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Calif. appeals court holds that reverse triangular merger does not transfer target’s assets

Suppose that an agreement between A Corporation and B LLC prohibits A from assigning the agreement without B’s consent. Now suppose that C wants to acquire A in a reverse triangular merger.  Must A obtain B’s consent to the merger?  “No” is the answer suggested by North Valley Mall, LLC v. Longs Drug Stores California LLC, No. c079281 (Cal. App. Sept. 25, 2018) (among other cases).  In North Valley Mall:

  • A drug store corporation (defendant Longs) purchased land from a corp­or­ate landowner and built the drug store on that land. (The plaintiff was the corp­orate landowner’s successor.)
  • The drug store corporation had an agreement with the landowner that if the drug store corporation ever sold or leased the property, then (i) the land­owner would have the right to repurchase the property, and (ii) the drug store corporation’s successor would owe more money in common-area maintenance (CAM) payments.
  • Drug-store giant CVS acquired the drug store corporation in a reverse tri­ang­ular merger.
  • The land owner claimed that the CVS acquisition constituted a sale or lease that triggered the landowner’s repurchase right and its right to ad­di­tional CAM payments.

The trial court granted summary judgment for the drug store owner, Longs, hold­ing that the reverse triangular merger did not transfer the real property owned by the drug store owner because in a reverse triangular merger the own­ership of the assets of the surviving corporation remain with the surviving corporation after the merger. See slip op. at 4-5.  The appeals court affirmed.  See slip op. at 7.

This seems to be the general view; in one case, for example, the Delaware chancery court ruled, on summary judgment, that “mergers do not result in an assignment by operation of law of assets that began as property of the sur­vi­ving entity and continued to be such after the merger.” Meso Scale Diag­nost­ics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 82 (Del. Ch. 2013) (partially granting motion for summary judgment) (emphasis added), aff’d w/out opinion, 116 A.3d 1244 (Del. 2015).

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