Ropes & Gray LLP updates

Chancery Court revisits fair value analysis in AOL appraisal action
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 10 April 2019

The Delaware Court of Chancery has issued its original opinion in a consolidated appraisal action arising out of Verizon Communications Inc's 2015 acquisition of AOL Inc. In contrast to a recent string of Delaware appraisal decisions, the court determined that reliance on the $50 per share merger price for determining AOL's statutory fair value was not warranted.

Delaware's amendments apply market-out exception to appraisal rights for Section 251(h) mergers
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 03 April 2019

Delaware Governor John Carney recently signed into law amendments to the Delaware Limited Liability Company Act and the Delaware General Corporation Law. Notably, the amendments expand the application of the market-out exception to appraisal rights, which has long been applicable to 'long-form mergers', to also include 'medium-form mergers'.

Court provides guidance on applicability of transaction price as measure of fair value
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 27 March 2019

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.

Chancery Court applies MFW framework in private equity merger transaction
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 13 March 2019

A recent decision applied the framework established by the Delaware Supreme Court in Kahn v M&F Worldwide Corp (MFW) and found that a merger transaction with a controlling private equity fund on both sides was entitled to business judgment review. The decision outlines the elements of the MFW roadmap and clarifies that its ab initio requirement requires only that the elements be in place prior to the commencement of negotiations.

Delaware appraisal decisions
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 05 December 2018

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.

Use of 'ticking fee' in Novartis-AveXis transaction
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 14 November 2018

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.

Chancery court allows Straight Path stockholders to pursue direct claims against company's former controlling stockholder
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 17 October 2018

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.

Delaware courts consider whether minority stockholders are controllers: Oracle and Tesla reviewed
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 03 October 2018

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.

New York Supreme Court enjoins Xerox acquisition
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 12 September 2018

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.

No-action letter addresses use of performance record after merger of adviser subsidiaries
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 04 July 2018

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".

Updated guidance (and ground rules) for controlling stockholder deals
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 16 May 2018

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.

Company's unaffected market price is best evidence of fair value for appraisal valuations
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 14 March 2018

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.

Delaware Supreme Court reverses Court of Chancery's Dell appraisal decision
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 17 January 2018

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.

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

Interested directors may not extinguish breach of fiduciary duty claims through merger
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 07 June 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 confirms continued applicability of MFW standard
Ropes & Gray LLP
  • Corporate Finance/M&A
  • USA
  • 07 June 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.

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

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