Ropes & Gray LLP

New York NY

For the key players in New York-based business and financial arena, the 300 legal professionals in our New York deliver industry savvy, a long-term commitment to New York, and the relationships and resources of a global firm. The firm’s New York-based lawyers are recognized leaders, both locally and internationally, in such key areas as M&A, finance, capital markets, bankruptcy and business restructuring, real estate, business and securities litigation and white-collar criminal defense—and we have been honored as one of the premier firms in New York and around the world for private equity, hedge funds, investment management, tax, intellectual property and health care.

Updates

Corporate Finance/M&A

In Delaware, notices and deadlines matter
USA | 03 July 2019

A recent Delaware Court of Chancery decision is illustrative of the principle that merger partners should not assume that anything less than strict compliance with notice requirements (particularly when they relate to termination rights) and deadlines in a merger agreement will be enforced. The case is also a cautionary tale of why one merger partner should never assume that the other merger partner still wants to do the deal as much as it does.

DOJ commentary underscores importance of pre-acquisition diligence
USA | 15 May 2019

In a July 2018 conference speech the Department of Justice (DOJ) deputy assistant attorney general (DAAG) for the Criminal Division underscored the importance of pre-acquisition Foreign Corrupt Practices Act (FCPA) diligence. The DAAG's remarks reinforced FCPA enforcement as a DOJ priority and provided a disclosure roadmap for buyers that uncover FCPA-related misconduct both pre and post-acquisition.

Addressing #MeToo in M&A
International | 17 April 2019

Companies in all industries are facing heightened reputational and legal risks in the #MeToo era, as employees are more likely to identify and report instances of misconduct or discrimination in the workplace (and such instances are more likely to become public). In the world of M&A, reputational and legal risks are ultimately risks to the bottom line – prompting private equity sponsors, institutional investors and strategic purchasers to focus on #MeToo issues when sourcing, diligencing and negotiating investments.

Chancery Court revisits fair value analysis in AOL appraisal action
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
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
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
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
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
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
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
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
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
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
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
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
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.

Chancery court addresses standing to bring fiduciary duty claims following freeze-out merger
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.

Additional Delaware guidance on avoiding extra-contractual fraud claims in sale transaction
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.

Delaware Chancery Court confirms continued applicability of MFW standard
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.

Interested directors may not extinguish breach of fiduciary duty claims through merger
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 dismisses disclosure claims relating to AOL's acquisition of Millennial Media
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
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
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.

Some courts reject disclosure-only settlements, but New York court adopts different approach
USA | 17 May 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
USA | 10 May 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
USA | 10 May 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
USA | 30 November 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
USA | 23 November 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
USA | 09 November 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
USA | 02 November 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"
USA | 26 October 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
USA | 19 October 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
USA | 12 October 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
USA | 12 October 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
USA | 05 October 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
USA | 28 September 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.

Delaware Court of Chancery rules on common law fraud claim following acquisition
USA | 24 August 2016

The Delaware Court of Chancery recently held that a seller's explicit disclaimer of extra-contractual representations in a merger agreement would not bar a buyer's claim of reliance on fraudulent extra-contractual representations. The court denied the selling stockholders' motion to dismiss due to the absence of an affirmative disclaimer of reliance on extra-contractual representations.

Entire fairness is operative standard of review for non-MFW controlling stockholder transaction
USA | 17 August 2016

The Delaware Court of Chancery recently issued a ruling in post-closing damages litigation regarding partial summary judgment in favour of minority stockholder plaintiffs. The court held that the entire fairness review applies when evaluating a two-step transaction with a controlling stockholder where the necessary conditions for obtaining business judgement deference established by the Delaware Supreme Court in Kahn v M&F Worldwide Corp have not been satisfied.

Court applies entire fairness standard to commercial arrangement with controlling stockholder
USA | 03 August 2016

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.

