termination Email, even though the FTC already knew about it and had a copy of the email. Outside counsel eventually located and disclosed the relevant emails, but by that point, the FTC had misgivings about the merger and ultimately issued its second request. The court did not find these miscommunications by Verisk to be intentional or in bad faith; it notes that Verisk simply did not consider the August 5 Termination Email to be responsive to the FTC’s queries. As an aside, this anecdote emphasizes the importance of a thorough, top-to-bottom approach when preparing for an antitrust review process, even though it may seem excessive for the particular deal’s facts.
