Lost-Premium Damages in M&A: Delaware’s New Legal Landscape

Abstract

In the event of a buyer’s willful breach of a merger agreement, lost-premium provisions allow a target corporation to claim damages that include the lost premium or economic entitlements that its stockholders would have received had the deal closed. In the recent Crispo v. Musk decision the Delaware Chancery Court held these provisions to be unenforceable under the anti-penalty doctrine. In this Article we challenge the analysis in Crispo by arguing that lost-premium provisions are doctrinally defensible, economically sensible, and supported by policy considerations. Lost-premium provisions became enforceable in Delaware from August 1, 2024, following amendments to the Delaware General Corporation Law. But the issue may crop up again in other jurisdictions. This Article explains why courts in other states both can and should uphold lost-premium provisions.