Posts tagged M&A

Court Of Chancery Explains The Abry Partners Doctrine

EMSI Acquisition Inc. v. Contrarian Funds LLC, C.A. 12648-VCS (May 3, 2017)

Parties to an acquisition often attempt to set limits on what may be recovered in any post-closing dispute between them. This helps the buyer get a lower price in return for the safety the sellers buy with a price concession. Exactly how to do this, however, has proved difficult. The well–known Abry Partners decision sets limits, for example, on what claims may be released in advance, such as a claim for fraud based on deliberate misstatements in a purchase agreement. This decision carefully explains the boundaries of what may be released and how to get the best language to set out the parties’ actual agreement. It is a great guideline to follow.

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Court Of Chancery Discusses Interrelationship Between Corwin and Santa Fe

In Re Paramount Gold And Silver Corp. Stockholders Litigation, C.A. 10499-CB (April 13, 2017)

In its now famous Corwin decision the Delaware Supreme Court held that when a majority of the stockholders in a fully informed, noncoercive vote approve a transaction, the business judgment rule applies and the transaction is virtually immune from attack. However, plaintiffs continue to argue that Corwin did not hold that the stockholder approval precluded a claim based on a Unocal theory that by virtue of excessive deal protection devices the vote was coercive. Such a claim had been upheld in the older Santa Fe case and Corwin expressly declined to overrule Santa Fe. This decision notes that the status of Santa Fe may be unclear, but then goes on to hold that the agreements alleged to be preclusive deal protection devices do not violate Unocal even if it were applicable. More ›

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Where Is Delaware Corporate Litigation Going?

Litigation involving Delaware corporate law is undergoing major changes. Some commentators predict that Delaware will cease to be the favored forum for M&A litigation. While we disagree with that forecast, it is important to understand what is going on and how those changes may affect future litigation. There are two major evolutions and one more minor development that are worth considering. More ›

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Court of Chancery Enjoins Transaction Pending Clearer Disclosure of Banker’s Conflicts

Vento v. Curry, C.A. No. 2017-0157-AGB (March 22, 2017)

A board must disclose all information material to the stockholder vote for a transaction.  Moreover, disclosures may be inadequate when they are buried in various places in a lengthy proxy statement.  One piece of material information is conflicts involving the board’s advisors.  The Court of Chancery is prepared to preliminary enjoin a transaction where the proxy omits or fails to sufficiently disclose material details concerning, for instance, a banker’s conflict.  For example, the inadequately disclosed conflict warranting an injunction in this case involved the fees the buy-side banker expected to receive for its participation in debt financing for the deal.  

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Court Of Chancery Applies Corwin Doctrine To Dismiss Non-Exculpated Duty of Care Claims

In Re Merge Heathcare Inc. Stockholders Litigation, C.A. 11388-VCG (January 30, 2017)

Under the Corwin doctrine, approval by a majority of the fully-informed, uncoerced, disinterested stockholders invokes the business judgment rule so long as the transaction does not involve a controlling stockholder extracting personal benefits. This decision explains that law very well. More interestingly, however, the decision also applies Corwin to a complaint alleging a violation of the duty of care. That is unusual because almost all Delaware corporations have a duty of care exculpation clause in their charters and the result is that post-closing damages cases against directors usually focus on alleging a violation of the duty of loyalty. Why that should make a difference under Corwin is not clear but at least this decision seems to settle the issue and Corwin applies to duty of care claims as well.

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Court Of Chancery Explains Disclosure Pleading Standards And Burdens For A Corwin Defense

In Re Solera Holdings Inc. Stockholder Litigation, C.A. No. 11524-CB (January 5, 2017)

The well-known Corwin decision requires that the Court of Chancery apply the deferential business judgment rule to attacks on a merger approved by a majority of the disinterested stockholders who had all the material information.  The current plaintiff strategy is to plead that the stockholders were not fully informed such that the vote should not have a cleansing effect.  Most notably, this decision addresses who has the burdens of pleading and proof regarding the sufficiency of the disclosures for a Corwin defense.  As the Court explains, the plaintiff must first sufficiently plead one or more disclosure violations, and only then will the burden shift to the defendants to show that the stockholders were fully informed.  The decision also explains that Corwin did not change the disclosure standard—directors are only obligated to disclose material information to satisfy Corwin.

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Court Of Chancery Addresses Who Is To Do Post-Closing Adjustments

Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Co. LLC, C.A. 12585-VCL (December 5, 2016)

Many contracts for the sale of a company have a provision addressing how the parties should resolve disagreements concerning post-closing adjustments to the sale price.  Exactly who is to resolve those disputes (be it an accountant, an arbitrator or the court), and the scope of their authority is sometimes unclear.  This decision tracks some precedents and explains when the contract may be interpreted to permit an accountant to decide what adjustments are required by GAAP.

