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July 28, 2026 | By Patrick T. McCloskey
Can a buyer condition payment of merger consideration on the receipt of a release? The Delaware Court of Chancery recently punted on this question, and other Delaware cases leave enough uncertainty for buyers to push the envelope through letters of transmittal.
Background
In a merger, payment of consideration to the target’s stockholders is typically conditioned on the completion, signature and return of a letter of transmittal. Although the purpose of this exercise is to validate ownership and document the extinguishment of title, buyers often include a general release of claims. The expectation is that most target stockholders will be so eager to receive their cash they will sign without questioning the inclusion of a release. Things get interesting when target stockholders push back.
FBSciences
In the most recent case on this topic, Caldwell D. Lowrance, Jr. KCL-JLC, L.P. v. FBSciences Holdings, Inc., the Delaware Court of Chancery punted, dismissing a declaratory claim on the grounds there was no actual controversy.
The target stockholder first sought to strike the release language from the letter of transmittal. When that didn’t work, he sued, alleging the release was invalid and unenforceable and that he was entitled to his merger consideration without the release. The buyer relented and paid the merger consideration without getting the signed letter of transmittal, but the stockholder continued the suit, seeking interest. The court ruled the case was not ripe because there was no controversy after the buyer paid the merger consideration without getting the signed letter of transmittal.
In support of its conclusion, the court cited Nask4Innovation Sp. Z.o.o v. Sellers,1 a 2022 Delaware Court of Chancery decision.
Nask4Innovation
In Nask4Innovation, the target stockholder signed the letter of transmittal with the release and received its merger consideration. However, for the purpose of preserving a breach of fiduciary duty claim, the target stockholder still sued and sought a declaratory judgment that the release in the letter of transmittal was unenforceable. Like FBSciences, the claim was dismissed for lack of controversy, with the court ruling “aspects of this case may touch on ‘novel and important’ issues of Delaware corporate law, including the viability of a stockholder waiver of the duty of loyalty in a letter of transmittal.”
In a sense, Nask4Innovation and FBSciences are mirror images of one another. The merger consideration was paid in both cases, but one resulted in a signed release (Nask4Innovation) and the other did not (FBSciences).
Cigna Health
Notably, neither FBSciences nor Nask4Innovation cited the Court of Chancery’s 2014 decision in Cigna Health v. Audax Health Solutions,2 where a release included in a letter of transmittal was ruled unenforceable. In Cigna, the merger agreement referenced a letter of transmittal as a condition to receiving the merger consideration, but it did not mention a release. On these facts the court concluded the release was unenforceable for lack of consideration. Although the omission of the release from the merger agreement was the decisive factor in Cigna, the court’s decision suggested that conditioning the payment of merger consideration on the execution of a release contravenes DGCL 251.
The defendants in Cigna had argued that the “Release Obligation” was part of a “bundle of rights” for purposes of DGCL 251. In response, the court ruled:
Textually, the defendants are on shaky ground. The term ‘rights’ simply could refer to consideration that takes the form of rights authorized by Section 157 of the DGCL. This reading applies the principle of ‘in pari materia’ and recognizes that ‘rights’ appears in a list with terms like cash, property, and securities. Assuming rights has a broader meaning, Black’s Law Dictionary provides seven definitions of the term ‘right’ of which six plausibly may be relevant here. All of those six definitions, however, imply a positive benefit, not the undertaking of an obligation or burden. None of the definitions provide obvious or implicit support for the idea that the merger consideration can be made contingent on further undertakings by the stockholders.
Pragmatically, Defendants’ bundle of rights argument raises serious concerns. Wholesale adoption of this position seemingly would allow buyers to impose any range of provisions on stockholders as conditions precedent to payment of merger consideration. One need not look far for a hypothetical, however, because the facts of this case demonstrate the problems with the Defendants’ argument. The Release Obligation is not mentioned in the Merger Agreement.
