COVID-19 ruling changes the merger math

Several merger agreements collapsed earlier this year, with acquirers arguing that COVID-19 had rendered the original deal terms moot. Target companies claimed it was little more than buyer's remorse — there were suits and countersuits.

Driving the news: One of the larger disputes, between Mirae Asset Global Investments and Anbang Insurance Group, was decided last week by a Delaware judge in favor of the buyer. And his rationale could have wide-ranging implications.

The state of play: South Korea-based Mirae in 2019 agreed to pay $5.8 billion to purchase 15 U.S. luxury hotels from China's Anbang, with plans to close the transaction in early 2020.

• Anbang sued Mirae in April for failing to complete the deal. Mirae at the time said it still wanted to close, despite difficulties in obtaining financing, but that Anbang hadn't met closing conditions. One month later, Mirae countersued.

The latest: Judge Travis Laster did not find that the pandemic triggered a material adverse clause in the merger agreement, instead saying that COVID-19 was covered by the MAE's exemption for calamities or natural disasters.

Yes, but: Laster wrote that many of Anbang's actions prompted by the pandemic, such as partial hotel closures and employee layoffs, violated Delaware rules that a target company maintain "ordinary course of business."

• More specifically, Laster said it didn't matter if Anbang's changes were in line with those of hospitality industry peers. All that mattered was that they weren't consistent with Anbang's own "ordinary course of business."

• Mirae not only got to walk away from the deal without penalty, but also gets back a $582 million deposit, plus interest.

The bottom line: Laster's ruling might have obliterated the value of MAE clause language, and provided a bonanza to buyside lawyers. It also could create perverse incentives to target companies in the midst of macro crisis, suggesting that it's more expedient to hemorrhage money than to alter operations.