Opinion provides guidance on interpretation of contractual provisions relating to fraud-based claims
USA | 30 March 2016

Vice Chancellor Laster has issued an informative opinion on a motion to dismiss allegations of fraud under Delaware law in Prairie Capital v Incline Equity Partners. Although the opinion was made only on a motion to dismiss, it provides useful guidance for drafting and negotiating fraud provisions and serves as an important reminder of the importance for buyers and sellers to clearly define the scope of potential fraud-based claims.

Delaware Supreme Court upholds award of expectation damages
USA | 23 March 2016

In SIGA Technologies, Inc v PharmAthene, Inc the Delaware Supreme Court recently upheld a $113 million judgment against SIGA Technologies Inc over a failed merger and licensing agreement, in an opinion that provides useful guidance to practitioners as to the recovery of expectation damages.

Oregon Supreme Court enforces Delaware exclusive forum selection bylaw
USA | 23 March 2016

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.

Court reverses finding of financial adviser aiding and abetting liability
USA | 16 March 2016

The Delaware Court of Chancery had refused to dismiss a claim against Zale Corporation's financial adviser asserting that the adviser had aided and abetted an alleged breach of the duty of care by Zale board. However, following the Delaware Supreme Court's decision in KKR Financial, the court reversed its earlier decision and dismissed the claim against the adviser.

Hostile bid prevented by confidentiality agreement
USA | 16 March 2016

The California Superior Court has issued a preliminary injunction prohibiting Horizon Pharma, PLC from pursing its hostile bid to acquire Depomed, Inc. The decision bears great resemblance to a 2012 Delaware Court of Chancery decision, where the court blocked a hostile bid because of a violation of a confidentiality agreement, and provides some important reminders for prospective acquirers and sellers.

Demise of disclosure-only settlements? Delaware court outlines new regime
USA | 09 March 2016

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".

Delaware Supreme Court upholds Rural/Metro rulings
USA | 09 March 2016

The Delaware Supreme Court recently upheld the Delaware Court of Chancery's decisions in In Re Rural/Metro Corporation Stockholders Litigation. The Supreme Court found that the Delaware Court of Chancery's factual findings were adequately supported by the trial record, and upheld several key legal rulings made by the Delaware Court of Chancery.

Delaware Supreme Court confirms effect of majority vote of informed, disinterested stockholders
USA | 10 February 2016

The Delaware Supreme Court has upheld a Delaware Chancery Court ruling that a management entity with operational control of a target, but holding only 1% of its stock and without control of the board of directors, was not a controlling stockholder. The judgment focused on the principle that a fully informed majority vote by disinterested stockholders will lead to business judgement review of a transaction.

Technicalities disqualify Dell stockholders' appraisal rights under 'continuous holder' requirements
USA | 27 January 2016

The Delaware Court of Chancery has granted summary judgment in favour of Dell, Inc, denying appraisal rights to three funds and two retirement plans that had acquired Dell shares after the announcement of a going-private transaction because they had not met the statutory 'continuous holder' requirement.

Bad-faith conduct prevented "fairer price" in take-private transaction
USA | 20 January 2016

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.

Delaware Chancery Court describes standards for attorneys' fees
USA | 23 September 2015

The Delaware Chancery Court recently held that attorneys' fee awards should be calculated based on the gross settlement value, rather than the net settlement value, which is how it has traditionally determined awards. The court also discussed the appropriate amount of attorneys' fees, relying on the Sugarland factors to determine the amount of fees to be awarded to the plaintiffs' counsel.

Prior parent corporation's settlement agreement does not apply to spun-off entity
USA | 09 September 2015

A Delaware court recently rejected a stockholder's challenge of a stockholder rights plan adopted by News Corporation, finding that it was not bound by a settlement agreement entered into by its former parent entity. This opinion clarifies that the Delaware courts are reluctant to apply contractual obligations to spun-off entities when there is no clear contractual basis in the spin-off documents for doing so.

Plaintiffs strike out in two recent Delaware appraisal actions
USA | 02 September 2015

The Delaware courts have twice in the past few months ruled in statutory appraisal actions that the negotiated transaction price was the most reliable indicator of value. This is part of a continuing trend in Delaware appraisal case law that demonstrates the risk to activist shareholders in bringing appraisal actions in the face of transactions that have been arrived at after a robust and properly conducted sale process.

