Here’s news from Steven Haas of Hunton & Williams LLP:
On Tuesday, in In re Complete Genomics, Inc. S’holders Litig., Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued a noteworthy bench ruling in which he enjoined enforcement of a standstill agreement. The litigation involves the pending acquisition of Complete Genomics by BHI-Shenzhen. The standstill agreement at issue was with a third party and contained a “don’t ask/don’t waive” provision, meaning that the counter-party was prohibited from privately or publicly requesting a waiver of its restrictive covenants.
The court reasoned that the “don’t ask/don’t waive” provision was tantamount to a “bidder-specific no-talk clause.” In 1999, the Court of Chancery invalided a no-talk clause in Phelps Dodge Corp. v. Cyprus Amax Minerals Co. The Complete Genomics court held that no-talks and “don’t ask/don’t waive” provisions “impermissibly limit” a board’s “statutory and fiduciary obligations” to provide a current and candid recommendation to stockholders – an obligation that, according to the court, applies to both tender offers and long-form mergers. Thus, because the board had recommended the BHI-Shenzhen transaction, the “don’t ask/don’t waive” provision “represent[ed] a promise by a fiduciary to violate its fiduciary duty, or represent[ed] a promise that tends to induce such a violation.” As such, the target was enjoined from enforcing it.
Interestingly, the counter-party to the standstill agreement was not a party to the litigation, had not requested any judicial relief, and had not otherwise suggested it might submit a topping bid. Thus, this was not a situation like In re The Topps Co. S’holders Litig., 926 A.2d 58, 91 (Del. Ch. 2007), where a party to a standstill was trying to communicate with the target’s stockholders.
Nevertheless, this isn’t the first time Delaware courts have expressed concern over blanket prohibitions from seeking waivers under standstill agreements. At a settlement hearing last year in In re Rehabcare Group, Inc. S’holders Litig., C.A. No. 6197-VCL (Del. Ch. Sept. 8, 2011), Vice Chancellor Laster said “it is weird that people persist in the ‘agree not to ask’ in the standstill” and asked “[w]hen is that ever going to hold up if it’s actually litigated, particularly after Topps.” More recently, Vice Chancellor Parsons, in In re Celera Corp. S’holder Litig., C.A. No. 6304-VCP, mem. op. (Del. Ch. Mar. 23, 2012), commented on the combination of a “don’t ask, don’t waive” provision when combined with a broad no-solicitation covenant:
Plaintiffs have at least a colorable argument that these constrains collectively operate to ensure an informational vacuum. Moreover, the increased risk that the Board would outright lack adequate information arguably emasculates whatever protections the No Solicitation Provision’s fiduciary out otherwise could have provided. Once resigned to a measure of willful blindness, the Board would lack the information to determine whether continued compliance with the Merger Agreement would violate its fiduciary duty to consider superior offers. Contracting into such a state conceivably could constitute a breach of fiduciary duty (emphasis added).
Because Complete Genomics focused on the interaction of the “don’t ask/don’t waive” provision and a current board recommendation, the ruling doesn’t seem to preclude such provisions as a matter of law in every situation. Nevertheless, M&A parties should consider the implications of the ruling and consider revising their form standstills to permit non-public requests for waivers or include sunset provisions that cause the restrictive covenants to terminate once the target enters into a superior proposal.
The deal that wasn’t. It took a while but the PR site that housed a fake press release about Google buying ICOA finally took it down after a media barrage about its lack of authenticity on Monday. According to this article, the PR site blamed the snafu on identity theft. This PRNewser article explains how everyone was fooled by the fake – and how easy it is for a shady operator to post a fake…
From this Cooley news brief: This article in the WSJ reports that poison pills are on the rise – not your usual anti-predator pills, but rather pills to protect tax-loss carry forwards. According to the article, 115 shareholder rights plans have been adopted or amended since 2008 to protect tax-loss carry forwards generated during the financial crisis. During the preceding decade, only 26 poison pills were adopted for this purpose. This year “through Nov. 5, companies have adopted or amended 11 rights plans specifically to protect these assets, compared with 24 last year and a peak of 45 in 2009 during the depths of the crisis.” The trigger is typically set at 5%. The article notes that, if U.S. corporate tax rates are cut, the carrying value of these tax assets would be reduced, but probably not enough to suggest that they wouldn’t still be worth protecting.
