Delaware Court Orders Buyer to Close Merger with Distressed Target

In Desktop Metal, Inc. v. Nano Dimension Ltd., the Delaware Court of Chancery ordered Nano Dimension to fulfill its merger agreement and close its acquisition of Desktop Metal.

Mayer Brown writes that despite Nano’s efforts to stall the deal, the Court found it had breached its obligations, particularly the agreement’s “reasonable best efforts” and “hell or high water” clauses relating to Committee on Foreign Investment in the US (CFIUS) approval.

The ruling underscores how tailored contractual protections can enable distressed target companies to enforce deal certainty even in the face of post-signing buyer resistance.

Desktop Metal, a publicly traded 3D printing firm serving the US defense sector, was in financial decline at the time of the merger negotiations.

The company had implemented cost-saving measures and flagged going-concern issues in its SEC filings. Nonetheless, Nano agreed to acquire the company, acknowledging the need for CFIUS review due to national security implications.

The merger agreement included specific obligations for Nano to obtain regulatory approvals and to provide a bridge loan if delays occurred. Nano also secured covenants from Desktop Metal regarding ordinary course operations and insolvency risks.

After signing, a Nano shareholder opposed the deal and eventually gained board control, leading to deliberate efforts to derail the merger by stalling CFIUS negotiations.

Desktop Metal sued for specific performance. Following expedited litigation, Chancellor McCormick ruled that Nano had breached its contractual obligations and ordered it to proceed with the transaction, including execution of a key national security agreement.

Attorneys should note that the decision illustrates the value of precise drafting in M&A agreements, particularly for distressed targets. Detailed efforts clauses and narrowly tailored conditions can compel deal execution.

Sellers should be diligent in managing insolvency communications and maintaining operational status quo to withstand scrutiny if enforcement becomes necessary.