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Mirae Win Over Dajia in $5.8 Billion Busted-Deal Case Is Upheld

Dec. 8, 2021, 10:10 PM

Mirae Global Asset Investment Co. persuaded Delaware’s top court to uphold its victory Wednesday against a bid by Dajia Insurance Co. to compel closing of their $5.8 billion hotel deal, which Mirae walked away from when the Covid-19 pandemic crippled the hospitality industry in early 2020.

The state supreme court affirmed a ruling by Vice Chancellor J. Travis Laster, who said in a 242-page opinion for Delaware’s Chancery Court last year that Mirae’s choice to scuttle the deal was justified by Dajia’s decision to join the rest of the hotel industry in closing properties and laying off staff.

Chief Justice Collins J. Seitz Jr., writing for the court, agreed with Laster that Dajia’s “drastic changes to its hotel operations"—made without seeking permission from Mirae—breached a clause in the sale agreement requiring the hotels to operate “in the ordinary course of business” through closing.

Dajia claims “it was not required to run the business into the ground by continuing to operate in the ordinary course of business,” but the agreement “anticipated this dilemma” by requiring Mirae’s consent for changes and giving Dajia a remedy if it was “unreasonably withheld,” Seitz wrote.

The ruling closes a major chapter of merger litigation over transactions scuttled by the pandemic, which scrambled business deals worldwide, leading to a wave of lawsuits asking courts to prevent nervous buyers from reneging. Many of those disputes were heard in Delaware Chancery Court.

Most of the cases—including a high-profile fight over LVMH’s deal for Tiffany & Co., which was originally priced at $16.2 billion—concluded with settlements, often reducing the purchase price.

But one ended with a decision forcing Kohlberg & Co. to close on its acquisition of a cake decorations wholesaler, and several smaller cases are ongoing.

In its ruling Wednesday, the Delaware Supreme Court rejected the argument that the “ordinary course” provision required Dajia to operate its hotels consistent with wider industry practices, rather than a pre-pandemic version of “ordinary.”

“There are two problems with this argument,” Seitz wrote. “First, the parties did not choose the actions of industry participants as the yardstick,” and second, the clause “does not have a reasonableness qualifier,” he said.

Nor did the ordinary-course clause serve as an exception that swallowed another provision allocating the risk of a “material adverse effect” to Mirae, the justices found.

“An ordinary course covenant and MAE provision serve different purposes,” Seitz wrote. “Buyers want to know both that the business is operated in the same way and that the business is worth about the same amount.”

Mirae is represented by Abrams & Bayliss LLP, Quinn Emanuel Urquhart & Sullivan LLP, and Peter & Kim Attorneys at Law. Dajia is represented by Richards, Layton & Finger PA; Wachtell, Lipton, Rosen & Katz; and Gibson, Dunn & Crutcher LLP.

The case is AB Stable VIII LLC v. MAPS Hotels & Resorts One LLC, Del., No. 71, 2021, 12/8/21.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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