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.
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On May 14, 2018, certain members of the CBS board filed suit in Delaware seeking authorization to issue a special dividend intended to dilute the voting control of NAI, CBS’s controlling stockholder. Shortly after NAI filed a countersuit on May 29, 2018, NAI moved to compel the production of certain communications involving CBS’s outside and in-house counsel, including privileged documents concerning the decision to declare the dilutive dividend. NAI’s motion raised important issues regarding the rights of board members to access privileged communications with company counsel, which we discuss in our latest post.
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The recent dispute between CBS and its controlling stockholder, National Amusements (NAI), should serve as a reminder that determining whether a director is “independent” is context specific. This post summarizes the applicable standards regarding independence and discusses how and when varying standards should be utilized in the context of controlled companies.
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In its recent Synutra opinion, the Delaware Supreme Court clarified that take-private transactions will be reviewed under the business judgment rule, so long as the controlling stockholder commits to special committee approval and a majority-of-the-minority vote before “substantive economic negotiations” take place, even if the controlling stockholder fails to self-disable in its initial written offer. The opinion, written by Chief Justice Strine, explained that the touchstone of the analysis is whether there was any “economic horse trading” before the conditions were put in place. (This memo expands upon our prior discussion of the Synutra decision, which was posted to the Cleary M&A and Corporate Governance Watch on October 10, 2018.)
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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.
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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.
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Until Vice Chancellor Laster’s decision last week in Akorn Inc. v. Fresenius KABI AG,[1] no Delaware court had released an acquiror from its obligation to close a transaction as a result of the occurrence of a “Material Adverse Effect.”[2]  The cases previously adjudicated in Delaware all had required the acquiror to close, often despite a significant diminishment in target value and, in some, the court criticized the acquiror for seeking to avoid its obligations based on little more than buyer’s remorse.  Against this weight of precedent, the Vice Chancellor found that the grievous decline of generics pharmaceutical company Akorn, Inc. after it agreed to be acquired by Fresenius constituted a MAC.  While Akorn presents a stark set of facts and the Delaware Supreme Court has yet to have the final word in the case,[3] the decision nonetheless provides useful guidance to practitioners in shaping and navigating MAC clauses and related contractual provisions.
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This is the third in a series of posts discussing certain issues and lessons for practitioners arising out of the recently settled dispute between CBS and its controlling stockholder.[1]Relevant background can be found here and additional posts in this series can be found here.

As described in a prior post, on May 17, 2018, the majority of the CBS board (other than the three directors with ties to NAI) considered and purported to approve a dividend of a fraction of a Class A (voting) share to be paid to holders of both CBS’s Class A (voting) common stock and Class B (nonvoting) common stock for the express purpose of diluting NAI’s voting interest in CBS, with the payment of such dividend conditioned on Delaware court approval.  In addition to diluting NAI’s voting power from about 80% to about 20%, such dividend would have also diluted the voting rights of other Class A stockholders.
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The Delaware Supreme Court has clarified that controlling stockholder take-private transactions will be reviewed under the business judgment rule, rather than the less deferential entire fairness standard, if the controlling stockholder self-disables by committing to special committee and majority-of-the-minority approval before “economic negotiations” take place, even if the controlling stockholder fails to do so in its initial written offer.  See Flood v. Synutra Int’l, Inc., No. 101, 2018 (Del. Oct. 9, 2018).[1]

The Delaware Supreme Court first announced in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) that business judgment review applies to a merger proposed by a controlling stockholder conditioned “ab initio” on two procedural protections: (1) the approval of an independent, adequately-empowered Special Committee that fulfills its duty of care; and (2) the uncoerced, informed vote of a majority of the minority stockholders.[2]
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This is the second in a series of posts discussing certain issues and lessons for practitioners arising out of the recently settled dispute between CBS and its controlling stockholder.[1] Relevant background can be found here and additional posts in this series can be found here.

The vast majority of public company shares are owned in “street name” – e.g., through a broker.  When holding shares in “street name,” a stockholder’s brokerage account reflects his or her ultimate beneficial ownership of such shares, but the records of the issuer (maintained by the issuer’s transfer agent) indicate that the broker (or more often, another intermediary through which the broker holds the shares) is the record holder of such shares.  In the typical case of “street name” registration, Cede & Co., as nominee for the Depository Trust Company (“DTC”), is listed on the issuer’s records as the holder of record of most of the issuer’s shares.  DTC, in turn, keeps its own account records, which list the DTC participants that hold those shares through DTC, including a number of brokers.  Finally, those brokers keep their own account records, listing the ultimate beneficial owners of such shares.  Contrast this with direct registration, sometimes referred to as “record ownership,” where the ultimate beneficial holder holds the shares directly and therefore the records of the issuer indicate that such person is also the holder of record of such shares.
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