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Court Of Chancery Dismisses Post-Closing Claims Under Corwin

In re OM Group Inc. Stockholders Litigation, C.A. 11216-VCS (October 12, 2016)

Under the recent Corwin decision, a fully-informed vote by uncoerced and disinterested stockholders to approve a merger invokes the business judgment rule and effectively precludes almost any claim the merger was improper.  This decision does a very good job of explaining when proxy disclosures are adequate to invoke Corwin.  Here, the alleged disclosure violations concerned (i) information regarding a competing bid, (ii) potential conflicts involving one director, and (iii) the banker’s compensation and potential conflicts.

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Court Of Chancery Details Application of M&F Worldwide Criteria

In re Books-A-Million Inc. Stockholders Litigation, C.A. 11343-VCL (October 10, 2016)

A merger approved in accordance with the criteria set out in the M&F Worldwide decision is subject to the business judgment standard of review, and vulnerable to attack only if its terms are so extreme as to constitute waste. This decision does a good job of explaining how the M&F Worldwide criteria are to be applied to a given set of facts at the motion to dismiss stage.

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Court of Chancery Explains Anti-Reliance Law

FdG Logistics LLC v. A&R Logistics Holdings Inc., C.A. 9706-CB (February 23, 2016)

Merger or company sale agreements frequently include clauses limiting what a buyer may rely upon after due diligence, particularly when there is some hold back of the merger or sale consideration that the buyer may seek to retain after the closing based on a misrepresentation claim. But as this careful decision explains, the elimination of reliance claims needs to be in a clause applying to the buyer, not just in a clause that tries to limit the representations from the seller. These clauses need very careful drafting and this decision explains how that should be done.

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Court Of Chancery Addresses M&A Discovery

Hamilton Partners L.P. v. Highland Capital Management L.P.,  C.A. 6547-VCN (February 2, 2016)

Discovery of financial information in M&A litigation, including appraisal actions, often involves two issues: (1) how far back before the transaction should there be discovery and (2) is post-transaction discovery permitted? This decision provides some guidance on both issues.

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The Delaware Supreme Court Upholds $76 Million Judgment Against RBC for Rural/Metro Sale

Investment bankers seeking to profit as both adviser to the seller and financier to the buyer in corporate sales processes have faced increased scrutiny by Delaware courts over the last few years.  In a highly-publicized 2011 decision, Vice Chancellor Laster criticized investment banker Barclays PLC for acting both as adviser to the seller and financier to the buyer in the Del Monte Foods Co. sale process.  The following year, now Chief Justice, then Chancellor Strine, criticized Goldman Sachs’ role in the El Paso Corp. sales process for allegedly steering the sale to its favored buyer Kinder Morgan Inc. 

In the latest Delaware decision criticizing bankers guiding corporate sales processes who seek to profit on both sides of a sale, In re Rural Metro Corp. Stockholders Litigation, the Supreme Court affirmed the Court of Chancery’s holding that investment banker RBC Capital Markets LLC (“RBC”) was liable for aiding and abetting the breach of fiduciary duties by the Board of Rural/Metro Corporation’s (“Rural” or the “Company”) in connection with its sale to private equity firm Warburg Pincus LLC (“Warburg”).  (No. 140, 2015, 2015 WL 7721882 (Del. Nov. 30, 2015)).  More ›

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Court of Chancery Again Explains Claim Against An Investment Banker

In Re Tibco Software Inc. Stockholders Litigation, C.A 10319-CB (October 20, 2015)

In this unusual factual circumstance, the Court denied a motion to dismiss a claim against an investment banker for aiding and abetting a board’s alleged breach of its duty to act with care.  Note that the board itself was dismissed because, even if it violated its duty of care, the exculpation clause in the corporate charter immunized it from liability. More ›

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Delaware Supreme Court Resolves KKR-Gantler Confusion

Corwin v. KKR Financial  Holdings LLC, No. 629, 2014 (October 2, 2015)

There has been some debate about the effect of an approval by a majority of a company’s stockholders of a transaction with an unrelated third party - does that invoke the Business Judgment Rule? The question arose over different interpretations of two Supreme Court decisions in the Gantler and other KKR cases. This decision settles the debate by firmly holding that majority stockholder approval does invoke the BJR standard of review at least when the stockholders are fully informed.

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Court Of Chancery Signals Limits On M&A Settlements

In Re Riverbed Technology Inc. Stockholders Litigation, C.A. 10484-VCG (September 17, 2015)

This decision has been widely reported as signaling the Court of Chancery’s intention to cut back on the wave of suits filed over almost every merger. More ›

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