Top 5 Delaware Case Developments in 2014 for M&A Practitioners
During 2014, the Delaware courts again issued a number of decisions directly impacting the M&A practice. Below we describe our picks for the top five developments for M&A practitioners with the following key takeaways:
1. MFW standard applied
- Business judgment rule applies to going-private transactions involving a controlling stockholder on the buy-side if the merger is conditioned from the start on the approval of both (a) an attentive special committee of independent directors that can decline the transaction, retain its own financial and legal advisors and negotiate a fair price and (b) a majority of the uncoerced and fully informed minority.
2. Control explained
- A minority stockholder has “control” if it has “actual control” and power over the board’s decision-making process in the transaction.
- A non-majority controlling stockholder who is not on both sides of a transaction will not trigger entire fairness review.
3. Indemnification tested
- A non-consenting stockholder cannot be bound by a broad release of claims in a letter of transmittal or be subject to an uncapped and indefinite indemnification obligation, which requires a direct contractual obligation between the parties.
- Parties should consider the interaction of indemnification provisions with relevant statutes of limitations and survival periods and ensure that the required notices and relevant information are given in a timely manner to preserve a claim.
4. Revlon and fiduciary duties examined
- Revlon does not require an active pre-signing market check, especially if the board has the ability to conduct a passive post-signing check.
- Courts tend to respect decisions by boards in which a majority of the directors are independent, but such deference is very fact-specific and therefore not easily replicated.
5. Delaware reaches out
- Forum selection clauses are enforceable and courts can limit the use of information gathered from books and records requests to actions brought in Delaware courts.
- A fee-shifting bylaw of a non-stock corporation was upheld, but the Delaware legislature will weigh in on this in 2015.
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