Okada Manila Secures Legal Victory as Court Allows Termination of SPAC Agreement
Universal Entertainment Inc. and its related companies in charge of Okada Manila's operations won a legal battle on Thursday after a judge in the Delaware Court of Chancery ruled they are not required to complete a reverse merger with Jason Ader's 26 Capital Acquisition Corp. (NASDAQ: ADER).
The judge based his decision on several factors, indicating that Okada Manila is not obligated to move forward with the merger agreement that was initially agreed upon in October 2021. Furthermore, 26 Capital - a special-purpose acquisition company - can seek monetary damages, with a further decision on this matter to be made at a later date.
According to the ruling, if the SPAC manages to prove breach and if the defendants fail to establish their arguments in defense, and if the SPAC presents a convincing amount of causally related damages, then the SPAC has the potential to recover those damages.
The proposed merger was announced after several months of discussions between Ader's SPAC and Universal Entertainment, valuing the gaming entity at $2.6 billion and facilitating a Nasdaq listing for Okada Manila's shares.
Reasons behind the Fallout between Okada Manila and 26 Capital
Reverse mergers orchestrated through blank-check companies usually conclude within a few months as the faster the transaction concludes, the more profits are realized by the SPAC's insiders.
It was not the case for Okada Manila and 26 Capital, however. The founder of Universal Entertainment, Kazuo Okada, stalled the process. In May 2022, he attempted to seize control of the integrated resort using 50 private security guards and police members. By February 2023, 26 Capital was suing Universal Entertainment and its affiliates connected to the casino, alleging they were purposefully delaying merger negotiations.
In March 2023, Universal Entertainment announced its intention to halt the deal, filing a lawsuit to that effect. They accused Ader of financial misconduct and loudly expressing his opinions about Okada Manila's business while negotiations were still ongoing, contrary to agreements. 26 Capital retaliated with allegations of bribery by Universal insiders with Philippine officials to block the merger.
Judge Laster decided that compelling the merger to progress could potentially violate a 2022 judgment issued by a Philippine court. The judge also pointed out that 26 Capital had failed to disclose that its primary advisor on the deal, Alex Eiseman, founder of Zama Capital hedge fund, was the largest investor in an affiliate of 26 Capital. Laster regarded this omission as "an attempt to mislead Universal."
"The target [Universal Entertainment] entered into the merger agreement without realizing that its contractual advisor was on the other side," said Laster in his decision. "Once it discovered the truth, the target hired the hedge fund to assist with several tasks. As the SPAC's ally, the hedge fund continued its cooperation, working against its client."
Potential Plans for 26 Capital
The judge clarified that even if he had ordered the merger to proceed, he would have no legal capacity to enforce the ruling.
With respect to 26 Capital's next steps, the SPAC can choose to find another merger partner or liquidate and return funds to investors. It has not clarified whether it plans to assess either of these alternatives, but it will persistently seek monetary compensation.
Ader said in a statement regarding the decision, "We are disappointed with the court's ruling, as the proposed merger benefited all stakeholders. We will, however, stay focused on value enhancement and continue to assess all possible strategic alternatives."
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