at *13. The court also questioned the plaintiffs’ reliance on an unpublished federal district court decision from a non-binding jurisdiction. at *12. As it had done with cases addressing stock acquisitions, the court did not find the cases involving forward triangular mergers to be dispositive. at *12-13. The plaintiffs, relying on forward triangular mergers, argued that any merger would constitute an assignment by operation of law. Id.Ĭonversely, the court explained that it may still rule against the plaintiffs on the merits at a later stage in the proceedings. Id. Specifically, the court relied on the plaintiffs’ allegation that, following the reverse triangular merger, the defendants laid-off 200 employees, closed the Company’s facility, and informed customers that the Company’s product lines were being discontinued. at *12. The court emphasized that the acquisition in question involved more than a mere change in ownership. Id. However, the court did not find the stock acquisition cases controlling and declined to hold that a reverse triangular merger does not lead to an assignment as a matter of law. at *11-12. The court acknowledged the case law holding that a stock acquisition without more does not result in an assignment. The court rejected the defendants’ argument that a reverse triangular merger was the equivalent of a stock acquisition. Id. The court, thus, went on to discuss whether a reverse triangular merger could give rise to an assignment by operation of law or otherwise. Id. Rather, it seized upon the language in the provision prohibiting an assignment “by operation of law or otherwise” without prior written consent. at *10. The court, however, did not view that fact as dispositive. The court agreed that the anti-assignment provision on its face addressed only assignments and did not speak to change in control. at *5 (emphasis added). The defendants moved to dismiss this count, arguing that a change in control through a reverse triangular merger does not lead to an assignment by operation of law or otherwise. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. 8, 2011) (unpublished decision). The Anti-Assignment provision at issue resembled many of the provisions we encounter and analyze during our due diligence: 44731, 44826, 97-1 BCA ¶ 28,835 (holding, among other things, that reverse triangular mergers are stock purchase transactions where the acquired corporations retain their separate corporate existence and in which the acquired company’s contracts are in most cases unaffected).Ī recent Delaware Chancery Court decision, however, in a ruling on a motion to dismiss, threatened to turn this run-of-the-mill issue on its head in the context of a reverse subsidiary merger. In Meso Scale, the court was confronted, in pertinent part, with the question of whether the defendants breached a contract’s anti-assignment provision by failing to obtain prior written consent in connection with a reverse triangular merger. The traditionally prevalent view even finds support under federal case law in the context of government contractors. See Appeals of Newport News Shipbuilding & Dry Dock Co., ASBCA Nos. In both cases, the separate corporate identity of the target company is preserved, and the parties generally avoid the need to obtain Government consent to novate government contracts held by the target company. A government contracts due diligence encompasses a broad range of statutory, regulatory, and contractual issues. One issue that we always consider is compliance with the Anti-Assignment Act (the “Act”), which prohibits the transfer of a government contract to a third-party. While the Act does not strictly apply to subcontracts, we nevertheless must review them, as well as other agreements (such as teaming agreements), for contractual anti-assignment provisions. This review was facilitated in the past by the widely held view among practitioners that a stock purchase or reverse triangular merger, without more, does not generally result in an assignment and therefore does not require the counterparty’s consent. This is particularly relevant since most sales and purchases of government contractors are structured as stock purchases or reverse triangular mergers ( i.e., an acquisition structure in which a subsidiary of the buyer merges into the target company and the target company becomes a wholly-owned subsidiary of the buyer once the merger is consummated).

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