Confidentiality Agreements in M&A Transactions

In May 2012, we had discussedthe case of Martin Marietta wherein a confidentiality agreement was enforced in the context of an M&A transaction. Now, a California court has similarly enforced a confidentiality agreement in the case of Depomed, Inc. v. Horizon Pharma, PLC (accessed via the website of Wachtell, Lipton, Rosen & Katz).The facts of the case are summarized in the ruling:Depomed asserts that, for approximately the last five months, Horizon has engaged in a campaign to take over Depomed through an acquisition proposal that significantly undervalues Depomed. Depomed contends Horizon knows its proposal is inadequate because it has detailed confidential and non-public information about Depomed’s flagship product, NUCYNCTA. Depomed states that Horizon obtained this information pursuant to a confidentiality agreement (the “MNDA”) entered into as part of a competitive bidding process to acquire NUCYNCTA from Janssen Pharmaceuticals, Inc. (“Janssen”) – a process in which Depomed was the winning bidder earlier this year. Depomed argues that Horizon is required under the MNDA to maintain this information in “trust and confidence” and use it only in connection with a potential deal with Janssen for NUCYNCTA, but Horizon is now misusing this confidential information to take control of Depomed.In other words, Depomed and Horizon were competing bidders to acquire NUCYNCTA from Janssen. Horizon obtained confidential information in relation to NUCYNCTA but did not succeed in acquiring it. Now, it sought to use that information to stage a takeover of Depomed, which was the successful bidder.After considering the facts and legal issues involved, the Court issued a preliminary injunction against Horizon.The first issue related to whether the MNDA that bound Horizon pertained to its proposed acquisition of NUCYNCTA. After considering the relevant evidence, the Court came to the conclusion that it was indeed the case.The second issue was whether Depomed lacked standing to bring the action because it was not a party to the MNDA, which was between Horizon and Janssen. It was argued that Depomed was only a third-party beneficiary. However, the Court found that Janssen’s rights under the MNDA were transferred to Depomed as a part of its acquisition of NUCYNCTA. Janssen therefore had no interest in the protection of the confidential information.Finally, Depomed succeeded in showing that the information used by Horizon in its bid for Depomed came from Janssen and that it was not publicly available. Hence, Depomed was likely to prevail in a breach of contract claim.Based on a consideration of these issues, the Court came to the conclusion that “[w]ith regard to the relative interim harm to the parties from the issuance of an injunction, the harm to Depomed from not issuing an injunction would be greater than the harm to Horizon from issuing an injunction”. Hence, Depomed was able to succeed in the action.The outcome in this case is similar to that in Martin Marietta wherein the plaintiff was able to succeed in a claim for breach of confidentiality in a hostile takeover although the confidentiality arrangement itself was entered into in connection with a past transaction. In Martin Marietta, while the confidentiality agreement was entered into between the bidder and the target company (albeit for a different transaction), in the present case Depomed was not even a party to the confidentiality agreement, the benefits of which it acquired from Janssen as part of its NUCYNCTA acquisition. Although these cases are set in the US context, they would have some relevance to parties in conceptualizing and drafting confidentiality agreements in Indian M&A transactions.

Source: Corporate

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