Kevin LaCroix recently analyzed this interesting piece from Wilson Sonsoni’s Boris Feldman about the evolution in the plaintiff’s bar when it comes to M&A lawsuits. Check it out…
This November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– “But I Just Work Here!”: The Rise of Corporate Officer Fiduciary Liability
– When Companies Combine: Object Lessons in Managing Leadership Succession
– Vintage Deal Tools Reemerge
– Analysis: Say-on-Golden-Parachute Voting
– Checklist: How to Handle Stockholder List Requests
If you’re not yet a subscriber, try a “Free for Rest of ’12” no-risk trial to get a non-blurred version of this issue on a complimentary basis.
Here’s news from this Akin Gump alert: In a stark reminder that non-HSR-reportable transactions are fully subject to the antitrust laws–even after they have closed–the FTC, on October 12, 2012, filed a complaint and accompanying consent agreement attacking Magnesium Elektron North America, Inc.’s (MEL) 2007 acquisition of competitor Revere Graphics Worldwide, Inc. The $15 million acquisition was too small to be reportable under the Hart-Scott-Rodino Premerger Notification Act of 1976, as amended (“HSR Act”). While the government’s antitrust authority to challenge already-consummated transactions is unquestioned, it is very unusual for the FTC (or the Justice Department Antitrust Division) to reach back this far in time.
Here is a Reuters article from last week (and here’s DealBook’s take): The outspoken chief judge of Delaware’s Court of Chancery received a rebuke on Wednesday from the state’s Supreme Court, which told him to keep his “world views” out of his legal rulings. Chancellor Leo Strine, whose opinions interpret Delaware’s widely adopted corporate law and help shape Wall Street dealmaking, often contain at least a few colorful comments or observations, and his courtroom asides are legendary. For example, in an opinion in February, Strine said evidence of a phone call by Goldman Sachs Group Inc Chairman Lloyd Blankfein to El Paso Chief Executive Douglas Foshee brought Lionel Richie’s 1980s hit “Hello” to mind.
In a ruling on Wednesday, the Supreme Court took Strine to task not for his decision in a case about Auriga Capital, which the court upheld, but for a 10-page detour on the arcane issue of whether limited liability companies have default fiduciary duties. The Supreme Court wrote that if Strine wanted to “ruminate on what the proper direction of Delaware law should be” he should do so in law review articles and speeches, not in his opinions. “We remind Delaware judges that the obligation to write judicial opinions on the issues presented is not a license to use those opinions as a platform from which to propagate their individual world views on issues not presented,” the Supreme Court wrote.
The Supreme Court dedicated five pages of its 34-page ruling to reining in Strine, saying his analysis was based on a flawed reading of several cases. Strine did not immediately respond to a message left with his chambers seeking comment.
While Wednesday’s ruling was per curiam, or the work of the whole court, it may have its roots in a simmering dispute between Strine and Supreme Court Chief Justice Myron Steele. Steele took issue with the section of Strine’s opinion on fiduciary duties during a hearing on the Auriga Capital case in September. “Why did he go to this whole diatribe, for lack of a better word, of about how ignorant people are who think other than he does about whether the default position is (that) fiduciary duties apply or (do) not apply?” Steele said at the time. As well as his colorful opinions, Strine is also known for his courtroom digressions, which have ranged from discussions of incentives driving investor bankers to the NBC television show “America’s Got Talent” and the mysteries of the Catholic faith.
At a hearing last week, Strine called a dispute between fashion star Tory Burch and her former husband a “drunken WASP-fest,” and spent several minutes discussing where white Anglo-Saxon Protestants can pick up Izod and Polo brand shirts on the cheap. The Chancery case is Auriga Capital Corp v Gatz Properties LLC, No. 4390. The Supreme Court appeal is Gatz Properties LLC v Auriga Capital Corp No. 148, 2012.
In his “D&O Discourse” Blog, Doug Greene of Lane Powell analyzes the U.S. Chamber Institute for Legal Reform’s report that I blogged about yesterday…
In his “D&O Diary,” Kevin LaCroix analyzes this white paper by the U.S. Chamber Institute for Legal Reform entitled “The Trial Lawyers’ New Merger Tax” that takes a comprehensive look at M&A litigation and proposes a number of possible legislative solutions to the problems associated with multi-jurisdiction litigation.
In “The Securities Edge Blog,” Gunster’s Gus Schmidt writes about how when the private equity firm 3G Capital took Burger King private in 2010, it used an innovative “dual-track” acquisition structure to minimize the amount of time to consummate the acquisition. This involved 3G simultaneously pursuing both a friendly tender offer to Burger King shareholders as well as a traditional merger that would need to be approved by shareholders at a special meeting. Since the Burger King deal, nearly 20 other companies have used this structure. Read the blog for more…