Dispute over accounting methodology is subject to arbitration procedures
USA | 26 August 2015

A recent decision highlights the care that practitioners must use in crafting purchase price adjustment provisions in order to prevent unwanted outcomes with respect to post-closing disputes. Parties may wish to specify in the purchase price adjustment provisions whether questions of accounting methodology will be resolved using the arbitration mechanism or by the courts.

Delaware Supreme Court finds purchaser did not breach earn-out provision
USA | 19 August 2015

The Delaware Supreme Court recently upheld a Delaware Chancery Court ruling holding that a purchaser did not violate the terms of a merger agreement's earn-out provision. The case concerned a merger agreement through which QinetiQ North America acquired Cyveillance, a cybertechnology company. The decision shows the Delaware Supreme Court's willingness to rely on the language of the contract, rather than giving effect to extra-contractual claims.

Proposed amendments address appraisal arbitrage
USA | 24 June 2015

The Corporation Law Council of the Corporation Law Section of the Delaware State Bar Association recently released new proposed amendments to the Delaware General Corporation Law that address appraisal arbitrage, which has become an increasing phenomenon in recent years. The proposed amendments have now passed the Delaware legislature and, if signed into law as expected, will become effective as of August 1.

Damages for breach of contractual obligation to negotiate in good faith
USA | 17 June 2015

​In 2013, in SIGA Technologies, Inc v PharmAthene, Inc, the Delaware Supreme Court affirmed that a contractual obligation to negotiate in good faith is enforceable, and held that SIGA Technologies had breached its contractual obligation to negotiate a licence agreement in good faith after a failed merger. The Delaware Chancery Court has now held SIGA Technologies liable to PharmAthene for a total of $195 million.

Chancery court declines to apply fee-shifting bylaw to former shareholder
USA | 10 June 2015

In deciding what it characterised as an issue of "first impression", the Delaware Chancery Court recently held a fee-shifting bylaw to be inapplicable due to the timing of the bylaw's adoption. The court took care to emphasise that it was not called on to decide broader issues involving the bylaw's application, including the "serious policy questions implicated by fee-shifting bylaws in general".

Implied covenant of good faith and scope of arbitration in earnout disputes
USA | 27 May 2015

Even the most carefully drafted earnouts can become fertile ground for legal battles. In two recent decisions the Delaware Chancery Court explored legal issues that are commonly implicated in earnouts. In Fortis the court considered an earnout construct under which the acquirer of the business was required to use "commercially reasonable best efforts" to achieve the earnout targets.

Ancestry.com price was fair, despite challenge from appraisal arbitrage investors
USA | 20 May 2015

In recent years, certain hedge funds have pursued an investment strategy known as 'appraisal arbitrage', pursuant to which they acquire stock of a public company after a merger is announced in the hope that the Delaware Chancery Court will determine that the fair value of such stock is actually higher than the merger price. However, many see a recent Delaware Chancery Court decision as a blow to the practice of appraisal arbitrage.

Delaware Chancery Court denies enforcement of drag-along right
USA | 13 May 2015

The Delaware Chancery Court has denied enforcement of customary drag-along rights where the controlling stockholders failed to properly exercise their drag-along rights in accordance with the governing stockholders' agreement. The court's decision highlights the importance for controlling shareholders of adhering strictly to the letter of a stockholders' agreement when exercising drag-along rights.

Chancery court considers reasonableness of deal protection measures
USA | 06 May 2015

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.

Court holds that common interest privilege governs pre-merger communications
USA | 29 April 2015

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.

Delaware Court of Chancery strikes down claims provisions in private merger
USA | 22 April 2015

The Delaware Court of Chancery granted a plaintiff stockholder a partial victory in its attempt to invalidate portions of a merger agreement, holding that a general release obligation was not supported by adequate consideration because it was contained solely in the letter of transmittal and that the stockholder's indemnification obligations were not defined with sufficient clarity to satisfy Delaware law.

