Merger Litigation

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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

It is now clear that, for Delaware companies, a charter or by-law forum selection clause (FSC) is a valid and promising response to the problems posed by multi-jurisdictional disputes involving claims based upon internal corporate affairs (such as M&A litigation and derivative actions).  Three recent rulings by “foreign” courts – each of which granted motions to dismiss based upon an FSC selecting Delaware as the exclusive forum – show that foreign courts will respect and enforce these clauses. 
Continue Reading Forum Selection Clauses in the Foreign Court

(1) The problems posed by multi-jurisdictional disputes involving claims based on internal corporate affairs (such as M&A litigation and derivative actions) are pervasive and profound,

(2) Forum selection clauses (FSCs) offer a promising solution to these problems, and

(3) The efficacy of this solution is materially enhanced by the further adoption of a consent to jurisdiction clause that permits the defendants to enforce the FSC in the chosen forum.[1] 
Continue Reading Further Enhancing the Promise of Forum Selection Clauses Through Stockholder Consent to Jurisdiction: The Edgen Lesson

The multiplicity of cases brought on behalf of the same stockholder group (or as derivative actions) against the same defendants based on the same conduct and asserting the same fiduciary duty claims is now well documented. The benefits of consolidating such litigation in a single forum have also been well established.
Continue Reading Enhancing the Promise of Exclusive Forum Clauses by Having Stockholders Consent to the Jurisdiction of the Selected Forum

In a much anticipated decision, the Delaware Chancery Court upheld on June 25, 2013 the validity of the forum selection bylaws adopted by the boards of directors of FedEx Corporation (“FedEx”) and Chevron Corporation (“Chevron”). Such bylaws provide that stockholders bringing derivative claims or claims alleging breaches of fiduciary duties, arising from the Delaware General Corporate Law (the “DGCL”) or otherwise implicating the internal affairs of the corporation be brought exclusively in Delaware state or federal courts.
Continue Reading Should Your Company Adopt A Forum Selection Bylaw?

Chancellor Leo Strine’s opinion in In re MFW Shareholders Litigation (Del Ch. May 29, 2013) marks the culmination of an effort by the Chancellor, going back to his lengthy dicta in In re Cox Communications Shareholders Litigation (Del Ch. 2005), to arrive at a more unified standard for review of buy-outs of a company’s public float by a controlling stockholder.  The headline conclusion is that, assuming this decision is not reversed by the Delaware Supreme Court on appeal, controlling stockholder buyouts structured as negotiated mergers may now join controlling stockholder buyouts that take the form of unilateral tender offers in having available a theoretical path that permits challenges to be dismissed on pre-trial motions.
Continue Reading Controlling Stockholder “Going Private” Transactions after In Re MFW: Reasons to Be Wary of the Path to the Business Judgment Rule

In the years since the financial reporting scandals and the Sarbanes-Oxley Act of 2002, and in particular following the financial crisis and the Dodd-Frank Act of 2010, boards of directors have faced greater burdens and more intense scrutiny of their activities and performance. One manifestation of this has been pressure to change the role of directors from one of partnership with and oversight of management to one of an almost quasigovernmental watchdog directly responsible for monitoring management’s performance, including its compliance with increasingly complex and burdensome regulation. In addition, activist investors continue to publicly push some boards to pursue strategies focused on short-term returns, even in instances where those strategies are inconsistent with the directors’ preferred, sustainable long-term strategies for the corporation.
Continue Reading Selected Issues for Boards of Directors in 2013

In In re Del Monte Foods Company Shareholders Litigation,* Vice Chancellor Travis Laster preliminarily enjoined a shareholder vote on an acquisition of Del Monte Foods by a group of private equity firms based on a preliminary finding that the sales process was tainted by the misconduct of the company’s investment banker, with the knowing participation of the buyers.  While the company had already mooted the plaintiffs’ disclosure claims through a supplemental proxy statement, the court delayed the vote for a period of 20 days, during which time the “no shop”, break-up fee and matching right provisions of the merger agreement would not apply, in order to enable competing bidders to make proposals.
Continue Reading Lessons of Del Monte Foods For Companies Running (or Considering) a Sale Process

In a May 25, 2010 decision, In re CNX Gas Corporation Shareholders Litigation, the Delaware Chancery Court raised the bar for controlling stockholders seeking to acquire a controlled subsidiary.  Examining a two-step transaction (a unilateral tender offer followed by a short-form merger), the court held that the claims against controlling stockholders in connection with such acquisitions will be entitled to review under the deferential business judgment rule (as opposed to the stricter “entire fairness” standard) only if the offer both (1) is affirmatively recommended by an independent special committee that has been delegated full authority of the board with respect to the offer and (2) contains a satisfactory “majority-of-the-minority” condition.  Contrary to long-standing Delaware Supreme Court precedent, the court also stated that, if these standards were satisfied, a going private transaction structured by a controlling stockholder as a long-form merger should also be subject to review under the business judgment rule.  The decision has important implications for controlling stockholders and their advisors in structuring and carrying out going private transactions.
Continue Reading Delaware Court of Chancery Revisits Standard for Going Private Transactions with Controlling Stockholders

On May 13, 2010, in Maric Capital Master Fund, Ltd. v. PLATO Learning, Inc., Vice Chancellor Strine preliminarily enjoined the acquisition of PLATO Learning by Thoma Bravo LLC on the basis of misleading disclosures in PLATO’s proxy statement.  The opinion provides guidance on Delaware’s requirements for merger proxy disclosure regarding management projections, financial advisors’ analyses and contacts between the acquiror and target management.
Continue Reading Delaware Chancery Court Enjoins Merger Vote Over Disclosure of Investment Bank’s Analyses, Management Projections and Acquiror’s Conversations with Management