Posts tagged M&A

Court Of Chancery Explains Unfair Dealing Law In Cash-Out Case

In re Dole Food Co. Inc. Stockholder Litigation, C.A. 8703-VCL (August 27, 2015)

Aside from the very large damage award, this decision should be noted for its thorough analysis of the duties of a controlling stockholder and his aides in the way they act to carry out a going private transaction. More ›

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Court Of Chancery Explains Relationship Of Pill Cases To Proxy Contests

Third Point LLC V. Ruprecht, C.A. 9469-VCP (May 2, 2014)

A poison pill may affect a proxy contest by limiting one side's ability to acquire stock to vote in its favor. But, as this important decision holds, the adoption of a pill is subject to the Unocal standard and not the more exacting Blasius "compelling justification" test.   The opinion is also important for its exacting analysis of the justifications under Unocal to not waive a pill and to use a 2-level pill in the face of an imminent proxy contest.

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Court Of Chancery Again Explains Revlon-Bad Faith Analysis

Houseman v Sagerman, C.A. 8897-VCG (April 16, 2014)

This decision expands on the holdings of recent Court of Chancery decisions, one of which held directors not liable for breaches of their duty of care in a Revlon case and another that held an investment advisor liable for aiding and abetting the directors' breaches of duty.  Thus, the Court explained that a typical exculpatory charter provision eliminates breaches of duty claims absent a "knowingly and completely failed" observance of a board's duty to get the best price for the sale of the company.  Only such a complete failure is enough to state a breach of the duty of loyalty.   Second, this decision limits the impact of the Rural Metro decision that held an investment advisor liable on an aiding and abetting claim.  Rather, the degree of culpability must be much greater for such a claim to survive.

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Court Of Chancery Explains Standard of Review

Chen v. Howard-Anderson, C.A. 5878-VCL (March 8, 2014)

This is a critical decision to understanding the standard of review that the Court of Chancery will apply to a board's actions in selling its company. The decision makes 3 important points.  First, the Court explains how and when the enhanced scrutiny standard of review applies and what that standard's "reasonableness" test means.  The decision's explanation that the "rational basis" test of the business judgment rule standard differs from the "reasonableness" test of enhanced scrutiny is particularly helpful.  Second, the decision explains when conduct that is wrong under a reasonable basis test is not so bad as to avoid exculpation under the director exculpation statute.  This clarifies how far the prior law went in limiting exculpation when the conduct at issue showed an "utter failure" to follow one's duties.   Third, the decision points out that if the board is aware that disclosure materials are inaccurate, then it may not be exculpated because the failure to correct the errors goes beyond a simple duty of care violation.

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Delaware Supreme Court Upholds The M&F W Case

Kahn v M&F Worldwide Corp., C.A. 334, 2013 (March 14, 2014)

The Delaware Supreme Court has upheld the important Court of Chancery decision in the M&F Worldwide case that applied the business judgment standard of review to a merger that has the following conditions: (1) the controlling stockholder conditions the merger on the approval of both a special committee and a majority of the minority stockholders, (2) the special committee is independent, (3) the special committee is empowered to freely select its own advisers and to say no indefinitely, (4) the special committee acts with care, (5) the minority vote is informed, and (6) there is no coercion on the minority.   Almost as importantly, the Court upheld the grant of summary judgment to the defendants.  As a result, the structure approved here will now be the gold standard for mergers involving a controlling stockholder.

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Court Of Chancery Explains Basis For Adviser Liability

In Re Rural Metro Corporation Stockholders Litigation, C.A. 6350-VCL (March 7, 2014)

This is an important decision explaining when advisers in a merger may be liable for aiding and abetting a breach of fiduciary duty.  Liability may attach even for just a breach of the duty of care if the adviser is aware that it is facilitating that breach.  The key here is that the advising investment banker was trying to make a fee from both the seller and the buyer in the same deal.  This then is just the latest such case criticizing double dealing and it is now time for lawyers to be sure the advisers are not engaged in such conduct.   The opinion is also a good road map for how a board ought to conduct the auction of a company.  While there are many opinions that say there is no fixed way to sell a company, those who just ignore these guidelines do so at their peril.