Illinois court affirms single-bidder sale may satisfy Revlon duties
USA | 15 April 2015

An Illinois state court recently held that directors of Motorola Mobility's board did not violate their fiduciary duties to stockholders in selling the company to Google in a single-bidder sale process. The Illinois court applied and interpreted Delaware law, and the decision affirmed a basic principle of Delaware case law that there is no single, mandated way to conduct a sale process.

Delaware Supreme Court clarifies fiduciary duties in sale context
USA | 08 April 2015

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.

New regulations likely to slow 'inversion' deal activity
USA | 28 January 2015

Recently the frequency and notoriety of so-called 'inversion' transactions have increased dramatically. An inversion typically involves a US company merging with an overseas company, with the US company becoming a wholly owned subsidiary of the non-US parent. However, new Treasury and Internal Revenue Service rules are designed to limit key advantages of inversions in four ways.

Oregon court refuses to enforce Delaware exclusive forum selection bylaw
USA | 07 January 2015

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.

Court rules on failure to include management presentations in proxy statement
USA | 17 December 2014

In Dent v Ramtron the Delaware Court of Chancery dismissed a claim that a target's board breached its duty of candour by failing to disclose to stockholders internal management projections that the target company's financial adviser relied on in valuing the company. The case follows in a long line from the court's 2007 decision in In Re Netsmart Technologies, Inc Shareholders Litigation.

Chancery court confirms corporations owe no fiduciary duties to stockholders
USA | 10 December 2014

In Buttonwood Tree Value Partners, LP v RL Polk & Co, Inc the Delaware Court of Chancery dismissed stockholder claims against a Delaware corporation on the grounds that a corporation itself (as distinct from its directors and officers) owes no fiduciary duties to its stockholders, and that the corporation itself cannot aid and abet a fiduciary breach by its own directors and management.

Exculpation determined after entire fairness
USA | 10 December 2014

Under Section 102(b)(7) of the Delaware General Corporation Law, a company may adopt a bylaw provision exculpating breaches of a director's duty of care, and many do. A recent case will offer the Delaware Supreme Court an opportunity to discuss the application of this section to transactions involving a controlling stockholder that are subject to the stringent review of the entire fairness standard.

Delaware General Corporation Law amended
USA | 03 December 2014

Several amendments to the Delaware General Corporation Law have come into effect. The amendments are designed to eliminate limitations on use of the statutory top-up, including by eliminating the interested stockholder prohibition. The changes should further encourage the use of tender offers in connection with acquisitions of public company targets.

Rural Metro decision results in significant liability for financial adviser
USA | 19 November 2014

In In Re Rural Metro Corporation Stockholders Litigation, the Delaware Court of Chancery held Rural/Metro's financial adviser, RBC Capital Markets, liable for aiding and abetting the Rural/Metro board of directors' breach of its fiduciary duties in connection with the acquisition of Rural/Metro by Warburg Pincus. RBC was held liable for 83% of the damages suffered by the class, or $75.8 million.

Additional guidance on Kahn v M&F Worldwide Corp
USA | 12 November 2014

The Delaware Court of Chancery recently provided additional guidance on the application of Kahn v M&F Worldwide Corp, which permits the use of the deferential business judgement rule (rather than the more exacting 'entire fairness standard') to review transactions involving a controlling shareholder. The decision will likely further encourage use of the framework in squeeze-out transactions.

Appraisal decisions: deal consideration as fair value
USA | 17 September 2014

In recent appraisal actions the Delaware Court of Chancery has shown a willingness to look to deal consideration in arm's-length transactions as the best indicator of fair value, breaking from its tradition of using discounted cash flow to determine a company's value. Two recent decisions confirm this trend, but also show the limitations of the court's willingness to use deal consideration as a value measure.

Report shows continued ubiquity of stockholder M&A litigation
USA | 17 September 2014

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.

