Benet J. O'Reilly

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Earnout provisions in acquisition agreements can be a useful tool in bridging the valuation gap by deferring portions of the purchase price until certain post-closing milestones are achieved, and they are particularly common in developmental-stage pharmaceutical transactions.  Practitioners should take note of the September 5, 2024 opinion in Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc., in which the Delaware Court of Chancery held a buyer, Alexion, liable for breach of contract both for its failure to use commercially reasonable efforts to achieve milestones for which future earnout payments may have become due and for its failure to pay an earned milestone payment to selling securityholders of Syntimmune, Inc.[1]Continue Reading Delaware Court of Chancery Finds Buyer Failed to Use Commercially Reasonable Efforts in Pharma Milestone Payment Case

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2024”.

Artificial intelligence (AI) was the biggest technology news of 2023. AI continues to revolutionize business in big and small ways, ranging from disrupting entire business models to making basic support functions more efficient. Observers have rightly focused on the plentiful value-creation opportunities this new technology affords. Less attention has been given to the risks AI creates for boards and management teams, which call for sophisticated governance, operational and risk perspectives. This article identifies key areas of risk and offers suggestions for mitigation on the road to realizing the enormous benefits AI promises.Continue Reading AI May Do Wonders for Your Business, But What About Your Risk Profile?

Delaware law provides parties with significant flexibility to restrict or eliminate fiduciary duties in LLC agreements.  Sophisticated parties regularly take advantage of this flexibility by eliminating fiduciary duties of members and directors of LLCs.  These same parties, however, often choose not to extend these waivers to officers of the LLCs, often stemming from a desire to ensure that officers still have a fiduciary duty to be loyal to the LLC.  A new ruling from the Delaware Court of Chancery highlights the unintended consequences of excluding officers from the scope of the fiduciary duty waiver.Continue Reading New Delaware Ruling Highlights Unintended Consequences of Excluding Officers from Fiduciary Duty Waivers

In a noteworthy new post-sale appraisal ruling, the Delaware Court of Chancery in BCIM Strategic Value Master Fund, LP v. HFF, Inc.[1] awarded the petitioner additional consideration based on an increase in the value of the target company that arose between signing and closing.  The unique facts of this case, and particularly the sustained outperformance of the target in the interim period before closing, are worth keeping in mind in evaluating the risk that a successful appraisal proceeding can increase the amount of consideration payable in a public company acquisition.  Below we break down the Court’s analysis in determining fair value, how changes in each merger party’s valuation drove the appraisal result, and key takeaways.
Continue Reading Appraisal Update: Post-Signing Value Changes Drive Appraisal Result

On May 8, 2018, partners Benet O’Reilly and Adam Fleisher participated in a panel co-hosted by The Conference Board and Cleary Gottlieb to discuss Private Investment in Public Equity (PIPE) transactions, both for capital formation and strategic purposes.

Moderator Doug Chia, executive director of The Conference Board, Benet and Adam outlined the framework for a…

Investors frequently negotiate for a redemption right to ensure at least some return on preferred stock investments in a “sideways situation”—where the target company is neither a huge success nor an abject failure.  Continuing a consistent theme in recent Delaware jurisprudence, the Delaware Court of Chancery declined to dismiss a complaint alleging directors breached their duty of loyalty in taking steps to satisfy an investor’s redemption request.
Continue Reading Between Contractual and Fiduciary Duties: ODN Holding and the Rights of Preferred Stockholders

Shareholder activists, and the institutional investors who are increasingly supporting them, continue to press public company boards to take bold steps to unlock the value contained in their various businesses.  While some companies may have assets or business lines ripe for divestiture or spin off, targets of shareholder activism are often resistant to the clarion call to the “pure play” evolution process – and for good reason.  For many companies, in particular in the technology, media and telecommunications (TMT) space, maintaining diverse business lines can serve a strategic purpose despite different growth trajectories, profitability and trading multiples.  Furthermore, the spin-off/divestiture route may pose other challenges – such as the embryonic nature of a new division, the absence of sufficiently developed operations to be a full-fledged standalone company, adverse tax consequences of a separation or a desire to maintain control – which make a spin-off or divestiture undesirable or untimely.
Continue Reading Is Tracking Stock, Often Considered a Bygone Darling of the 90’s Tech Boom, in Line for a Comeback?

A recent case from the Delaware Court of Chancery serves as a reminder of the limitations of preferred stock redemption rights (sometimes called “put rights”) and of the importance of careful drafting in corporate charters.  In TCV v. TradingScreen, Vice Chancellor Noble found that a corporation was not required to pay a mandatory redemption payment to an investor where such payment could jeopardize the corporation’s ability to continue as a going concern.
Continue Reading Delaware Chancery Court Reaffirms Limitations on Preferred Stock Redemptions