Delaware is dead, long live Delaware? To a U.S. M&A practitioner, much of the “Dexit” debate about whether corporations should exit Delaware as their jurisdiction of incorporation in favor of another state feels as if it may come full circle to a return to Delaware.

One reason is that, notwithstanding the drama over Elon Musk’s Tesla pay package and other corporate governance developments, the early incorporation data suggests as much. Another reason is that Delaware is the dominant choice for governing law and for resolving disputes involving acquisition agreements – and public company merger agreements in particular.

Some of that dominance is a byproduct of Delaware’s status as the favored state of incorporation: If most public companies are incorporated there, then parties will be more likely to default to Delaware contract law for their merger agreement. Even non-Delaware corporations have subjected their merger agreements to Delaware law and courts notwithstanding the potential complexity that introduces. It is worth considering why parties make this seemingly counterintuitive choice, with a flight from Delaware turning into a roundtrip and Dexit becoming “Dentry.”

Corporate Law v. Contract Law – What’s at Stake

The Dexit debate focuses on the choice of state for incorporation because a corporation’s “internal affairs” – the relationship among the corporation, its directors, officers and agents and its stockholders – are governed by the rules of that state. Those rules cover the fiduciary duties of directors, voting mechanics and thresholds for boards and stockholders, stockholder appraisal rights, and the resolution of conflicts of interest among corporate constituents, among other things.

The Dexit debate arose anew from attention-grabbing cases applying those rules. Elon Musk’s pay package was upended by judicial decisions applying conflict of interest rules notwithstanding that  informed Tesla stockholders ratified the pay package. Investment bank Moelis’ stockholder agreement with founder Ken Moelis was invalidated notwithstanding the market practice of delegating governance rights through stockholder agreements. In each of these cases, the Delaware Supreme Court largely overturned the substantive results, restoring the pay package and stockholder agreement on procedural grounds that left substantive uncertainty.

Criticism of these results drew a swift (some might say hasty) Delaware legislative response that resulted in one of the most significant and sweeping changes to the Delaware General Corporation Law in decades. The criticism also pushed corporations to consider other jurisdictions for governing internal affairs, particularly Nevada and Texas.

The choice of governing law for an acquisition agreement, on the other hand, primarily concerns a target corporation’s “external affairs,” specifically, its relationship to an acquirer. That choice implicates two other choices. First, if a dispute arises between the target corporation and acquirer, what background rules will apply to interpreting the agreement terms? Second, who will apply those rules to resolve that dispute?

In the context of a merger, it would seem prudent to use the state of incorporation for governing law and the dispute forum. After all, a merger is a creature of state corporate law, with voting requirements, approval procedures, filing requirements, and legal effect dictated as a matter of corporate internal affairs.

But the merger agreement serves as an overlay of legal obligations regulating the relationship between the target corporation and its acquirer. The target conducts its internal affairs to properly effect a merger under the laws of its state of incorporation. As between the parties, the merger agreement will detail the process of paying merger consideration, the conditions to consummating the merger, the obligations of the target corporation to operate in the ordinary course pending closing, the degree of efforts the acquirer must exert to get to closing, termination rights and rights of recourse. Subject to background choice of law rules in any given jurisdiction, parties are free to choose the contract law and dispute forum for interpreting those terms.

At least among U.S. states, notwithstanding the Dexit debate, Delaware remains the jurisdiction of choice for contract law and dispute resolution for merger agreements. Parties typically seek predictability and enforceability, and by contrast with states like Nevada and Texas, Delaware has a well-developed jurisprudence – and well-established merger-agreement terms based on that jurisprudence – for (i) managing the target corporation directors’ fiduciary duties and (ii) determining whether a target corporation has suffered a “material adverse effect,” the absence of which is a market-standard condition to an acquirer’s obligation to close a U.S. public company transaction. Equally important, Delaware judges are experienced in handling disputes over sophisticated transactions quickly and strictly in accordance with the parties’ agreement and well-established case law.

Well-Established Drafting and Practice for Fiduciary Outs and No-Shops

In any U.S. merger, the parties must observe the target board directors’ fiduciary duties to its stockholders. In a merger, directors will initially approve the merger agreement and recommend its approval to stockholders. Across U.S. state corporate laws, directors generally may not enter into merger agreements that prevent them from exercising their fiduciary duties.

In Delaware, the contours of those limits have been developed largely through a back-and-forth between case law and market practice, which, though highly contextual, has yielded a well-recognized template that carries key negotiation points based on deal context. That template includes terms for a so-called window shop right that prohibits a target from soliciting alternative deals but permits entertaining unsolicited alternative transactions subject to detailed procedures and eventually terminating an existing deal.

