What is specific performance?

Specific performance is a court order to do what the agreement requires. In a merger, that usually means to close.

Say Woodgrove agreed to buy Litware for $50.00 a share. The closing conditions are met, but Woodgrove refuses to close.

Litware can ask a court to order Woodgrove to close. It's a remedy for when money alone wouldn't make up for the loss.

Most merger agreements say each side may ask a court for it. Whether a court grants it is still the court's decision.

Private equity deals often limit it. The two forms are:

Full

The target can ask a court to make the buyer close once the conditions are met.

Limited

The target can force the closing only if the buyer's debt financing is funded, or will fund at closing. If not, the agreement may limit the target to the reverse termination fee. It's also called specific performance lite.

One count looked at going-private deals, in which a buyer, often a private equity firm, takes a public company private.

In its 2024 count, 34 of 36 deals let the target seek specific performance. Of those, 85% were the limited kind. In its 2023 count, 45% were limited and 55% full.

An agreement may let the target pursue specific performance or the fee, but not collect both.

Two Delaware cases went different ways:

IBP v. Tyson Foods (2001)

The Delaware Court of Chancery ordered the merger agreement specifically performed. Tyson then agreed to close, and the merger closed on September 28, 2001.

Hexion v. Huntsman (2008)

The court ordered the buyer to perform its other obligations, but not to close. The agreement didn't allow that remedy. Huntsman ended the agreement in December 2008.

Twitter's 2022 agreement with Elon Musk was the limited kind. It let Twitter force the closing only if the debt financing was funded, or would be at closing.

Twitter sued Musk for specific performance on July 12, 2022. A trial was set for October 17.

Musk agreed to close before the trial began, and the court paused the case. Then the deal closed on October 27, 2022, at the agreed $54.20 a share.

No court ordered Musk to close.

Litware holders get their $50.00 a share only if the deal closes.

Specific performance is what can turn a reluctant buyer into a closed deal at the agreed price.

Without it, the target may be left with a fee or a claim for damages.

The checklist line Target can force the buyer to close reads Yes, Only in some cases or No.

Only in some cases typically means the limited kind: only once the buyer's debt financing is funded or ready to fund.

On the list, it's the second protection dot and a tag.