The way that Delaware courts have approached controlling stockholder transactions in recent years has given impetus to the DExit movement. Our readers are well aware of how the Delaware legislature has responded to this challenge, and we’ve also blogged about Nevada’s recent statutory changes designed to enhance controlling stockholders’ protection from liability – but what about Texas? How does The Lone Star State evaluate the obligations owed by controlling stockholders and what standard applies to judicial review of transactions with them? This excerpt from a recent Cooley blog provides some insight into these questions:
In the context of a controller transaction, Texas courts apply somewhat of an intermediate approach, focusing on the duty of loyalty in analyzing the propriety of director conduct. To prove a breach of a duty of loyalty, it must be shown that the director was interested in the transaction. Once it is shown that a transaction involves an interested director, the burden is then shifted to the directors to prove the fairness of their actions to the corporation – a heightened review regime more akin to entire fairness than the BJR.
A challenged transaction found to be unfair may nonetheless be upheld if ratified by a majority of disinterested directors or the majority of stockholders. With the recent TBOC amendments codifying the BJR, this heightened legal regime would not apply to a controller transaction in the case of a public company or company that opted into the BJR codification regime and complied with Texas law.
The blog points out that recent amendments to the TBOC also give the board of a public company the right to petition the Texas Business Court to determine the independence and disinterest of directors comprising special committees formed to review transactions with controlling stockholders, directors or officers.
Of all the challenges involved in a successful M&A transaction, post-deal integration is probably the hardest to get right – and effectively integrating key employees into the combined enterprise is often the hardest part of the integration process. This Foley blog provides some thoughts on how to get the “human factor” right. This excerpt discusses how to identify and manage talent:
Every business has mission-critical employees. Identifying and offering incentives to these employees can improve engagement in a transaction process and prevent an exodus of the most important talent. These types of incentives can take many forms, including retention bonuses, post-closing equity compensation, pre-negotiated employment and severance agreements, leadership opportunities, or clear paths for growth within the post-closing entity, and they can be offered to employees on both sides of the transaction. If certain employees will not be retained in the transaction, then handling their transition out of the business thoughtfully will also have a positive impact on overall morale.
The blog also emphasizes the importance of cultural due diligence during the M&A process in order to ensure that the cultures of the two parties align and recommends the use of individuals or teams of “cultural stewards” to identify issues that arise during the post-closing integration phase and keep employees aligned on shared values and goals.
Purchase price adjustment disputes often involve intricate interpretive issues in which the meaning of terms that the parties thought they had agreed upon during the negotiation process becomes hotly disputed. Not infrequently, the parties call upon the Chancery Court to sort things out. Vice Chancellor Will’s decision in Northern Data AG v. Riot Platforms, (Del. Ch.; 6/25) is the latest example of that.
The case arose following an accounting expert’s resolution of various purchase price adjustment issues in the buyer’s favor. The seller sought to have the Court overturn the expert’s decisions, contending that with respect to two items, the accounting expert applied a GAAP standard, instead of also considering the seller’s historical accounting practices reflected on the closing statement it submitted in accordance with the agreement. The seller challenged other determinations on the basis that they exceeded the expert’s authority because they should have been governed by the indemnification provisions of the agreement instead of addressed through the purchase price adjustment mechanism.
Vice Chancellor Will rejected the seller’s argument concerning the expert’s application of a GAAP standard to the purchase price adjustment. This excerpt from Gibson Dunn’s memo on the decision summarizes her reasoning:
The Court found that the SPA created a hierarchy whereby the Accounting Expert was obligated to apply GAAP as the primary standard. If GAAP allowed for multiple approaches, the Accounting Expert was required to determine the GAAP-compliant approach most consistent with the Illustrative Closing Statement. However, if GAAP allowed for only one approach and the Illustrative Closing Statement was noncompliant with the permitted methodology, the Accounting Expert had to apply the approach that complied with GAAP for PPA purposes.
The Court agreed with the Accounting Expert that GAAP only allowed for a single approach with respect to the accounting items at issue, which approach was not compatible with the Illustrative Closing Statement. The Court upheld the Accounting Expert’s determination, as the SPA provided that his resolution would be final and binding absent manifest error, and he had not committed such error in his assessment under GAAP.
