Meredith E. Kotler

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In In re Xura, Inc. Stockholder Litigation,[1] decided earlier this week, the Delaware Court of Chancery denied the target CEO’s motion to dismiss claims that he breached his fiduciary duties by “steer[ing]” the company into an allegedly unfair acquisition by a private equity firm that promised to retain him post-acquisition, while knowing that his job was in jeopardy if the target remained independent.  This case is yet another example of why disclosures are so important in the post-Corwin[2] era:  Vice Chancellor Slights rejected the CEO’s argument that the claims against him were extinguished by the stockholder vote approving the transaction, finding that a number of material omissions precluded a finding that the stockholders’ vote was fully informed.  The vote was thus ineffective to invoke the business judgment rule at the pleading stage.
Continue Reading Claim Against Target CEO Survives Dismissal, While Aiding and Abetting Claim Against Private Equity Buyer is Dismissed

The Delaware Court of Chancery recently denied Corwin cleansing[1] in a case involving the sale of a public company while it was engaged in a restatement of its prior audited financial statements.  See In re Tangoe, Inc. S’holders Litig., C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018).  If this sounds familiar, that is because it is the second time in two years that the Court of Chancery has denied a motion to dismiss shareholder litigation on Corwin grounds where the target was in the middle of a restatement process.[2]  Together, these decisions suggest that if a board decides to sell the company while under a cloud of an ongoing restatement process, it would need to satisfy a heightened level of scrutiny of its disclosures in order to obtain the benefit of Corwin.  The court in Tangoe, however, sought to reassure practitioners that it is not impossible to satisfy Corwin in a case involving an ongoing restatement by the target, and provided a checklist of the kinds of facts that, if disclosed, would result in pleading stage dismissal of a shareholder lawsuit in such a case.
Continue Reading Corwin Cleansing Denied For Company Sold During Restatement Process—Sound Familiar?

The Delaware Court of Chancery yesterday found an activist investor aided and abetted a target board’s breaches of fiduciary duty, most significantly by concealing from the target board (and from the stockholders who were asked to tender into the transaction) material facts bearing on a potential conflict of interest between the activist investor and the target’s remaining stockholders. See In re PLX Technology Inc. S’holders Litig., C.A. No. 9880-VCL (Del. Ch. Oct. 16, 2018). This decision serves as a reminder of the importance of full disclosure of material facts in cases involving potential conflicts (and not just of the potential conflicts themselves, but also of the ways in which such potential conflicts manifest themselves)—both at the board level and at the stockholder level. As this decision also demonstrates, in addition to the more familiar allegations of financial advisor conflicts, the court may find potential conflicts exist where an activist investor in the target with short-term interests that could be perceived to diverge from the interests of other stockholders is involved in merger negotiations.
Continue Reading Delaware Decision Provides Further Lessons for Directors, Activist Investors, and Financial Advisors in Negotiating Mergers

In the CBS-NAI litigation, the Court of Chancery denied CBS’s request for a TRO, which would have prevented NAI from exercising its rights as a controlling stockholder to protect its voting control before the CBS board could attempt to dilute such control. This important decision resolved an “apparent tension” in the law between the rights of boards and controlling stockholders in disputes over corporate control.
Continue Reading Lessons from the CBS-NAI Dispute: When (If Ever) Will the Court of Chancery Grant a TRO To Restrain a Controlling Stockholder From Taking Action to Prevent a Board From Diluting Its Voting Control?

Last week, the Delaware Court of Chancery issued its first significant appraisal decision applying the Delaware Supreme Court’s recent Dell[1] and DFC[2] opinions, which we’ve previously discussed here and here.  See Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., C.A. No. 11448-VCL (“Aruba”).  Although Dell and DFC both emphasized that deal price will often be the best evidence of fair value in appraisal actions involving open, competitive, and arm’s-length mergers of publicly traded targets, neither case involved a merger where the transaction resulted in significant synergies,[3] which are excluded statutorily from the determination of fair value.[4]  Picking up where those cases left off, the court in Aruba, despite finding that the deal price was the product of an uncompetitive and flawed process, nonetheless found fair value to be significantly below deal price because the merger resulted in significant synergies.  The court instead found fair value to be equal to the pre-announcement market trading price of the public shares, which was 30% below the deal price.  Subject to any appeal from this decision, Aruba continues, and in the context of strategic mergers expands upon, the trend of substantially reducing appraisal risk for buyers of public companies.
Continue Reading Delaware Court of Chancery Finds Fair Value in Appraisal Case To Be Unaffected Market Price

Last week, the Delaware Supreme Court issued another highly anticipated appraisal decision, Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd. Dell builds on the Court’s DFC decision earlier this year in which the Court held that the merger price will generally be entitled to significant, if not dispositive, weight in an appraisal…

Last month, we published a blog post explaining the basis for our view that Regulation G does not require a GAAP reconciliation when M&A disclosure documents present the management projections used by financial advisors to opine on the financial fairness of merger consideration.  We argued that these projections are not the type of information that Regulation G was adopted to police and that, in view of the bases in Delaware case law and Regulation M-A for including disclosure of these projections, they should be considered exempt from the reconciliation requirements of Regulation G and Item 10(e) of Regulation S-K.  Accordingly, we urged the SEC staff to provide guidance confirming our view.  
Continue Reading New SEC Interpretation Helps Limit Reg G as an Enabler of Merger Litigation

On August 1, 2017, the Delaware Supreme Court issued its highly anticipated decision in the appraisal appeal, DFC Global Corp. v. Muirfield Value Partners, L.P.  The Chancery Court’s decision below had garnered substantial attention for its determination that DFC Global’s fair value was approximately 7.5% higher than the deal price, even though the court found a robust and conflict-free sale process.  On appeal from that decision, DFC Global argued that the Delaware Supreme Court should adopt a presumption in appraisal actions that the deal price in arm’s length and competitive mergers equals fair value.  The appeal drew dueling amicus briefs from two groups of prominent professors, one in favor of this presumption,[1] and one opposed to it.[2]
Continue Reading Delaware Supreme Court Declines To Establish A Presumption In Favor Of Deal Price In Appraisal Actions—Or Did It?

In a decision issued on Friday that will likely slow the recent spike in appraisal suits, the Delaware Court of Chancery held that the fair value of Clearwire Corp. was $2.13 per share—less than half the merger price of $5 per share.  See ACP Master, Ltd. et al. v. Sprint Corp., et al., C.A. No. 8508-VCL (Del. Ch. July 21, 2017) (“Clearwire”).  The decision by Vice Chancellor Laster also found that Sprint Nextel Corp. (“Sprint”), which owned slightly more than 50% of Clearwire’s voting stock at the time of the merger, did not breach its fiduciary duties in acquiring the Clearwire shares it did not already own because the merger was entirely fair to Clearwire’s minority stockholders.
Continue Reading Chancery Finds Fair Value To Be Less Than Half Merger Price

When a corporation sells corporate assets to its (or an affiliate of its) controlling stockholder, Delaware courts generally will review that transaction under the exacting “entire fairness” standard.[1]  But what if the corporation’s minority stockholders are given the opportunity to participate along with the controlling stockholder in the purchase of the corporate assets pro rata to the extent of their stock ownership?
Continue Reading Chancery Court Suggests that Rights Offerings May Limit Liability in Transactions with Controlling Stockholders