• Kirk T. Hartley

Multistep Transactions Lead to $4+ Billion Intercompany Deal to Pay for Underlying PFAS Claims

Just before the weekend, DuPont, Corteva and Chemours issued a joint press release announcing a $4 billion deal to resolve their respective obligation related to underlying PFAS claims. The deal arises out of multistep transactions involving spin-off entities from DuPont, and their allocations of assets and liabilities, as well as inter-company indemnification obligations. The deal arises after one of the spin-off companies (Chemours) filed a very detailed lawsuit alleging that the spin off deal was grossly unfair and constituted a fraudulent conveyance. This is simply one of several past and ongoing cases (e.g. here and here ) in which spincos, parent entities and creditors are arguing about the legality of multistep transactions that result in the alleged or actual insolvency of the spinco.


After much procedural wrangling, a March 30, 2020 ruling by a Delaware Chancellor (Glasscock) ordered the case to arbitration by invoking the Federal Arbitration Act, thereby avoiding reaching notable issues about the terms of spin-off deals. Among other things, one of issues was whether a spinco can be deemed to have "consented" to an arbitration when the deal was forced on it, with no independent representation and no independent officers or directors, as explained in an April 7, 2020 post on a Cleary Gottlieb blog focused on m&a. More recently, the case was argued to the Delaware Supreme Court on December 2, 2020; the briefs and oral argument video are available online at this page of the court's web site. Two weeks later, the Delaware Supreme Court issued a very brief December 15, 2020 order affirming Chancellor Glasscock's decision based on the reasoning stated in his opinion.


It will be interesting to see how future financial statements characterize the cumulative outcome of the original deals and various subsequent deals. The press release explains the deal as follows:

"According to the terms of the cost sharing arrangement, DuPont and Corteva together, on one hand, and Chemours, on the other hand, agree to a 50-50 split of certain qualified expenses incurred over a term not to exceed twenty years or $4 billion of qualified spend and escrow contributions in the aggregate. DuPont and Corteva's 50 percent will be limited to $2 billion including qualified expenses and escrow contributions. Under the existing Letter Agreement from June 1, 2019, DuPont and Corteva will each bear 50 percent of the first $300 million (up to $150 million each) and thereafter, DuPont bears 71 percent and Corteva bears the remaining 29 percent. DuPont's share of the potential $2 billion would be approximately $1.36 billion and Corteva's approximately $640 million.

In connection with the cost sharing arrangement described above, the companies also agree to establish a $1 billion maximum escrow account to address potential future PFAS liabilities. Subject to the terms of the arrangement, contributions to the escrow will be made by Chemours, on one hand, and DuPont and Corteva, on the other hand, annually over an eight-year period. Over such period, Chemours will deposit a total of $500 million into the account and DuPont and Corteva will deposit an additional $500 million pursuant to the terms of their existing Letter Agreement. The escrow provides for a one-time replenishment mechanism if the escrow account balance has less than $700 million at December 31, 2028."

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