Vice Chancellor Will agreed with the seller that the accounting expert exceeded his authority in attempting to resolve the validity of an account receivable and an account payable reflected in the seller’s net working capital through the purchase price adjustment process. Here’s how the memo summarizes that aspect of her decision:
In both cases, there were factual questions about whether the receivable and payable had already been paid, and the Court addressed how the validity of such items interacted with Seller’s representations regarding the target’s accounts receivable and indebtedness. The Court emphasized that the PPA true-up process had a “limited” role that was intended only to account for changes in the target’s business between signing and closing.
The goal of the PPA was to keep all measures other than such changes consistent, “to prevent parties from extracting value for which they did not bargain.” The Court determined that the validity of the two payments, however, turned on events that occurred prior to the relevant period and did not reflect changes in the target’s business during such period.
Instead, the Vice Chancellor concluded that although accounting matters may be implicated in determining the validity of the payments, the timing of the events in question meant that they implicated the accuracy of the seller’s reps & warranties. Accordingly, those claims should be pursued under the stock purchase agreement’s indemnification terms and not through the purchase price adjustment process.
In Jhaveri v. K1 Investment Management LLC, (Del. Ch.; 6/25), the Delaware Chancery Court declined to dismiss tortious interference claims brought by a former target stockholder against affiliates of the buyer and breach of contract claims against the target’s equityholder representative. These claims arose out of alleged misconduct associated with the representative’s decision not to pursue a lawsuit against the buyer for actions resulting in its failure to achieve an earnout milestone set forth the agreement.
The plaintiff brought breach of fiduciary duty and fraud claims against the buyer and various other defendants, but Vice Chancellor Will dismissed these claims on the grounds that they were covered by a broad release executed by the plaintiff in connection with the merger. However, she refused to dismiss claims that the equityholder representative Raj Goyle, who was the target’s former CEO, breached his obligations under the merger agreement.
Those breach of contract claims were premised on allegations that the representative was aware of active “interference” by certain affiliates of the buyer and its controlling stockholder in the achievement of the earnout but withheld written notice of their improper actions based on assurances of what the Vice Chancellor referred to as a “lucrative soft landing” from those affiliates.
Because the plaintiff’s breach of contract claim survived the motion to dismiss, Vice Chancellor Will turned to tortious interference claims brought against the buyer and the various affiliates. She noted that to prove a tortious interference claim, the plaintiff: “must show “(1) a contract, (2) about which [the] defendant[s] knew, and (3) an intentional act that is a significant factor in causing the breach of such contract, (4) without justification, (5) which causes injury.” At the outset, she dismissed the plaintiff’s claim against the buyer, because under Delaware law, a party to a contract can not tortiously interfere with that contract.
She then turned to the claims against the various affiliates. The Vice Chancellor acknowledged that tortious interference claims against a buyer’s affiliates must overcome the “affiliates exception,” which creates “a limited ‘privilege among affiliates to discuss and recommend action’ given their ‘shared economic interests.’” However, she said that this privilege only came into play when the affiliated party engaged in “lawful action in the good faith pursuit of its profit making activities.” In this case, she concluded that the plaintiff had adequately pled that the defendants’ conduct put them outside of the privilege:
He alleges that the K1 Defendants undertook “extraordinary steps to hide payments to Goyle”—including making “material misstatements” to Jhaveri and other [target] stockholders and taking other “bad faith acts”—to persuade Goyle not to challenge the earnout. Based on these facts, Jhaveri adequately pleads a “malicious or other bad faith purpose” allowing his tortious interference claim to proceed against [buyer’s] affiliates—provided that the elements of the claim are met.
Vice Chancellor Will also held that the plaintiff had adequately pled each of the other elements of a tortious interference claim against the buyer and controlling stockholders’ affiliates, and declined to dismiss those claims.
