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 Securities and Exchange Commission (SEC) recently issued a no-action letter permitting the post-merger survivor of two wholly owned adviser subsidiaries to use the performance record of the non-surviving adviser in the surviving adviser's advertisements. Critically, in a footnote to the no-action letter, the SEC noted that the "positions expressed in the [Great Lakes and Horizon] no-action letters continue to represent the staff's positions with respect to the circumstances presented therein".
While Kahn v M&F Worldwide Corp provided helpful guideposts for avoiding an entire fairness review in controlling stockholder transactions, as with any new doctrine, questions remained as to the judgment's application to different types of deal and negotiation and the consequences of small deviations from strict adherence therein. Recent guidance from the Delaware Court of Chancery has given way to updated ground rules for controlling stockholder transactions.
The Delaware Court of Chancery recently held that the best evidence of a company's fair value was its 30-day average unaffected (pre-announcement) market price. The case potentially represents a significant shift in how appraisal cases are decided. It may also be useful in understanding how the Delaware courts will apply two recent Supreme Court judgments which gave significant weight to the deal price as the best measure of fair value where it results from a third-party, arm's-length transaction.
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 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.
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.
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.
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.
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).
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.
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.
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.
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.
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".
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.