Court of Chancery Interprets Common Merger Clause
ATS, Inc. v. Bachmann, C.A. No. 2374-N (Del. Ch. October 11, 2006).
Delaware corporations frequently ask the Court of Chancery to decide if a proposed course of action is appropriate, particularly when the board of directors' fiduciary duties are implicated. In this decision the Court focused primarily on when the Court may provide that guidance and when the matter is not ripe for judicial action. The Court has rejected becoming involved in hypothetical issues not framed by a real world transaction, but more of a "what if" set of questions. Here, the Court accepted one question for its review and rejected others, thereby illustrating how it will deal with those situations.
The opinion is also interesting in its interpretation of a fairly common clause found in merger agreements that might have been held to operate much like a "no talk" provision. The Court held that as the directors do have a fiduciary duty to consider alternatives to a merger and that in light of the negotiations that had led to this particular clause, that the agreement did not bar the board from considering a competing merger offer. Given the wording of the clause in question, this conclusion was not free from doubt and provides guidance to drafters of such merger agreements.