Two Delaware appraisal decisions issued in 2018 illustrate that, following the Delaware Supreme Court's decisions in Dell and DFC, the Delaware courts remain willing to give substantial evidentiary weight to a deal price as an indicator of fair value where the underlying transaction is the product of an open process characterised by the objective indicia of reliability.
During the second quarter of 2018, the Delaware Supreme Court affirmed, without opinion, the Court of Chancery's decision in ACP Master, in which the Court of Chancery had appraised Clearwire's shares at a significant discount compared with the deal price. Unfortunately, the Delaware Supreme Court's affirmance without discussion or opinion provides deal makers with little additional clarity on how to assess potential appraisal risk.
Novartis AG recently entered into a definitive agreement to acquire AveXis, Inc – a US-based, clinical stage gene therapy company – for approximately $8.7 billion pursuant to a two-step tender offer transaction. Notably, the Novartis-AveXis merger agreement contained a variation of a 'ticking fee' provision in the event that Novartis elected to extend the closing date of the transaction in order to obtain regulatory approvals.
The Delaware Court of Chancery recently denied a motion to dismiss the claims of Straight Path Communications Inc's stockholders against the company's controlling shareholder. The background of this case involved IDT, which is controlled by its former CEO, Howard Jonas, and was Straight Path's former parent company. When IDT spun out Straight Path, it agreed to indemnify Straight Path for liabilities arising from pre-spin-off conduct.
Recent decisions in Tesla and Oracle offer new insight into how the Delaware Court of Chancery will evaluate whether, in a conflicted transaction, a minority stockholder is a controller and therefore subject to the elevated entire fairness standard of review. The Tesla litigation arose from Tesla's merger with SolarCity, while in Oracle, stockholders challenged Oracle's acquisition of NetSuite.
The Commercial Division of the New York Supreme Court recently enjoined Fujifilm Holdings Corp's proposed acquisition of a controlling interest in Xerox Corp. The court also compelled Xerox to waive provisions of its advance notice bylaw, enabling activist investors to nominate a competing slate of directors after the otherwise applicable deadline. The court's decision has been recognised as precedent-setting New York case law and as a victory for activist shareholders.
The Delaware Supreme Court recently reversed and remanded the Court of Chancery's valuation of Dell in an appraisal case arising from the 2013 management buyout of Dell by Michael Dell and Silver Lake Partners. The Delaware Supreme Court unanimously held that the Court of Chancery had abused its discretion by failing to give weight to market-based measures of Dell's fair value, including the company's stock price and the deal price.
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.
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.
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.
The Delaware Court of Chancery recently held that the entire fairness standard of review governs any transaction between a controlling stockholder and the controlled corporation in which the controller receives a non-pro rata benefit, unless the controller complies with the cleansing steps outlined in the Delaware Supreme Court's 2014 opinion in Kahn v M&F Worldwide Corp.
In 2014 an Oregon trial court refused to enforce a Delaware exclusive forum selection bylaw that would have barred an Oregon litigation challenging a merger. The Oregon Supreme Court has now reversed that trial court ruling, holding that the exclusive forum selection bylaw was valid and enforceable, and compelled stockholders challenging the transaction to pursue their claims in Delaware.
The Delaware Court of Chancery recently reiterated the court's belief that settlements of M&A litigation where the target agrees to issue supplemental public disclosures in exchange for a global release of all claims relating to the transaction "rarely yield genuine benefits for stockholders and threaten the loss of potentially valuable claims that have not been investigated with rigor".
In a recent post-trial opinion the Delaware Court of Chancery held David Murdock and Michael Carter of Dole Food Company, Inc liable for $148 million in damages for their conduct relating to the transaction in which Murdock took Dole private for $13.50 per share. While the facts were relatively extreme, the opinion can be read as a warning to corporate officers that they may be held personally liable for bad-faith conduct detrimental to the stockholders.
The Delaware Court of Chancery has declined to dismiss a claim that a target company's board breached its fiduciary duties when it agreed to deal protection measures that stockholder plaintiffs claimed were unduly burdensome and restrictive to a potential alternative bidder. The decision offers guidance on the upper boundaries of 'reasonableness' and the factors that the courts will look at when evaluating the preclusive effect of deal protection measures.
A New York court recently held that the common interest privilege protected pre-merger communications between parties that ultimately consummated a change-in-control transaction. Importantly, the court clarified that the common interest privilege can apply even when there is no "pending or reasonably anticipated litigation", which many New York courts had previously held was a necessary predicate to apply the common interest privilege.
In a recent opinion the Delaware Supreme Court reversed a lower court ruling enjoining a merger transaction, holding that Revlon duties do not require a board to shop a corporation affirmatively and that a board can satisfy Revlon scrutiny by pursuing a reasonable sale process in good faith, implementing a "passive market check" and providing its stockholders with a full and informed opportunity to vote on the transaction.
A recent Oregon decision demonstrates the risk that non-Delaware jurisdictions may decline to enforce a Delaware forum selection bylaw, in particular where that bylaw was adopted after the stockholder plaintiff filed suit or under other circumstances that may be viewed by a court (rightly or wrongly) as an attempt to 'insulate' a board from litigation related to a transaction.
Cornerstone Research recently issued its annual report on stockholder M&A litigation. The report concluded that stockholder litigation challenging public company transactions remains pervasive, with lawsuits filed in connection with 94% of transactions announced in 2013 that were valued at over $100 million. The report also showed that multi-forum M&A litigation remains common.
A recent Delaware Court of Chancery decision dismissing a stockholder plaintiffs' claims concerning an allegedly defective sales process illustrates the high bar that the court will apply to Revlon process claims against a disinterested board. In Houseman, the court rejected the plaintiffs' claims that the directors of Universata Inc had breached their fiduciary duties by administering an inadequate sale process.
The Delaware Court of Chancery has refused to issue an anti-suit injunction barring a Louisiana state stockholder litigation challenging Sumitomo Corporation of America's acquisition of Edgen Group, despite the fact that Edgen had a Delaware forum selection clause in its certificate of incorporation.
A recent court decision highlights the need to address explicitly by contract which party or parties will control attorney-client privilege with respect to pre-closing communications in the context of a sale structured as a merger where legal counsel jointly represents both the sellers and the target company acquired in the merger.