In Desktop Metal, Inc. v. Nano Dimension Ltd., C.A. No. 2024-1303-KSJM, the Court of Chancery ordered an acquiring company to close on a merger of a target company within 48 hours. Focusing on the target company’s goal to quickly close on a merger, as memorialized in “hell-or-high water” and reasonable best efforts provisions in the merger agreement, the court championed its decision as “yet another victory for deal certainty” under Delaware law.
The merger agreement at issue involved two 3D printing companies. The target was a Delaware corporation (Desktop) that supplied military products to the U.S. government while the acquirer (Nano) was a foreign company. The merger therefore required approval by the Committee for Foreign Investment in the United States (CFIUS).
Desktop prioritized closing on the merger quickly as it was running out of cash and negotiated for a “hell-or-high water” provision requiring Nano to take all actions necessary to obtain CFIUS approval, subject to one exception: Nano could refuse to give the U.S. government control over 10 percent or more of Desktop’s business revenue. Nano also agreed to several mitigation provisions that limited the exception. Nano further agreed to use reasonable best efforts to close on the merger as soon as reasonably possible. The merger agreement also authorized Nano to avoid closing on the merger if Desktop filed a bankruptcy proceeding.
CFIUS required a national security agreement before approving the merger, which Desktop promptly signed. Desktop further suggested to CFIUS that it risked becoming insolvent if the merger with Nano was not finalized soon. After the Nano board approved the Desktop merger agreement, but before Nano signed the CFIUS-required national security agreement, Nano’s second largest stockholder (Murchinson) launched a proxy contest and vowed to unwind the Desktop deal if its slate of directors were elected. Murchinsn successfully replaced the entire Nano board with its preferred slate, and the new Nano board preferred to wait for Desktop to go bankruptcy and then purchase it at a lower price than had been negotiated in the merger agreement. The new Nano board accordingly refused to sign the CFIUS national security agreement, sending it back with repeatedly with different
In late 2024, Murchinson Ltd. (Murchinson), Nano’s second-largest stockholder, launched a proxy contest in protest of the Desktop-Nano merger. Murchinson was able to replace all 10 seats on Nano’s board of directors. Nano’s newly constituted board preferred to wait until Desktop went bankrupt and then buy it out at a much lower price than had been negotiated in the merger agreement, but the board faced a dilemma: Nano had already contractually agreed to merge with Desktop. The new Nano board refused to sign CFIUS’s national security agreement, sending it back repeatedly with different objections and edits.
Desktop sued Nano in the Court of Chancery, alleging that Nano had breached the hell-or-high water provision. Nano denied Desktop’s allegations and claimed that it was not obliged to close on the merger because Desktop had breached a variety of clauses in the merger agreement, most importantly the no-bankruptcy clause.
The Court of Chancery determined after an expedited trial that Nano had breached the hell-or-high water provision by failing to take all action necessary to obtain CFIUS approval of the merger, which was the only condition left to close on the transaction. Conversely, the Court of Chancery held that Desktop had not beached any provision of the merger agreement, including the no-bankruptcy provision of the merger agreement because Desktop, while appearing to be insolvent, had not yet officially filed a bankruptcy proceeding, which is what the provision required. The Court of Chancery accordingly granted an award of specific performance ordering Nano to sign CFIUS’s national security agreement within 48 hours and to perform its contractual obligations to close the Desktop-Nano merger deal.
The Court of Chancery championed the Desktop Metal v. Nano decision as “yet another victory for deal certainty” in light of the negotiated hell-or-high water provision as well as the provision requiring reasonable best efforts to close on the merger. The case is also a reminder that Delaware courts will enforce contractual provisions where necessary, especially when negotiated between highly sophisticated parties. Additionally, the Desktop Metal v. Nano case highlights the speed and flexibility of the Court of Chancery for certain M&A disputes. In what the court described as a “herculean” effort, the entire case, inclusive of the 48-hour period to sign the national security agreement, was completed in 100 days, and included a trial record comprised of 2,620 trial exhibits, live testimony from 11 witnesses, and deposition testimony from 20 witnesses.
*Catherine Tamarelli, a summer associate at McCarter not yet admitted to the bar, contributed to this alert.