FullBeauty Brands Secures Temporary Restraining Order, Barring Destination XL From Terminating Planned Merger

Cleary Gottlieb represented FBB Holdings I Inc. (FullBeauty Brands or FBB) in obtaining a temporary restraining order and expedited trial from the Delaware Court of Chancery on October 29, 2026.

Vice Chancellor Kyle H. Lachmund’s order barred Destination XL Group Inc. (DXL) from terminating the parties’ merger agreement, which DXL sought to do once the agreement’s October 30, 2026 end date passed.

Background

In December 2025, FBB and DXL agreed to a stock-for-stock merger under which FBB stockholders would receive DXL common stock representing 55% of the combined company. FBB stockholders approved the deal, and holders of approximately 21% of DXL’s common stock signed voting agreements in support. In June 2026, DXL’s board withdrew its recommendation of the merger, citing what it described as a deterioration in FBB’s financial performance.

The merger agreement allows either party to terminate if the deal has not closed by the end date. However, a party whose own breach “proximately contributed” to the failure to close cannot use that right. The agreement also gives DXL no right to walk away simply because its board changed its recommendation. Absent a vote of DXL’s stockholders rejecting the deal, DXL remained bound to complete the steps needed to put the merger to that vote.

The Parties’ Arguments

FBB argued that after the recommendation change, DXL and its board slow-walked the proxy process to run out the clock and avoid a stockholder vote, in breach of its obligations to file the proxy statement “as promptly as practicable,” respond promptly to SEC comments, and hold the stockholder meeting and required vote. FBB pointed to a pattern of delay: no updated proxy draft between April and late June; a preliminary proxy not filed until July 17; shifting disclosure demands; and 19 days to answer the SEC’s first comment letter. FBB sought narrow relief that would preserve the status quo, not compel a closing.

DXL countered that it had acted diligently, and that the delays were caused by FBB’s deteriorating finances and the loss of two financing commitments for the combined company, as well as by an SEC review process outside DXL’s control. DXL argued that board review of proxy drafts was sound fiduciary practice and that it had answered the SEC’s comments, in aggregate, faster than the SEC requested.

The Court’s Ruling

The court found that FBB satisfied every element for a TRO and for expedition:

• Irreparable harm: The court found this element satisfied because there is a contractual stipulation of irreparable harm in the event of breach, which the court found to be sufficient. It added that, even without such a stipulation, it is well settled that the loss of a unique merger opportunity is irreparable harm.
• Colorable claim: The court held that it was reasonable to infer from the complaint that DXL had slow-walked the proxy and its engagement with regulators to push the vote past the end date, noting that the board’s change in recommendation midway through the process gave DXL an incentive for the deal not to close. The court also acknowledged DXL’s very different account of the facts and its causation defense but held that these fact-intensive disputes could not be resolved at this early stage.
• Balance of the equities: The court recognized that remaining bound by the agreement imposes real costs on DXL but concluded that the potential for substantial and irreparable harm to FBB outweighed them. The court gave significant weight to the fact that DXL’s stockholders remain free to vote the merger down.
  The court enjoined DXL from terminating the merger agreement pending an expedited trial. It directed the parties to confer on an appropriate bond and on a trial schedule in roughly six months.

The ruling confirms that a board’s change of heart does not, on its own, give a merger party a way out. Where the contract leaves the final decision to stockholders, a party alleged to have run out the clock may be held to its bargain until the facts can be tested at trial. More broadly, the ruling is a reminder to parties entering merger agreements—and parties to major corporate transactions more generally—that Delaware courts will hold parties to the terms of the bargain at the TRO stage absent significant extenuating circumstances.

The Cleary team was led by partners Roger Cooper, Elizabeth Hanft, and Alexander Talarides, and associates Katherine MacAdam, Adrian Gariboldi, and Ariel Sheffey.