Category

M&A

09 May 2022

More Pushback to Disclosure-Only Settlements

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A recent decision from the United States District Court for the Southern District of New York represents a significant further development in extending into federal court the Delaware Chancery Court’s resistance to disclosure-only settlements in the M&A litigation context.  Plaintiff stockholders in a M&A target company often file lawsuits challenging disclosures made to them in proxy statements soliciting support for the M&A transaction.  Such suits have served as a vehicle for plaintiff lawyers to collect fees when they are “mooted” by the target company making additional disclosures in response to the lawsuit. The cases are very rarely litigated, allowing plaintiff lawyers to collect fees for limited effort and little risk. (more…)

05 April 2022

Expansive New SEC Rule Proposals Seek to Rewrite the SPAC Playbook

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On March 30, 2022, the U.S. Securities and Exchange Commission (SEC) issued proposed rules and amendments relating to special purpose acquisition companies (SPACs), shell companies and the use of projections in SEC filings that, if adopted, would significantly rewrite the playbook for SPAC initial public offerings (IPOs) and acquisitions of private operating companies by SPACs (or “de-SPAC” transactions).1 In particular, the proposed rules (i) would require enhanced disclosures and increase potential liability under the federal securities laws for shell companies (including SPACs), target companies and investment banks participating in de-SPAC transactions, (ii) provide updated guidance regarding the use of projections in all SEC filings and (iii) propose a new safe harbor for SPACs under the Investment Company Act of 1940.

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23 March 2022

Corwin Cleanse Clarified: Key Lessons for Interested Directors

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Since Corwin v. KKR Financial Holdings LLC, Delaware courts have adhered to the proposition that “when a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.” However, The Delaware Court of Chancery recently issued an opinion (available here)  clarifying the application of Corwin to the fiduciary duties of interested directors. The Court declined to dismiss a complaint alleging that the defendant directors’ approval of a merger was a breach of the directors’ duty of loyalty and constituted unjust enrichment. Specifically, the Court rejected the defendant directors’ contention that Corwin “cleansed” the transaction, and, as a consequence, explained that a duty of loyalty analysis was still appropriate. In what follows, we describe this case and offer some important takeaways concerning interested directors. (more…)

22 February 2022

Intent Matters: Delaware Court Limits Discovery in Appraisal Action Where Petitioners’ Sole Intent Was to Investigate Potential Breach of Fiduciary Claim

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The Delaware Court of Chancery recently issued an opinion making a narrow but key distinction in appraisal proceedings: the petitioners’ underlying intent in filing a Section 262 action matters. The court held that petitioners should not be allowed to obtain full discovery where the sole purpose in bringing the appraisal proceeding is to investigate potential wrongdoing. In this case, such intent was determined from Petitioners’ de minimis financial stake in the company. (more…)

15 February 2022

Litigation Trends in Delaware and How Businesses and Boards Can Mitigate Risk

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New structures, new rules? Delaware’s Chancery Court provides guidance on disclosure, conflicts, and risk allocation. We take a look at the latest Delaware rulings and what they say about SPAC directors’ fiduciary duty, as well as COVID’s effect on M&A deals, and how corporations and boards can mitigate their liability. Join host and Sidley partner, Sam Gandhi, as he speaks with two of the firm’s thought leaders on these subjects — Jim Ducayet and Charlotte Newell.
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12 January 2022

Extraordinary Times May Still Call for Ordinary Measures: Delaware Supreme Court Affirms Buyer’s Termination of $5.8 Billion Transaction

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The Delaware Supreme Court recently affirmed Vice Chancellor Laster’s much talked of AB Stable post-trial decision, holding that the buyer of a $5.8 billion hotel portfolio could terminate the transaction due to, among other things, the seller’s breach of an ordinary course covenant by making operational changes in response to the COVID-19 pandemic. The Supreme Court’s affirmance provides critical guidance for the interpretation and navigation of such provisions, particularly in extraordinary times. (more…)

21 December 2021

Periodic Reminder: Former Stockholders Have No Standing to Pursue Section 220 Demands

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On December 3, 2021, the Delaware Court of Chancery dismissed an action for books and records under Delaware General Corporation Law Section 220, reiterating that when a plaintiff files such an action, they must currently be a stockholder of the company against whom the Section 220 action is filed.

Specifically, a plaintiff must file a books and records action before a merger agreement becomes effective under its own terms; after the merger becomes effective, a plaintiff typically ceases to be a stockholder in the target company, which also precludes their ability to pursue books and records of that company. Companies facing Section 220 demands in the face of a merger agreement should scrutinize the demanding party’s standing to pursue such records. (more…)

26 October 2021

Delaware Supreme Court Confirms Appraisal Rights May Be Waived Contractually — Query What Else May Be

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On September 13, 2021, over a rare dissent, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of a petition for appraisal filed by minority stockholders (the “Petitioners”) of Delaware corporation Authentix Acquisition Company, Inc. (“Authentix”). The high court agreed that the Petitioners could waive the statutory right to an appraisal through provisions in a stockholder agreement (the “Stockholders Agreement”). Significantly, this ruling may open the door for corporations to contractually waive other permissions portions of the Delaware General Corporation Law (“DGCL”). (more…)