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Enhanced Scrutiny Blog What’s Cooking When It Comes to Enforcing Business Conduct Clauses in Earnouts: Shareholder Representative Services LLC v. Albertsons Cos.

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In Shareholder Representative Services LLC v. Albertsons Cos., the Delaware Court of Chancery denied a motion to dismiss claims that a buyer intentionally avoided an earnout payment by misleading the seller about its plans to operate the acquired business after closing.  The case provides additional guidance in the ever-growing body of case-law addressing “business conduct” clauses in earnout agreements.

The dispute arose from a merger agreement (the “Agreement”) pursuant to which Albertsons Companies acquired the internet meal-kit provider, Plated.  Under the terms of the Agreement, Albertsons’ paid the former stockholders of Plated cash consideration of US$175 million, in addition to US$125 million in earnout consideration if Plated achieved certain performance milestones for the three-year period after the transaction.

The Agreement prohibited Albertsons from taking any action with the intent to decrease or avoid an earnout, but it…

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