“No Better than a Racket”: Seventh Circuit Cracks Down on Merger Objection Strike Suits

In a recent decision, the United States Court of Appeals for the Seventh Circuit outlined a mechanism by which shareholders can object to mootness fees paid to plaintiffs’ attorneys in merger objection suits. See Alcarez v. Akorn, Inc., 99 F.4th 368 (7th Cir. 2024). By allowing a shareholder to intervene and inviting the district court to scrutinize the propriety of the suit, the Seventh Circuit took a further step in its battle against the frivolous strike suits that have plagued M&A transactions for many years.

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Buyer Beware: What to Know About the DOJ’s Policy on Self-Reporting in M&A

What happens when you buy somebody else’s problems? A new policy from the U.S. Department of Justice (DOJ) is encouraging companies to disclose the misconduct of the companies they buy. The DOJ says it won’t prosecute businesses that voluntarily report wrongdoing found during the mergers and acquisitions process.

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An Arbitration by Any Other Name Is Still an Arbitration, Unless It’s an Expert Determination: Recent Cases Apply Delaware’s Authority Test to ADR Provisions

In M&A transaction agreements, contracting parties frequently negotiate a mechanism to make post-closing adjustments to the purchase price — for example, based on calculations of the target company’s working capital at the time of closing or an “earnout” based on the performance of the company for a specified period after closing. Because parties often disagree over these adjustments, the agreement generally will include a framework for resolving disputes. Although the particulars can vary, the parties typically will agree to negotiate in good faith and, if negotiations fail, to submit any remaining disputes to an independent accountant for final resolution. (more…)

Delaware Court of Chancery Says It’s Game Over on Massive Fees for “Miniscule” Work

Last month, in an oral ruling likely to bring great joy to the Delaware defense bar, Vice Chancellor Zurn issued an atypical “Statement of the Court” in Garfield v. Getaround that swiftly rejected an $850,000 fee request in a derivative action.  Plaintiff sought the fee for its  efforts in prompting Defendant Getaround Inc. to make changes to its voting structure.  Calling attention to the slew of similar actions by stockholders following Garfield v. Boxed, Vice Chancellor Zurn said the “game is over” for attorneys’ “making a literal fortune off of a minuscule number of hours of work.”

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Delaware Court of Chancery’s Chilly Response to Activision Blizzard Casts Doubt on Common M&A Practices

On February 29, 2024, the Delaware Court of Chancery issued an opinion in Sjunde AP-Fonden v. Activision Blizzard questioning a number of common practices for target companies in a merger, including the process for obtaining board approval of a merger agreement and the contents of the notice of the stockholders’ meeting to approve the merger agreement, and allowing a challenge to the validity of the subject merger to proceed.  It is an important read for all involved in M&A and will undoubtedly have an impact on market practice.

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A Reminder of Board Primacy: Delaware Court of Chancery Invalidates Stockholder Agreement Provisions Encroaching on Board-Level Decisions

On February 23, 2024, the Delaware Court of Chancery issued an opinion in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co. invalidating certain stockholder agreement provisions that gave a significant stockholder broad pre-approval rights over corporate actions. The opinion serves as a reminder of the contours of board authority under DGCL Section 141(a) and how contractual agreements may “improperly constrain a board’s authority.” It remains to be seen if the decision will be appealed, but at present, it should be evaluated by parties considering contractual provisions that may directly or indirectly limit director decision-making.

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“A Bad Bull”: Chancery Court Rejects Plaintiffs’ Fee Application in Oracle Derivative Litigation

Plaintiffs’ bid for a US$5 million mootness fee in In re Oracle Corp. Derivative Litigation, C.A. No. 2017-0337-SG was denied by Vice Chancellor Glasscock, who noted that “not even great counsel can wring significant stockholder value from litigation over an essentially loyal and careful sales process.”

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Is Your M&A Contract Vulnerable to Post-Closing Litigation? We Break it Down

When an M&A deal closes, is it done? Not always. More and more disputes are arising after closing, which results in lost time and expense for both buyers and sellers as they realize they don’t actually have a done deal. Not all disputes after closing can be avoided, but their effects can be minimized with the right due diligence, transparency in the process, and knowing the mechanisms for resolving them efficiently.

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Sidley Perspectives on M&A and Corporate Governance

Sidley is pleased to share the December 2023 issue of Sidley Perspectives on M&A and Corporate Governance, a quarterly newsletter designed to keep you current on what we consider to be the most important legal developments involving M&A and corporate governance matters.

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Con Ed Uncertainty: Court of Chancery Questions Enforceability of Merger Agreement Provisions Allowing Target to Seek Lost Merger Premium

In an October 31, 2023 decision sure to spook practitioners, the Court of Chancery called into doubt the enforceability of “Con Ed provisions.”  Con Ed provisions, so-named for the 2005 Second Circuit decision prohibiting stockholders from pursuing a $1.2 billion merger premium damages claim, create a path for the target’s recovery of lost merger premium if the buyer breaches and a deal fails.

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