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Court Of Chancery Again Denies Injunction Despite Breach Of Duty

Posted In M&A

In re Delphi Financial Group Shareholder Litigation,  C.A. 7144-VCG (March 6, 2012)

For the second time in a month, the Court of Chancery has denied an injunction against a merger despite serious breaches of duty by the lead merger negotiator.  Here the controlling stockholder refused to vote for the transaction unless he received a "bonus" in the form of more for his stock than the other stockholders were to receive on a per share basis.  This odd demand arose out of some equally odd provisions in the certificate of incorporation where the controller had agreed to equal treatment in any merger but now sought to take back that provision.  That was wrong, the Court held.  However, the deal was too good to enjoin when there was no other deal on the table and none likely to arise later if an injunction stopped the show.  Hence, out of concern for the minority stockholders, the Court let the deal go through and left the stockholders with a damage claim.

While some commentators have argued that such a result is wimpy, they do not seem to worry about the impact on stockholders of killing a deal that represents the golden goose.  The threat of a damage remedy should be enough to deter such conduct in the future,  just as it does in other contexts.

Tags: M&A


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