Highest Del. Court: As Between Merck And Bayer AG, With Bayer Paying $14.2 Billion For A Merck Subsidiary Company, Merck Was Ruled Unable To Say Bayer "Assumed" The Old Talc Liabilities...

As a long-in-the-tooth pharma M&A lawyer, I can confidently say there is well-vetted, very clear language (we all know how it reads) to make sure -- as you are selling someone a company, and/or its associated product lines -- that you will NOT, as seller, be responsible for the past (and, in other cases -- future) liabilities that arise -- from alleged product defects.

That language was. . . in fact missing, from the Stock and Asset Purchase Agreement Merck and Bayer signed, back in 2014. And so, Merck's stock is trading off just a bit, on the NYSE, with news that the Delaware courts have uniformly now ruled that Merck must indemnify Bayer for these products liability claims. Here's a bit from Bloomberg, but I'll quote only the decision itself, as the Law portion of Bloomberg resides behind a paywall. And, btw -- I am 100 per cent sure of my answer, having read the deal myself (and knowing that no one would end up "net" paying over $10 billion for these consumer health assets) -- and having handled similar claims with respect to the old boluses of mammary implant litigation, many years ago. . . on nearly identical Stock and Asset Purchase Agreement clauses. Enjoy:

. . .Had the parties intended to impose the time limits set forth in Section 10.1 [Indemnification] on the Section 2.7(d) Liabilities, then one would expect explicit language to that effect. Instead, the parties expressly stated that “nothing in this Section 2.7 shall affect [Bayer’s] rights pursuant to Article X [in Indemnification]. . . .”

Looking at the purchase price provision of the SAPA, I am further convinced that Merck’s position is untenable. Section 2.8 of the SAPA governs the purchase price of $14.2 billion agreed upon between the parties; this consideration is given by Bayer in exchange for the “Company Common Stock and the Transferred Assets, and the assumption of the Assumed Liabilities.” The explicit acknowledgement of the Assumed Liabilities as consideration contrasts with the absence of any mention of Bayer’s assumption of the Section 2.7(d) Liabilities. If these sophisticated parties intended for Bayer to eventually assume the Section 2.7(d) Liabilities retained by Merck, one would expect to see that transfer addressed as part of the consideration as it was with the Assumed Liabilities. This absence further highlights the flaws with Merck’s argument. Accordingly, considering the commercial context, the structure of the transaction, and other provisions of the SAPA, Merck’s asserted interpretation of the SAPA must be rejected. . . .

And. . . Bayer paid (at least in part) $14.2 billion for the right to be indemnified from old talc claims on these consumer health businesses. So, while Merck may try a "Hail Mary" / long shot attempt at asking the US Supreme Court to take the question on cert., it is likely this ends here -- and thus, with Merck on the hook. Now you know.

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