Ropes & Gray LLP updates

Additional Delaware guidance on avoiding extra-contractual fraud claims in sale transaction
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • June 14 2017

In November 2016 the Delaware Court of Chancery issued an opinion that provides additional guidance on how the inclusion of certain key provisions in a purchase agreement can protect a seller against an extra-contractual fraud claim asserted by a buyer in connection with an acquisition transaction. Although the court has noted in the past that there are "no magic words", this case provides helpful guidance on how to minimise the risk of extra-contractual fraud claims in the context of a sale transaction.

Chancery court addresses standing to bring fiduciary duty claims following freeze-out merger
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • June 14 2017

The Delaware Court of Chancery recently provided new guidance on a stockholder's standing to bring fiduciary duty claims following a freeze-out merger that forced the stockholder to sell its shares. The case involved a complex series of transactions in which General Electric Company (GE) merged with a subsidiary, General Electric Capital Corporation (GECC). As a result of the merger, holders of GECC preferred stock received new shares of GE preferred stock, which were allegedly worth less.

Delaware Chancery Court confirms continued applicability of MFW standard
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • June 07 2017

The Delaware Court of Chancery has applied the standard established in In re MFW Shareholders Litigation and Kahn v M & F Worldwide Corporation in rejecting a challenge to a controlling stockholder's buyout of the remaining shares of Books-A-Million, Inc from minority stockholders. The court confirmed the framework to be followed by Delaware companies and controlling stockholders that seek to avoid the 'entire fairness' standard of review.

Interested directors may not extinguish breach of fiduciary duty claims through merger
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • June 07 2017

Another Delaware Chancery Court decision has confirmed that the extinguishment of claims against directors may be viewed as a material benefit to directors in the transaction context. The court reinforced that even where the entire fairness review applies, to survive a motion to dismiss a plaintiff must initially state a claim that alleges some facts suggesting the transaction in question was unfair – either in process or price.

Delaware Chancery Court dismisses disclosure claims relating to AOL's acquisition of Millennial Media
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • May 31 2017

In an action challenging the disclosures issued by Millennial Media in connection with its 2015 acquisition by AOL, the Delaware Court of Chancery held that a claim alleging insufficiency of disclosures and whether they are misleading or incomplete in a way that is material to the stockholders should be pursued pre-closing (and not post-closing).

Three decisions consider effect of stockholder approval on challenged transactions
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • May 24 2017

In August 2016 three members of the Delaware Court of Chancery rendered decisions over three consecutive days considering the impact of stockholder votes on challenged corporate transactions. All three cases involved post-transaction claims that board members had breached their fiduciary duties during the deal process, notwithstanding the fact that the transactions at issue had received stockholder approval.

Delaware Chancery Court applies Corwin standard and makes sale subject to business judgement rule
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • May 24 2017

In another application of Corwin, the Delaware Court of Chancery recently granted the defendant board members' motion to dismiss an action by former shareholders of OM Group, Inc seeking damages following the closing of the sale of OM Group to Apollo Global Management for $1 billion. The court held that because an overwhelming majority of disinterested stockholders had voted to approve the merger, the business judgement rule applied.

Some courts reject disclosure-only settlements, but New York court adopts different approach
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • May 17 2017

The In re Trulia, Inc Stockholder Litigation decision effected a dramatic change in stockholder litigation in Delaware. Two cases – one from the Seventh Circuit Court of Appeals and the other from the New Jersey Superior Court of Union County – may signal growing support for Trulia in courts outside Delaware. More recently, however, the Appellate Division for the First Department of New York reversed a lower court's rejection of a disclosure-only settlement.

Court again rejects transaction price as best measure of fair value
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • May 10 2017

In a post-trial opinion in an appraisal action that arose from the sale of DFC Global Corporation, an international non-bank provider of alternative financial services, to private equity buyer Lone Star Fund VIII (US), LP, Chancellor Bouchard of the Delaware Court of Chancery found that the transaction price is "reliable only when the market conditions leading to the transaction are conducive to achieving a fair price".

Court more likely to equate deal price with fair value following appropriate sales process
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • May 10 2017

A Delaware appraisal decision issued during the fourth quarter of 2016 reinforces that the Delaware courts are more likely to give substantial evidentiary weight to the deal price as an indicator of fair value where the transaction was the product of an appropriate arm's-length sales process between two independent parties.