Yesterday, the SEC’s Division of Economic and Risk Analysis (DERA) announced the publication of a white paper intended to provide the public with information about changes in M&A activity over time. DERA used data on deals completed from 1990 to 2024 involving U.S.-based public and private acquirers and targets and at least a 50% stake purchased. The white paper analyzes:
– The U.S. M&A market over the past 35 years
– For recent (2020-2024) transactions, characteristics of a typical M&A deal and companies involved in it
– Geographic breakdowns based on acquirer and target locations within the U.S.
ICYMI, last week, Bloomberg reported that Goldman is back in the SPAC market. After being the second-largest underwriter of SPAC IPOs in 2021, the firm made the decision in 2022 not to work with SPACs anymore — through a self-imposed ban on underwriting SPAC IPOs or working on de-SPAC transactions — apparently deeming it too risky across the board.
It’s returning to assessing SPAC transactions on a case-by-case basis, although it may also limit the sponsors the firm decides to work with. All in all, this seems like a good sign for the SPAC market. But I also worry this means Goldman doesn’t expect the “IPO slump” to end anytime soon.
In a recent HLS blog, Sidley’s Kai Liekefett, Derek Zaba, and Leonard Wood discuss activism in the 2025 proxy season. They note a downward trend in activism overall:
The broad tariffs imposed by the Trump Administration had a significant impact on corporate deal-making in 2025 and helped to cool overall activity in shareholder activism . . . Compared to the prior year, 2025 saw approximately a 10% decline in activist campaigns initiated overall, 26% decline in proxy fights initiated, 15% decline in dissident nominations, 10% decline in Schedule 13Ds filed, and 10% decline in formal settlements.
They also made these observations about how the season played out:
In 2025, value beat virtue, as activists zeroed in on value and capital allocation and sidelined sustainability topics.
Under the universal proxy system, now in its third year, investors happily elected only parts of activist slates.
While proxy advisors continued to factor heavily in outcomes, and often recommended for dissident candidates, in one key contest they didn’t carry the day in the face of a tenacious company campaign.
This proxy season also saw a resurgence in the prominence of traditional economic activists using “vote no” (or “withhold”) campaigns instead of proxy contests.
And companies and activists were reminded to expect the unexpected, as regulatory and political curveballs—from CFIUS reviews to significant SEC guidance—showed a capacity to abruptly reshape campaign tactics and outcomes.
On “vote no” campaigns, the blog says this may not be indicative of a long-term trend and instead — “may have been a circumstantial feature of the 2025 proxy season, owing to the specific nature of a few campaigns in 2025.” Here are a few of the other key takeaways from year-to-date trends:
Performance still trumps every other issue. The key campaigns of the year have centered on TSR and capital-allocation pain points — mega hydrogen cap-ex at Air Products, refinery margins at Phillips 66, sales slides at Harley-Davidson, valuation at U.S. Steel and other companies. While activists avoided ESG rhetoric, value creation was the rallying cry.
Universal proxy continues to encourage “split decisions.” Shareholders felt comfortable electing only part of an activist slate (Air Products 3-of-4, Phillips 66 2-of-4). Boards should not necessarily think of “all-or-nothing” dynamics, and are not expecting to need a clean sweep in order to claim victory.
Proxy-advisor backing is helpful, but not necessarily decisive.ISS and Glass Lewis endorsed the dissidents at Air Products, Phillips 66, Matthews International and elsewhere, with mixed results in each case. This underscores that winning with BlackRock, Vanguard, and State Street matters more than winning the proxy advisors.
Politics, abrupt regulatory changes, and geopolitics can change the battlefield overnight. Ancora’s U.S. Steel withdrawal after a new CFIUS review shows how policy shifts can upend an activist timeline and force tactical retreats. The SEC guidance change of February 2025 also played its role in causing activists to be more cautious, especially in February and March – critical months in the ramp up of the proxy season.
The May-June issue of the Deal Lawyers newsletter was just sent to the printer. It is also available online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– Delaware Adopts Significant DGCL Amendments Related to Control Person Transactions and Stockholder Books and Records Requests
– Methods To Allocate Tariff-Related Risks in M&A Agreements
– The Current Landscape of Reverse Mergers: An In-Depth Analysis and Q&A
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at info@ccrcorp.com or call us at 800-737-1271.
