Delaware Law

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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 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

Directors of public companies are increasingly facing pressure from hedge fund and institutional stockholders to engage in accretive combinations with competitors.  But they must balance this pressure against the willingness of antitrust regulators in the United States, Europe, China and beyond to delay transactions and either require significant divestitures or conduct remedies or just block these combinations outright. 
Continue Reading Delaware Chancery Court Provides Guidance on Fulfillment of Fiduciary Duties When Evaluating Antitrust Risk

The widespread practice in private acquisitions of combining a “subsidiary merger” acquisition structure with release, indemnification, and escrow arrangements, which purport to bind the target stockholders, received a jolt from the Delaware Court of Chancery’s recent decision in Cigna v. Audax.
Continue Reading Wake Up Call for Private M&A Deal Structuring

In a typical public company merger agreement, the target is required to continue to operate in the “ordinary course of business” prior to closing.  This covenant provides protection for the buyer who is obligated to complete the acquisition subject only to the fulfillment of limited closing conditions, including, typically, the non-occurrence of a “Material Adverse Effect,” and wants some certainty as to what it will be acquiring come the closing. 
Continue Reading Operating in the Ordinary Course of Business after an Extraordinary Event: Cooper Tire & Rubber v. Apollo (Mauritius) Holdings

The Delaware Supreme Court’s May 8 opinion in ATP Tour, Inc. v. Deutscher Tennis Bund, is a reminder that corporate bylaws can be muscular vehicles for addressing many aspects of corporate affairs, including innovative mechanics for resolving disputes between stockholders and fiduciaries.  The swift response to ATP by the Delaware bar, and the anticipated amendments to the Delaware General Corporation Law, are also reminders that Delaware statutory law can change rapidly in response to emerging events in the marketplace.  Finally, what will remain of ATP after the General Assembly acts (as seems likely) has important implications to the use of bylaws outside of the narrow area ATP addressed—fee-shifting—including, particularly, forum selection clauses.
Continue Reading Muscular Bylaws: ATP’S Lessons of Continuing Relevance

On May 2, 2014, the Delaware Chancery Court denied a motion to preliminarily enjoin Sotheby’s annual stockholder meeting based on allegations by an activist stockholder, Third Point LLC, that the Sotheby’s board of directors violated its fiduciary duties by adopting a rights plan (or “poison pill”) and refusing to provide a waiver from its terms in order to obtain an advantage in an ongoing proxy contest. 
Continue Reading Rights Plans and Proxy Contests: Chancery Court Denies Activist’s Motion to Enjoin Sotheby’s Shareholder Meeting