Whether a deal gets undone will depend on the specific language of each transaction agreement, and a judge determining that the virus is a “material adverse event,” she said.

“Most of the disasters felling deals in the past had local implications,” Tyler said. “This is global. We are somewhat in uncharted waters here.”

Clause Invoked
Two years ago in a Delaware court, German drugmaker Fresenius SE was allowed to scuttle a $4.3 billion buyout of U.S. rival Akorn Inc., which tried to cover up serious quality-control problems.

Chancery Judge Travis Laster said a material-adverse-event clause in the contract allowed Fresenius to renege after wrongdoing by Akorn executives cast doubt on the validity of its data and profitability. It was the first time a Delaware judge found an unequivocal violation of the clause.

But some deals specifically rule out pandemics as providing proper legal grounds to cancel a deal, said Harris Arch, a portfolio manager of DuPont Capital’s merger arbitrage strategy, which managed $266 million as of April 23.

“Courts are going to be very reluctant to provide a loophole to buyers, especially when” the deals carve out pandemics, Arch said in an interview. “I expect many of the deals to close on the terms agreed upon in the original contract.”

When buyers are unable to deploy material-adverse-event clauses to scuttle the contract, they look for other ways to pressure the seller into renegotiating the deal, Arch said.

Delaware Courts
Mike Samuels, a portfolio manager at New York-based Broome Street Capital, said the L Brands case may indicate whether Delaware courts will view the virus as a legitimate reason to bail on a deal because the acquirer, Sycamore, is “putting contract language to the test.”

Roy Behren, portfolio manager for the Merger Fund at Westchester Capital Management, said he’s keeping an eye on deals such as Simon Property Group Inc.’s $3.6 billion bid to buy Taubman Centers Inc., and Eldorado Resorts Inc.’s $17.3 billion purchase of Caesars Entertainment Corp. He said he sees those as the “riskiest deals with the potential for breaking.”

Delaware chancery courts will always be a bellwether for the fate of deals where executives are having second thoughts, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.