Combatting Allegations of “Divided Loyalty”: Important Lessons for Private Equity and Venture Capital Controlling Stockholders
Recently, the Delaware Court of Chancery issued another ruling regarding the sale of Authentix Acquisition Company, Inc. (“Authentix”) to Blue Water Energy LLP (“Blue Water”), which was approved in 2017 by Authentix’s Board of Directors (the “Board”) and its controlling stockholders. The June 3, 2022 decision (Manti Holdings, LLC v. Carlyle Group Inc., C.A. No. 2020-0657-SG, 2022 WL 1815759 (Del. Ch. June 3, 2022)) denied in part a motion to dismiss and held that the gravamen of the plaintiffs’ post-closing money damages complaint—allegations that the defendants breached fiduciary duties regarding the sale—sufficiently stated claims upon which relief could be granted. The ruling underscores the need for heightened care by target companies and their equity sponsors when contemplating a transaction supported by an equity sponsor, including in their communications (or lack of communications) with management and other shareholders.
