Realogy Appeals Bid to Close SIRVA Deal Disrupted by Pandemic

Realogy Holdings Corp. wants Delaware’s top court to revive part of its Chancery Court lawsuit over a $400 million business unit sale that Madison Dearborn Partners LLC affiliate SIRVA Worldwide Inc. backed out of over the Covid-19 pandemic.

The real estate brokerage asked the state Supreme Court to reinstate its claim for “specific performance” of the transaction—an order forcing SIRVA to close on it—after Vice Chancellor Morgan T. Zurn threw out that portion of the case July 17. The ruling didn’t affect Realogy’s bid for deal termination fees.

The case is part of a wave of suits asking courts to keep mergers on track as acquirers balking at coronavirus risks scramble mergers worldwide. Most of those disputes are being heard in Delaware Chancery Court.

Some of the similar cases involve a $5.8 billion hotel deal; the purchase of Victoria’s Secret; a business unit sale from Bed Bath & Beyond to 1-800-Flowers; a CMX Cinemas merger; a franchise buyout by CorePower Yoga; and private equity transactions over a cybersecurity company and the world’s top cake decorations wholesaler.

Material Adverse Event

Realogy’s suit concerns its subsidiary Cartus Corp., which, like SIRVA, provides moving and relocation services.

It accuses SIRVA of trying to renege over “buyer’s remorse” related to the coronavirus. The deal’s “material adverse event” (MAE) clause “squarely allocated the risk” of an “act of god” to SIRVA unless it disproportionately affects Cartus, but all moving companies have felt the pain, including SIRVA, the suit says.

SIRVA and its private equity backers at Madison Dearborn countered by claiming Realogy hid “the devastating impact” of Covid-19 on Cartus—first by dragging its feet when they pressed for more information, then by making misleading disclosures on the eve of closing. The pandemic’s effect on Cartus makes it an MAE justifying cancellation, they said.

Those arguments echo the issues being raised in the other similar suits, which will likely hinge in part on the specifics of each deal’s MAE clause, including whether it excludes the pandemic and whether the reneging party can show the transaction has been disproportionately affected by it.

Targeting Madison Dearborn

Madison Dearborn also argued Realogy breached their contract by targeting it directly solely to embarrass it, instead of confining its legal claims to SIRVA.

The plaintiffs in other similar cases have gone out of their way to stress that they aren’t naming a deal’s private equity sponsors as defendants, according to Madison Dearborn. But Realogy deliberately conflated all the SIRVA parties in court filings and a press release, knowing it would lead to headlines stressing the investment firm’s role, it said.

That argument won over Zurn. The judge agreed that by suing Madison Dearborn itself, Realogy triggered a contract clause allowing the firm to pull its equity financing, which in turn terminated the debt financing as well.

Although that ruling didn’t conclude the entire case, the Delaware Supreme Court should review and reverse it, Realogy said in a filing docketed Wednesday.

SIRVA and Madison Dearborn are represented by Morris, Nichols, Arsht & Tunnell LLP and Kirkland & Ellis LLP. Realogy is represented by Skadden, Arps, Slate, Meagher & Flom LLP.

The case is Realogy Holdings Corp. v. SIRVA Worldwide Inc., Del. Ch., No. 2020-0311, notice of appeal filed 7/29/20.