Because the Release Obligation is a new obligation Defendants seek to impose on Cigna post-closing, and because nothing new is being provided to Cigna beyond the merger consideration to which it became entitled when the Merger was consummated and its shares were cancelled, I find that there is no consideration for the Release Obligation in the Letter of Transmittal.3
Although the Cigna holding hinged on the omission of a release from the merger agreement, there is a suggestion that even if the release was included in the merger agreement, it would have contravened DGCL 251 because it is an obligation, not a right.
Jhaveri
This nuance was not addressed in Jhaveri v. K1 Investment Management LLC,4 where the Delaware Court of Chancery distinguished Cigna and upheld the enforceability of a release where it was referenced as a condition in the subject merger agreement. The plaintiff in Jhaveri signed a joinder agreement (not a letter of transmittal) agreeing to become subject to all of the terms of the merger agreement.
Distinguishing Cigna, the court in Jhaveri ruled as follows:
In [Cigna], the Court of Chancery held unenforceable a release of claims in a letter of transmittal, the return of which was a condition to stockholders receiving merger consideration. The court explained that stockholders became entitled to their merger consideration upon closing under [DGCL 251]. Because the merger consideration was a preexisting entitlement, it could not serve as new consideration for a release in the letter of transmittal.
This case is different in several respects. The release was not effectuated by a separate agreement but included within the Merger Agreement itself. In Cigna, there was ‘no indication to stockholders that they may have to agree to a release.’ Here, by contrast, stockholders had notice of the release before final approval and closing. Equityholders explicitly ‘acknowledge[d] and agree[d]’ in the Merger Agreement that their receipt of merger consideration constituted ‘express acceptance’ of the release. They further ‘acknowledge[d] and agree[d]’ that the ‘release was a material inducement to the Released Parties to consummate the transactions contemplated by th[e] [Merger] Agreement.’ [Plaintiff] confirmed his acceptance of the release when he executed the Joinder Agreement.5
It is worth noting that the plaintiff in Jhaveri did not make the technical DGCL 251 argument that was touched upon in Cigna. The Court simply noted “Jhaveri does not assert that the releases were procured through ‘fraud, duress, coercion, or mutual mistake . . . nor does he contend that the releases were unknown to him when he signed the Joinder Agreement, conditional, or void for want of consideration.”
Takeaway
So, back to our original question, can a buyer condition the payment of merger consideration on a target stockholder’s delivery of a release? Here’s what the above referenced cases tell us.
Under Cigna, a release will be unenforceable for lack of consideration if it shows up for the first time in a letter of transmittal with no reference to it in the merger agreement.
Under Jhaveri, a reference to a conditional release in the merger agreement will negate an argument that the release is unenforceable for lack of consideration. The presumption logic underpinning the holding in Jhaveri is that the merger consideration doubles as consideration for both the shares and the release. However, this conclusion ignores the technical statutory point that was made in Cigna, which is that a release cannot be part of a “bundle of rights” because that would be at odds with the statutory language in DGCL 251. Put another way, per the analysis in Cigna, a release is not a right, but an obligation, and there is an argument this distinction contravenes DGCL 251.
Buyers who continue to condition payment of merger consideration on the delivery of a release are operating under the assumption that a target stockholder will sign the release to get paid quickly. This carrot and stick approach works until a target stockholder pushes back. Then it turns into a game of chicken. In Nask4Innovation, the stockholder blinked first by signing the letter of transmittal and receiving its merger consideration. In FBSciences, it was the buyer who blinked first, paying the merger consideration to the stockholder without getting the signed release.
It seems that buyers will continue to push the envelope on this issue until a target stockholder pushes back and a buyer stands its ground, leaving a court to adjudicate the controversy and reconcile Cigna and Jhaveri.
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This post is for general informational purposes only and does not constitute legal advice. No one should rely on the information in this blog post without seeking appropriate legal, accounting, tax or other appropriate advice from an attorney, accountant or other professional properly licensed in the applicable jurisdiction(s).
1 2022 WL 4127621 (Del. Ch. Sept. 12, 2022).
2 107 A.3d 1082 (Del. Ch. Nov. 26, 2014).
3 Id. at 1090-91 (internal citations omitted).
4 2025 WL 1779507 at* 6.
5 Id at * n. 86 (internal citations omitted).
