February 6, 2019

M&A Litigation: Where Does Delaware Go From Here?

The Corwin & MFW decisions and their progeny have dramatically changed the M&A litigation landscape in Delaware. But this case law is also relatively new and is likely to continue to evolve. This Wachtell memo discusses how plaintiffs have responded to these decisions, and provides some tips to transaction planners on how to best position themselves to obtain the protection of Corwin & MFW during a period of uncertainty as to their precise doctrinal contours. Here’s an excerpt:

In 2018, stockholder plaintiffs persistently attacked the sufficiency of disclosures, raised novel claims that stockholder approvals were “coerced,” and sought to expand the definition of controlling stockholder. The objective? To escape MFW and Corwin by de-legitimizing majority stockholder votes reflecting the considered judgment of large asset managers and institutional investors, often acting with the assistance of specialized proxy advisory firms. And in circumstances that some observers considered surprising, the courts allowed several such cases to survive motions to dismiss and proceed to the discovery stage—where they acquire vast settlement value.

Looking ahead, the question is whether Delaware’s market- and investor-facing doctrine will be given full effect despite this concerted opposition. Ultimately, the line of new Delaware case law is sufficiently rooted in today’s economic reality that it should withstand attack. Stockholders are now too sophisticated and too engaged to justify, as a matter of routine, the costs of litigating issues that the stockholders themselves have approved. Indeed, in ending the scourge of “disclosure-only” settlements, the Court of Chancery confirmed the often limited utility to stockholders of incremental disclosure.

Because the Corwin & MFW line of cases are of such recent vintage, the memo says that transaction planners should expect some unpredictability from the Delaware courts. The memo recommends that parties that want to realize the benefit of Corwin would be wise to “avoid cross-conditioning related transactions when commercially practical and draft disclosure documents with an eye toward negating the inevitable claims that material information was omitted.” In situations where parties seek to rely on MFW, they should “ensure the proper functioning of any special committee, from inception through negotiation and any final decision.”

John Jenkins