Delaware Court of Chancery grants advancement to directors in indemnification dispute
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • November 30 2016

The Delaware Court of Chancery recently held that two former directors and officers of an acquired target – one of whom served as a sellers' representative under the merger agreement – were entitled to advancement of fees and expenses in defending themselves against certain claims by the buyer for indemnification for breaches of representations regarding the target's business.

Implementation of amendments to Delaware General Corporation Law
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • November 23 2016

House Bill 371 was recently signed into law. It amends the Delaware General Corporation Law with respect to, among other things, appraisal proceedings and intermediate-form mergers. Specifically, the bill limits de minimis appraisal claims, provides surviving corporations with the right to pay stockholders exercising appraisal rights before the Delaware Court of Chancery makes a final value determination and clarifies the requirements and procedures relating to intermediate-form mergers.

District court holds related funds liable for pension fund withdrawal liabilities
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • November 09 2016

The US District Court for the District of Massachusetts recently concluded that two private equity funds with the same sponsor, investing together in a distressed portfolio company, can be held liable for pension liabilities incurred by the company under the Employee Retirement Income Security Act, even where the ownership interest in the company of each of the funds, when viewed separately, would have been insufficient to reach that result.

New York Court of Appeals rules against waiver exception to attorney-client privilege
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • November 02 2016

The New York Court of Appeals recently issued a decision that narrowly interprets the scope of the common interest exception to attorney-client privilege. Following the decision, parties involved in M&A transactions subject to New York law must take care to understand the situations in which the courts will consider litigation to be "pending or reasonably anticipated", in order to avoid inadvertent waivers of privilege when sharing communications with other parties to the transaction.

Delaware Court of Chancery offers guidance on "commercially reasonable efforts"
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • October 26 2016

In a recent decision on the merger of two publicly traded energy companies, the Delaware Court of Chancery highlighted the risks associated with using undefined terms such as "commercially reasonable efforts" in acquisition agreements. The decision illustrates that parties may not have a meeting of minds on what various clauses entail, underscoring the risk of reliance on undefined terms that tie to important closing conditions.

Sale of Zale to be reviewed under corporate waste standard
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • October 19 2016

The Delaware Supreme Court has confirmed that the Zale directors' conduct in the sale of Zale to Signet is subject to the business judgement rule – having been approved by a vote of uncoerced, disinterested and informed stockholders – and should be reviewed under the deferential corporate waste standard. The opinion provides helpful guidance to the Delaware Court of Chancery concerning aiding and abetting claims against financial advisers.

Delaware Chancery Court equates tender of shares to stockholder vote in review of board decisions
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • October 12 2016

The Delaware Court of Chancery recently held that the acceptance of a tender offer by the majority of a company's stockholders will have the same cleansing effect as the approval of a merger. Therefore, if a majority of disinterested and fully informed stockholders have accepted a tender offer, the courts will apply business judgement review when examining board decisions.

New York Court of Appeals affirms business judgement deference for controlling stockholder transactions
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • October 12 2016

The New York Court of Appeals has confirmed that business judgement deference – rather than the more searching "entire fairness" review – applies to controlling stockholder transactions that are approved by a duly empowered special committee of independent directors and that receive a "majority of the minority" vote from stockholders who are unaffiliated with the controlling party.

Delaware Court of Chancery rejects claim of bad faith
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • October 05 2016

The Delaware Court of Chancery recently issued a ruling granting dismissal of breach of fiduciary duty claims brought against the directors of Chelsea Therapeutics International Ltd. The plaintiffs contended that the directors had acted in bad faith by knowingly selling the company for an amount substantially below its standalone value.

Delaware Court of Chancery rejects transaction price as best measure of fair value
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • September 28 2016

The Delaware Court of Chancery recently released its post-trial opinion on the closely watched appraisal action that arose from the buy-out of Dell Inc. Despite finding that the transaction had resulted from a disinterested, fair and robust process that would have "sailed through" a traditional fiduciary duty review, the court held that the transaction price did not provide Dell stockholders with fair value for their shares.

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