Despite favourable ruling, Sotheby's settles with activist investor
USA | 03 September 2014

The Delaware Court of Chancery recently declined to invalidate Sotheby's adoption of a two-tiered stockholder rights plan (poison pill) with a lower trigger for activist investors. The Sotheby's board subsequently settled with the activist investor that the poison pill was meant to deter.

Stockholder plaintiffs must allege "extreme" facts to sustain Revlon process claims
USA | 03 September 2014

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.

SEC issues broker-dealer no-action letter for M&A brokers
USA | 09 July 2014

In January 2014 the Securities and Exchange Commission (SEC) issued a no-action letter stating that, under certain circumstances, it will not require a finder, consultant or other intermediary helping to facilitate a private M&A transaction to register with the SEC as a broker-dealer. The letter creates no-action relief for many of the referral arrangements that private equity firms enter into with third-party finders or consultants.

Court highlights liability for tortious interference by buyers and their officers
USA | 02 July 2014

A recent California case serves as a cautionary note for buyers and their officers and directors when an acquisition may have a material negative impact on a key technology licence of the target. The California Supreme Court upheld a decision affirming a $385 million verdict against Actelion Pharmaceuticals for interference with a licence agreement between a company that Actelion acquired and Asahi Kasei Pharma Corp.

Fairness claim involving management rollover in private equity buy-out proceeds
USA | 11 June 2014

A recent court decision illustrates the litigation risks that can arise in the context of a private equity buy-out when managers holding a controlling share of a target roll over equity into the new company while minority stockholders get cashed out. It demonstrates that boards should be vigilant in addressing any potential conflicts of interest between insider stockholders and other stockholders.

Delaware reaffirms latitude granted to informed, independent boards of directors
USA | 04 June 2014

In In re Answers Corporation Shareholders Litigation the Delaware Court of Chancery granted summary judgment in favour of the director defendants facing claims arising out of the sale of Answers Corporation in a 2011 going-private transaction. In its decision the court generally reaffirmed the latitude that Delaware courts will grant to an informed, independent board of directors.

Delaware court rejects attempt to stop accrual of statutory interest in appraisal action
USA | 28 May 2014

In a statutory appraisal action arising out of Apollo Global Management's 2011 acquisition of CKx, Inc, the Delaware Court of Chancery refused to order Huff Fund Investment Partnership to accept the undisputed minimum value of its stock in order to stop the running of interest at Delaware's above-market statutory rate. The court held that it has limited discretion in determining interest awards in appraisal actions.

Court establishes standard of review for controlling stockholder merger
USA | 14 May 2014

The Delaware Supreme Court has issued its much-anticipated opinion in Kahn v M&F Worldwide Corp. The decision provides guidance on steps that controlling stockholders and other deal participants can take to avail themselves of the more favourable business judgement standard of judicial review in stockholder litigation involving squeeze-out transactions where there is a controlling stockholder.

Financial adviser liable for aiding and abetting board breach of fiduciary duties
USA | 07 May 2014

The Delaware Court of Chancery has published a post-trial opinion in In Re Rural/Metro Corporation Stockholders Litigation. The decision is the latest in a series of Delaware opinions concerning conflicts of interest of banks and investment firms in advising companies in sale transactions, and evidences Delaware's continuing scepticism regarding staple financing.

New wave of shareholder activism prompts M&A activity
USA | 02 April 2014

The activist shareholder space experienced a wide variety of developments in 2013. This recent activity suggests that shareholder contests are no longer limited to large companies and that anticipation and defence against unwelcome activism may become a more commonplace aspect of a company's general corporate governance considerations.

Court relies on deal price to assess fair value in appraisal action
USA | 02 April 2014

In a recent appraisal action, the court adopted the deal price as the appropriate measure of fair value, which is contrary to the traditional emphasis on discounted cash flow valuations and recent opinions that expressly declined to adopt deal price as an appropriate measure of fair value.

Cooper terminates Apollo deal
USA | 26 March 2014

Cooper Tire & Rubber Company terminated its merger agreement with affiliates of Apollo Tyres Ltd one day before the agreement's 'drop dead' date, after it became clear that Apollo's financing sources would not renew their commitments. Following the termination, the parties are expected to continue litigating the issue of damages.

