Recovery of Lost Premiums in Failed Mergers

This article discusses lost premium provisions, often referred to as Con Ed provisions. The article examines the main variants of these provisions and considers how they may conflict with established doctrines in contract and corporate law, potentially rendering them unenforceable. In response, the article evaluates a range of proposed solutions, including incorporating lost premiums into contractual damages, designing reverse termination fees, appointing the company or stockholders as agents to recover lost premiums, and pursuing legislative reform. The article argues that although courts’ reluctance to enforce lost premium provisions has surprised transactional lawyers and scholars, this hesitation is principled, grounded in both doctrinal and normative concerns. To help courts navigate the challenges surrounding lost premium recovery more coherently, the article proposes a two-stage framework for evaluating these provisions. Finally, the article contends that the difficulties arise not only from the provisions themselves but also from the remedies pursued. Each proposed solution addresses specific challenges, yet each also encounters limitations or introduces new complications.