Case Law Developments

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There has historically been very little reasoned consideration by the UK Courts of MAC conditions in English law SPAs.   In contrast, there have however been a number of cases in the US Courts (particularly in Delaware) which have considered MAC conditions.   The Delaware Courts have interpreted MAC conditions narrowly and in a seller friendly manner – the Delaware Court of Chancery in the important IBP v Tyson Foods decision for instance said that MAC conditions were “best read as a backstop protecting the acquirer from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally significant manner”.  The Delaware Courts have also been reluctant to allow a buyer to trigger a MAC condition on the basis that the target had underperformed vis a vis forecasts provided prior to execution. [1]
Continue Reading Can a Pre-Completion Downward Revision to the Target’s Forecasted Performance Constitute a MAC in an English Law SPA?

In a noteworthy decision by Vice Chancellor Parsons, the Delaware Chancery Court in Longpath Capital, LLC v. Ramtron International Corporation[1] set the fair value of the target company at the agreed merger price minus estimated synergies.
Continue Reading Chancery Court Awards Merger Price less Synergies in Appraisal Proceeding

In a well-reasoned memorandum opinion, the Delaware Chancery Court in Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings, L.P.[1] provided to M&A practitioners a stark reminder to take extra care in crafting purchase price adjustment provisions, particularly in respect of their interplay with contractual indemnification clauses.
Continue Reading Revisiting a Trap for the Unwary in Purchase Price Adjustments

In Miramar Police Officers’ Retirement Plan v. Murdoch[1] the Delaware Court of Chancery dismissed plaintiff’s claims, refusing to hold that an “unambiguous” boilerplate successors and assigns clause operated to bind a spun-off company to the terms of a contract entered into by its former parent company.  The contract at issue generally restricted the former parent company from adopting a poison pill with a term of longer than one year without obtaining shareholder approval.  The decision will serve as a reminder to practitioners to carefully consider  the impact that significant corporate transactions could have on their clients’ contractual rights and obligations. 
Continue Reading Successors, Assigns and Spincos, Oh My!: Binding Spincos to Parent Obligations Requires Specificity

The UK Companies Act provides that a company can amend its constitutional documents by special resolution (being a shareholders’ resolution passed by 75%+ of votes cast by those shareholders voting on the resolution).  In private M&A transactions where the target has multiple shareholders and a drag right does not apply, a bidder wishing to acquire the entire issued share capital of the target may, given an amendment to the constitutional documents does not require unanimity, consider conditioning its proposal on the insertion of a drag right into the target’s constitutional documents.  Some practitioners have historically taken the view that amendments of this sort are unlikely to be enforceable.
Continue Reading Court of Appeal of England and Wales considers important questions for UK M&A transactions

In Pontiac Gen. Employees Retirement Syst. v. Ballantine (Healthways) [1], the plaintiffs  alleged that Healthways’ directors had breached their fiduciary duties by entering into a credit agreement with a “dead-hand proxy put” – that is, a provision that provides for an event of default under the credit agreement if the majority of directors on the board are replaced without the consent of the directors in office on the date of the credit agreement (or the consent of successors approved by such directors), without any room for existing directors to approve new directors if they were nominated in connection with a proxy contest. The complaint also alleged that, as lender, SunTrust should be liable for aiding and abetting such a breach of fiduciary duty.  
Continue Reading Recent Developments on “Proxy Puts”

The Delaware Supreme Court issued a welcome decision, In re Cornerstone Therapeutics Inc. Stockholder Litigation (Del. May 14, 2015), to remove an anomaly that had been inhibiting lower courts from dismissing monetary claims against independent directors based on their roles in the approval of related party transactions.  Nevertheless, even as the Delaware Supreme Court adopts principles to distinguish the state’s courts as director-friendly venues, independent directors will continue to bear burdens of discovery in Delaware and consequent risks of actions that seek monetary damages and survive motions to dismiss. In addition, the considerations for the insider counterparties (e.g., the controlling stockholders) participating in related party transactions, as outlined in our prior memoranda, remain unchanged. 
Continue Reading Liability of Independent Directors and Insiders in Conflict Transactions: A Practical Perspective on Recent Delaware Case Law

In his recent decision in In Re: El Paso Pipeline Partners, L.P. Derivative Litigation [1], Vice Chancellor Laster awarded $171 million in damages to the limited partners of a master limited partnership (“MLP”) that had challenged the MLP’s acquisition of  assets from a related party.   The transaction at issue — a so-called “dropdown” of assets — involved the sale to the MLP by its controller and general partner (El Paso Corporation) of certain LNG-related assets in exchange for approximately $1.41 billion in cash.
Continue Reading Related Party Transactions – Lessons from the El Paso MLP Decision

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

The 27th Annual Tulane Corporate Law Institute was held on March 19 and 20 in New Orleans.  As in prior years, panelists included preeminent M&A, financing and securities practitioners and members of the Delaware judiciary, as well as prominent investment bankers, proxy solicitors, public relations advisors and journalists.  In this series, we are highlighting three issues among the many topics discussed during the conference.  On Wednesday, we discussed appraisal arbitrage. Monday’s topic was forum selection bylaws. Today’s topic: fee-shifting bylaws and recently proposed amendments to DGCL §§ 102(f) and 109(b).
Continue Reading Highlights from the 2015 Tulane Corporate Law Institute: Fee-Shifting Bylaws