Court refuses anti-suit injunction despite forum selection clause
USA | 26 March 2014

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.

Vivendi-Activision repurchase allowed to proceed
USA | 19 March 2014

The Delaware Supreme Court has unanimously reversed a decision to halt Activision Blizzard, Inc's plan to buy back its own shares from majority owner Vivendi. The decision centred on whether the proposed repurchase constituted a "merger, business combination or similar transaction".

Guidance on notice provisions and survival periods
USA | 19 March 2014

In a recent case involving a dispute over a stock purchase agreement, the Delaware Court of Chancery provided important guidance with respect to the use of survival clauses to shorten by agreement the three-year statute of limitations for breach of contract claims, as well as procedural aspects of contractual indemnification.

Earn-out obligations and defence costs
USA | 12 March 2014

The Delaware Supreme Court has ruled that, without provisions in an agreement specifying the actions that a buyer must take to maximise earn-out payments, the implied covenant of good faith and fair dealing does not require a buyer to run its business in order to maximise earn-out payments to the sellers.

Retail rivals launch competing merger proposals and defensive manoeuvres
USA | 12 March 2014

In 2013 Jos A Bank made an unsolicited offer to acquire Men's Wearhouse, which precipitated a flurry of competing acquisition offers and takeover defences by the competing clothing retailers. Jos A Bank formally withdrew its offer later in the year, at which point Men's Wearhouse made a counteroffer to acquire Jos A Bank.

Privileged pre-closing communications belong to surviving corporation
USA | 05 March 2014

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.

Weak fairness opinion not an independent violation of Revlon duties
USA | 05 March 2014

A recent Delaware Court of Chancery decision makes clear that a target board's reliance on a "weak" fairness opinion is not an independent violation of a board's Revlon duties and will not be evaluated by the Delaware courts in isolation from the sale process generally.

Delaware Supreme Court refuses to expand exceptions to ownership requirement
USA | 19 February 2014

The Delaware Supreme Court recently assuaged fears of a shift in power favouring the plaintiffs' bar in its recent response to a certified question from the Ninth Circuit relating to Bank of America's rescue merger of Countrywide Financial in 2008. A shift would have given shareholders greater leverage in, and incentive to pursue, derivative strike suits against corporate boards.

New York state court finds Kenneth Cole's go-private to be sound
USA | 19 February 2014

In a recent decision concerning the take-private of Kenneth Cole Productions, the Commercial Division of New York State Supreme Court dismissed stockholder plaintiffs' claims regarding the propriety of that transaction and held that the business judgement rule governed such claims.

Fair price can trump unfair process
USA | 15 January 2014

The Delaware Chancery Court recently ruled that a $60 million deal to sell a translation software firm was fair to common shareholders which challenged the transaction, since their shares retained the same value of zero before and after the sale under the Delaware entire fairness test. The case is of particular interest to investors considering transactions involving distressed companies with preferred shares.

'Liquidity conflict' rejected; 28% stockholder was not controlling stockholder
USA | 15 January 2014

A decision concerning the sale of Morton's Restaurant Group, Inc is the most recent case in a line of cases issued by the Delaware Court of Chancery that has rejected claims based on allegations that large, non-controlling shareholders wrongfully rushed sales at allegedly inadequate prices in order to gain liquidity.

The basket case
USA | 27 November 2013

In an opinion denying a motion to dismiss, the Delaware Chancery Court considered the relationship between an indemnification 'basket' and the interpretation of 'material' in purchase agreements, suggesting that it is at least plausible that the dollar amount of the basket may define 'material' for the purposes of the agreement generally.

Duty to negotiate in good faith gets enforced
USA | 27 November 2013

A Delaware Supreme Court decision affirming that a contractual obligation to negotiate in good faith was enforceable serves to remind that an agreement to negotiate in good faith should not be entered into lightly, and that it may be risky to unilaterally depart from the key agreed terms during a negotiation if a letter of intent includes a binding good-faith negotiation obligation.