Posts in M&A

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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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 Upholds Primacy Of Purchase Price Adjustment Clause

Alliant Techsytems Inc. v. MidOcean Bushnell Holdings L.P., C.A. 9813-CB (April 24, 2015, revised April 27, 2015)

The buyer’s rights under a stock purchase agreement sometimes seem in conflict. This decision resolves such a conflict by holding that under the terms of the agreement, the purchase price adjustment process trumps the buyer’s right to indemnification.

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Supreme Court Confirms Limited Scope Of The Fair Dealing Covenant

Lazard Technology Partners LLC v. Qinetiq North America Operations LLC, No. 464, 2014 (April 23, 2015)

This is another decision that confirms that the implied covenant that the parties will act in good faith and deal fairly with one another is not available to expand the parties’ contract rights. The covenant is a gap filler, not a replacement for what was agreed to in the contract.

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Court Of Chancery Explains Effect Of Spin-Off

Miramar Police Officers' Retirement Plan v. Murdoch, C.A. No. 9860-CB (April 7, 2015) This is an interesting decision because it deals with what is the effect of a spin-off of corporate assets on existing contracts that apply to the parties' "transferees, successors and assigns." When a different line of business is spun-off, absent clear contrary language, the spun-off entity does not assume the obligations of its former parent under such contracts.

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Court Of Chancery Explains What Constitutes A Material Disclosure

Parsons v. Digital River Inc., C.A. 10370-VCG (January 12, 2015) What is a material disclosure in one deal is not always material in another transaction, as this decision explains. Context counts. Hence, merely arguing that a past decision held a disclosure was needed may not work in the present case. Share

Supreme Court Clarifies Revlon Requirements

C & J Energy Services Inc. v. City of Miami General Employees' And Sanitation Employees' Retirement Trust, Nos. 655 /657, 2014 (December 19, 2014) In this important decision, the Delaware Supreme Court clarifies that: (1) Revlon does not require an auction before a company is sold, (2) a reasonable sale process is all that is required, not a perfect one, and (3) the standard to enjoin a merger is particularly high when a mandatory injunction is sought that affects third party rights. In a sense, this decision is a companion to the MFW decision that applied a business judgment standard of review to a merger approved by a fully informed and independent SLC and a majority of the disinterested stockholders. Delaware M&A law is rapidly evolving with these decisions. Share

Court Of Chancery Applies Revlon

In Re Family Dollar Stockholder Litigation, C.A. 9985-CB (December 19, 2014) On the same day that the Delaware Supreme Court clarified what Revlon requires, the Court of Chancery's new Chancellor also applied the same standard to deny an injunction under the Revlon principles. This illustrates the respect the Court gives to disinterested Board decisions, even under a heightened scrutiny test. Share

Court Of Chancery Explains How To Implicate The M&F Worldwide Decision

In Re Zhongpin Inc. Stockholders Litigation, C.A. 7393-VCN (November 26, 2014) To obtain business judgment review for a transaction with a controlling stockholder, the M&F Worldwide decision requires an independent committee and a majority-of-the-minority stockholder vote. This decision holds that those provisions must be part of the deal from the outset and adding a stockholder vote by the minority after the merger deal is signed comes too late to invoke the Worldwide case. The decision is also useful in explaining when even a 17% stockholder may be a controller because of his power over the entity. Share

Court Of Chancery Invalidates Deal Protections

In re Comverge Inc. Shareholder Litigation, C.A. 7368-VCP (November 25, 2014) Numerous Delaware decisions have upheld deal protection provisions in merger agreements. But, as this decision shows, it is still possible to go too far. When a combination of a termination fee, an expense reimbursement provision, and a convertible note amount to a 13% fee for ending the deal, that is too much protection and unfairly discourages a competing bid. The decision is also very good at explaining when a buyer may be charged with aiding and abetting liability. Just being a hard negotiator is not enough. Share

Court Of Chancery Invalidates Indemnification Requirement In A Merger

Cigna Health And Life Insurance Company v. Audax Health Solutions Inc., C.A. 9405-VCP (November 26, 2014) Escrow provisions are common in merger deals, particularly those involving private equity. Here, however, the parties went a different route and tried to require the selling stockholders to agree to indemnify the buyer for various possible events. The Court stressed that its opinion was limited to invalidating such arrangements when the indemnification was unlimited in time and scope. The opinion also invalidates the use of a clawback provision in a transmittal letter used to obtain the merger consideration when tendering the stock bought in the merger. Share

Court Of Chancery Explains When Entire Fairness Review Applies

In re Crimson Exploration Stockholder Litigation, C.A. 8541-VCP (October 24, 2014) This is an important decision for 2 reasons. First, it collects the prior decisions that determine when a less-than-50% owner is considered a controlling stockholder so as to potentially invoke entire fairness review.  Second, it then reviews the prior decisions that hold when a controller is competing with the minority stockholders, even when the controller is not on both sides of the deal. That may occur, for example, when the controller receives special treatment in the transaction. Share

Court Of Chancery Explains Effect Of Stockholder Vote In Non-Controlling Stockholder Case

In re KKR Financial Holdings LLC Shareholder Litigation, C.A. 9210-CB (October 14, 2014) This important decision addresses two tricky questions of Delaware corporate law. First, it clarifies that the informed vote of a majority of the disinterested stockholders will invoke the business judgment rule when there is no controlling stockholder pushing the transaction. Second, it makes it clear that stockholder approval may ratify director actions even when the stockholder vote is not required to implement that action. The decision carefully reviews prior cases in reaching these conclusions and for that reason alone is worth a reading. Share

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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