Chancery Court Again Applies Entire Fairness to Claims Challenging SPAC Transaction
Laidlaw v. GigAcquisitions2, LLC, C.A. No. 2021-0821-LWW (Del. Ch. Mar. 1, 2023)
In the aftermath of a SPAC merger, the plaintiff (a public stockholder) brought claims for breaches of fiduciary duty against the SPAC's board and sponsor, as controllers, for issuing an allegedly false and misleading proxy statement. According to the plaintiff, the proxy statement failed to disclose the net cash per share that the SPAC would contribute to the merger, which in turn misrepresented the anticipated value of post-merger shares, and that such information was material to the decisions of public stockholders whether to invest in the post-merger company or to redeem their SPAC investments. Plaintiff alleged that the sponsor and board were incentivized to minimize redemptions in order to secure returns for the sponsor, which purchased a 20% stake in the post-merger company at a nominal price.
The defendants moved to dismiss for a variety of reasons, all of which the Court of Chancery rejected. The Vice-Chancellor noted that the defendants' theories were "largely indistinguishable" from those recently rejected in Delman v. GigAcquisitions3, LLC (which involved a sister entity, the same sponsor, and a similar board makeup). GigAcquisitions3, in turn, relied heavily on the Court’s 2022 decision in In Re Multiplan Corp. Stockholders Litigation. As in those earlier cases, the Court concluded that the claims were direct, not derivative, entire fairness applied because the sponsor was conflicted, and, through that lens, the plaintiff had stated reasonably conceivable claim with respect to the alleged disclosure violations.Share