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Court Of Chancery Explains How To Do Cash Out Merger Fairly

In re Orchard Enterprises Inc. Stockholder Litigation, C.A. 7840-VCL (February 28, 2014)

This may be the definitive opinion on how to do a cash out merger fairly.  It contains a wealth of references to the case law dealing with all aspects of the dual duties to act fairly and provide a fair price and the potential remedies for the failure to meet those twin obligations.

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Court Of Chancery Explains Good Faith Dealing Applications

American Capital Acquisition Partners LLC v. LPL Holdings Inc., C.A. 8490-VCG (February 3, 2014)

Disappointed parties to merger or asset purchase agreements sometimes try to get a redo of their deal by arguing the other side has violated the duty to act fairly and in good faith in the course of implementing their transaction. This decision explains when that will not work and when it may succeed. If the parties contracted with respect to the subject the plaintiff is complaining about, it will do little good to try to cast its complaint as a matter of fair dealing. It instead should have done a better job of contracting. On the other hand, when the matter in dispute was not focused on by the parties in their deal, they have a better chance of having the Court fill the gap with a fair dealing and good faith analysis.

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Court Of Chancery Shows How A Late Stage Summary Judgment Motion Works

In Re Answers Corporation Shareholders Litigation, C.A. 6170-VCN (February 3, 2014)

This is an excellent review of Delaware law on how to carry out the sale of a company.  Perhaps more novel, however, is how the Court deals with a summary judgment motion at a late stage of a case and where there are apparently conflicting factual claims. For after all discovery is done, the Court shows that it is more willing to weigh the evidence to some degree and rule that the plaintiff's' claims just do not get to trial.

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Supreme Court Explains Its "Business Combination" Ruling

Activision Blizzard Inc. v. Hayes, C.A. 497, 2013 (November 15, 2013)

What constitutes a "business combination" is an important question because that phrase is found in statutes and stockholder agreements that restrict certain corporate actions.  Here, the Supreme Court makes it clear that a divestiture is not a "combination" and that the phrase needs to be interpreted in the context it is used.

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Court Of Chancery Dismisses Suit Over Merger

In re Bioclinica Inc. Shareholder Litigation, C.A. 8272-VCG (October 16, 2013)

This is an interesting decision because it dismissed an action against a merger when the complaint was similar to the standard form of complaint filed after most mergers are announced. Here, in contrast to what usually happens, the defendants chose to fight the allegations rather than settle with some additional disclosures and the payment of attorney fees. This does not mean we are in a new era of stand and fight. After all, one case does not make a trend. The opinion is a good collection of the Delaware law decisions on what must be pled to sustain such a complaint.

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Superior Court Adopts Chancery Anti-Reliance Law

TEK Stainless Piping Products Inc. v. Smith,  C.A. N13C-02-175 (October 14, 2013)

When does the parties' contract bar a claim for fraud? Here the Superior Court adopted the Court of Chancery's line of decisions that holds to bar such a claim the contract must specifically disclaim any "reliance" on representations outside the terms of the contract itself.

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Court Of Chancery Resolves Common/Preferred Conflict

In re Trados Incorporated Shareholder Litigation,  C.A. 1512-VCL (August 16, 2013)

This is an important decision.  It resolves the long-standing confusion over how a board of directors is to act when the interests of preferred shareholders conflict with those of common shareholders. The common shareholders win is the short answer.

The decision also is very helpful in setting out how the directors should act or not act when faced with the all-too-common question of whether to sell when the common stock is under water due to the preferred stock's liquidation rights.

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Court Of Chancery Dismisses Merger Complaint

Miramar Firefighters Pension Fund v. Abovenet, Inc., C.A. 7376-VCN (July 31, 2013)

This decision is a good example of when a complaint about really nothing to complain about will be dismissed, even in the current environment where every merger is subject to litigation.  Here there was virtually no evidence any better deal was available, almost every director was disinterested, there was an extensive search for suitors, and the claims over the way the fairness opinion was done were just quibbles.

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Court Of Chancery Limits Summary Judgment Filing

City Of Roseville Employees' Retirement System v. Ellison, C.A. 6900-CS (July 24, 2013)

This transcript ruling explains the Court of Chancery practice on hearing motions for summary judgment.  Briefly, it does not want to do so when there is less than 90 days after all briefing is done before the trial is to start.  Not only do such late-filed motions put a burden on the party preparing for trial but they require the court to decide those motions quickly when the circumstances do not warrant expedited treatment.

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