With respect to a target non-Delaware corporation, the template would have to be applied in consideration of underlying state corporate law. Delaware corporate law recognizes, for example, a Revlon duty under which directors, in a change of control transaction, are obliged to obtain the highest value reasonably attainable for stockholders. Such a duty can color negotiations between the target corporation and acquirer, potentially giving the target corporation a wider berth for arguing for less restrictive non-solicit terms. Neither Nevada nor Texas corporate law, by contrast, recognizes such a duty, potentially limiting a target corporation’s room to negotiate.

As to the target corporation’s internal affairs, its stockholders will retain their state-law rights to challenge this application. As to the target corporation’s external affairs, the target and the acquirer will typically want this application reviewed by an experienced judge in compliance with the plain terms of their agreement.

Delaware remains the attractive choice on these points. In addition to being where the contractual template has been developed, it emphasizes a contractarian approach to merger-agreement interpretation. Moreover, both Delaware courts and M&A practitioners have deep experience across numerous cases applying this contractual template and balancing the relationship between corporate internal and external affairs in such cases .Jurisdictions like Nevada or Texas do not yet have a comparable jurisprudence or judges applying such agreement terms.

Well-Established Drafting and Interpretation for “Material Adverse Effects”

Given how intertwined corporate internal and external affairs are in a merger, layering Delaware law and courts over Nevada or Texas corporate law is potentially complex. Target corporation stockholders, for example, may bring claims under the corporate law of the target’s state of incorporation with respect to breaches of fiduciary duties related to the transaction ,while the target corporation and acquirer may dispute contract terms in Delaware under Delaware law. Some parties opt for a compromise, especially in an international cross-border transaction. They expressly split the merger agreement governing law and, potentially, forums, providing the state of incorporation for internal affairs and Delaware for all other matters. In making that compromise, parties often seek to retain Delaware law specifically for its developed jurisprudence on “material adverse effects” while focusing disputes related to internal affairs in one jurisdiction.

For U.S. public company merger agreements, target corporations are often subject to certain conditions. Among them are that the target has not suffered a material adverse effect prior to closing. Delaware has been the primary forum for developing the meaning of that term in the United States, and based on Delaware case law, U.S. market practice has coalesced around a template for that term that typically runs to something like a half-page of detailed drafting.

That template is commonly understood among M&A lawyers to set an extremely high bar for a material adverse effect. To resist closing based on a material adverse effect, an acquirer faces a long line of Delaware cases confirming that such effects have to be material and durationally significant when viewed from the perspective of a reasonable acquirer, with durational impact typically measured in years and quantitative impacts typically a significant figure relative to the target corporation (such as an 86% drop in annual EBITDA).  That line of cases also reflects that U.S. market practice has coalesced around a broad and qualitative rather than quantitative material adverse effect definition, one that does not typically carry any bright-line financial metrics for determination and demands a fact-intensive, contextual analysis by a judge when disputed.

To the extent parties want to follow this market practice, Delaware stands out as the jurisdiction of choice, whether for purposes of contract governing law or adjudication forum,. When Delaware is not chosen as the governing law for a merger agreement, the M&A lawyer’s advice on the meaning of material adverse effect will invariably boil down to Delaware cases anyway: It will flag the limited non-Delaware guidance on material adverse effects and then point to Delaware cases as instructive to non-Delaware courts.

Contractarianism and an Experienced and Sophisticated Judiciary

The non-solicit and material adverse effect examples illustrate Delaware’s advantage over most U.S. states based on Delaware’s experienced business court and case law. There are numerous other elements of acquisition agreements that have similarly received extensive treatment under Delaware law by Delaware judges. The benefit of this jurisprudence is that parties can make informed and enforceable risk allocations through their agreements.

To be sure, Delaware’s advantage is by no means permanent. There was a time, after all, in which New Jersey was the dominant state for incorporations. As part of its competitive legislative efforts, Texas has recently launched a business court comparable to the Delaware Chancery Court, while Nevada’s own effort is underway to shift business cases from merely a business-specific docket to a dedicated business court. Yet, if the goal is to obtain a freedom of contract that will be interpreted by judges with a deep expertise in business cases, there is no clear impetus to leave Delaware. For jurisdictions like Nevada or Texas, the jury is still out.

Piotr (Pete) Korzynski is a partner in the Corporate & Securities Group at the law firm of Baker McKenzie, based in its Chicago office.  This post is based on an article, “From ‘Dexit’ to ‘Dentry’: Merger Agreement Drafting Amid the Dexit Debate,” that appeared in the March 2026 issue of The M&A Lawyer and is available here.