When the FTC sued to enjoin Microsoft’s acquisition of Activision Blizzard (well-known for its popular Call of Duty video games), it argued that Microsoft would make the game exclusive to Xbox, diminishing competition with Sony’s PlayStation. In a May ruling in FTC v. Microsoft Corp., the Ninth Circuit affirmed the District Court’s denial of the FTC’s request to enjoin the merger, and the FTC subsequently dropped the related administrative litigation. Jody Boudreault of Baker Botts walks through the Ninth Circuit’s decision in an article for Bloomberg and offers suggestions for documenting and clearing vertical mergers subject to antitrust scrutiny, utilizing the dispositive factors outlined in the decision.
For example, the Ninth Circuit considered whether Microsoft was incentivized to foreclose external sales. In finding that it was not, it cited the importance of PlayStation sales to Call of Duty’s success (2x that on Xbox) and the fact that Microsoft could suffer reputational harm by removing Call of Duty from PlayStation.
Given those two important factors cited by the Ninth Circuit, the article suggests:
– That parties to vertical mergers use “deal assessment materials and future projections” to “carefully document business strategies and realistic post-merger plans involving third-party sales” and
– That parties to vertical mergers develop evidence of potential reputational risks from post-closing anticompetitive behavior.
It makes numerous other recommendations based on the Ninth Circuit’s reasoning.
On Wednesday, the Delaware Supreme Court issued its decision in In re Columbia Pipeline Group, Inc. Merger Litigation, (Del. 6/25), which reversed a Chancery Court ruling finding a buyer liable for $400 million in damages for aiding and abetting breaches of fiduciary duty by the target’s directors and officers.
In a 99-page opinion authored by Justice Traynor, the Court relied heavily on its recent Mindbody decision, which was issued after the Chancery Court’s Columbia Pipeline decision. The opinion notes that there are four elements that must be established in order to prevail on an aiding and abetting claim: (1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s duty, (3) knowing participation in that breach of the defendants, and (4) damages proximately caused by the breach.”
The “knowing participation” element was the central issue in this case, and the Chancery Court held that this element could be established through constructive knowledge. Subsequently, Mindbody clarified that a plaintiff must show that the buyer had actual knowledge of both the breach itself and that its own conduct regarding the breach was improper (i.e., “culpable participation”) in order to establish knowing participation.
Justice Traynor said that the circumstances cited by the Chancery Court were insufficient to satisfy this actual knowledge requirement. As in Mindbody, the Court also concluded that aggressive bargaining tactics in the buyer’s own self-interest do not constitute the kind of culpable participation that can give rise to aiding and abetting liability:
[A]n aider and abettor’s participation in a primary actor’s breach of fiduciary duty must be of an active nature. It must include something more than taking advantage of the other side’s weakness and negotiating aggressively for the lowest possible price. Put another way, a bidder who has not colluded or conspired with its negotiating counterpart, who does not create the condition giving rise to a conflict of interest, who does not encourage his counterpart to disregard his fiduciary duties or substantially assist him in committing the breach, does not aid and abet the breach.
Similarly, as in Mindbody, the Court held that failures to comply with contractual obligations to notify the target of misstatements in its proxy materials were insufficient to establish the kind of substantial assistance to the breach contemplated by the knowing participation requirement:
Our analysis of a claim that a buyer aided-and-abetted disclosure breaches by a seller, however, is not a question of whether the buyer breached its contractual obligation alone. Instead, we evaluate whether the buyer’s conduct constitutes “substantial assistance” in the seller’s disclosure breaches. “Substantial assistance” in this context extends beyond “passive awareness of a fiduciary’s disclosure breach that would come from simply reviewing draft Proxy Materials.”
The Court said that in order to establish that the buyer provided substantial assistance, the plaintiff had to demonstrate that the buyer “knew that its failure to abide by its contractual duty to notify [Columbia] of potential material omissions in the Proxy Materials was wrongful and that its failure to act could subject it to [aiding-and-abetting] liability.” In other words, “the knowledge that matters for the second prong of [the knowing participation element] is knowledge that the aider and abettor’s own conduct wrongfully assisted the primary violator in his disclosure breach.”