The Delaware Court of Chancery recently held that a stockholder plaintiff pleaded facts sufficient to support a reasonable inference that a target company’s board of directors could have achieved a higher deal price had the company’s financial advisor not, unbeknownst to the board, tipped the buyer about the price of another bid during the sale process.
In a tale of what is old is new again, the Delaware Court of Chancery reviewed the propriety of a poison pill — a bulwark of the 1980s takeover era — but in the context of shareholder activism against the backdrop of the COVID-19 pandemic. Vice Chancellor Kathaleen McCormick’s detailed review of the pertinent case law and fact-specific decision to permanently enjoin The Williams Companies, Inc.’s extraordinary 5% poison pill offers a number of lessons for directors considering the adoption or renewal of a similar device. The Williams Cos. S’holder Litig. (Del. Ch. Feb. 26, 2021).
Alex Bäcker did not like to wait in line. Nor did he want to give up control of the company he co-founded and led, QLess, which produces a “virtual queue management system that reduces the time that retail customers must wait in line for services.” The Delaware Supreme Court’s rejection of Bäcker’s apparent subterfuge in an effort to maintain that control is a reminder that director actions are subject to equitable review.
On December 29, 2020, in a 76-page memorandum opinion, the Court of Chancery denied a motion to dismiss breach of fiduciary duty claims against National Amusements, Inc. (NAI), Viacom Inc.’s controlling stockholder; Shari Redstone, the director, president, and controlling stockholder of NAI; and four individual NAI directors. All were sued for their roles in the Viacom/CBS Corp. merger in a decision that is important for mergers in which a controlling party stands on both sides of a transaction and receives nonratable benefits that are measured in terms of control, rather than based on merger consideration.
The Delaware Chancery Court recently held that a going-private transaction was not entitled to the deferential business judgment standard of review because the controlling stockholder failed to condition the transaction on special committee and minority stockholder approval before engaging in substantive economic discussions with a minority stockholder. In re HomeFed Corp. S’holder Litig., C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020).
The Delaware Chancery Court recently held that, for a transaction involving a majority-conflicted board to be entitled to business judgment review (rather than the entire fairness standard), the special committee that approved the transaction must have been sufficiently constituted and authorized ab initio (i.e., “from the beginning”). Salladay v. Lev (Del. Ch. Feb. 27, 2020). In doing so, Vice Chancellor Sam Glasscock III borrowed from the framework used to cleanse a controlling stockholder transaction under Kahn v. M&F Worldwide Corp. (MFW), 88 A.3d 624 (Del. 2014). Under MFW, a controlling stockholder transaction is entitled to business judgment review if the controller conditions the transaction ab initio on both the approval of an independent special committee and the uncoerced, informed vote of a majority of the minority stockholders.