Delaware rightly prides itself as being at the cutting edge of US corporate law – so it may come as a surprise to learn that its M&A jurisprudence seems to be evolving toward positions that Canadian courts arrived at some time ago. Here’s an excerpt from this Torys memo that explains how the Delaware & Canadian approaches to deal litigation are converging:
From a Canadian perspective, Corwin essentially brings the Delaware approach in line with how Canadian courts review M&A transactions in similar cases. A Canadian target board’s decision in a change-of-control transaction is subject to deference under the business judgment rule.
As in Corwin, Canadian courts afford significant weight to the affirmative vote of shareholders in support of an M&A transaction. Arrangement transactions, which are the most frequently used structure for implementing a friendly deal in Canada, involve shareholder approval and an application to the court to determine that the transaction is fair and reasonable, a determination that relies to a large extent on the shareholder vote.
As for controlling shareholder transactions, the use of an independent special committee & fully-informed minority approval endorsed by the MFW court parallel Canada’s requirements under Multilateral Instrument 61-101. However, while MFW provides an optional path to business judgment rule review, in Canada, those procedural protections protections are mandatory in going private deals.
– John Jenkins