December 5, 2019
Fairness Opinions: Don’t Jump the Gun!
Clients are sometimes very impatient with lawyers’ emphasis on getting the “process” right and frequently aren’t shy about expressing their displeasure about it. Well, the next time you find yourself on the receiving end of a complaint like that, don’t hesitate to use the Delaware Chancery Court’s recent decision in Dieckman v. Regency, (Del. Ch.; 10/19), to support your argument that it’s not just a matter of getting the right result, but getting there in the right way.
The case involved an investor challenge to the sale of Regency Energy Partners to an entity affiliated with its general partner. The GP defended the transaction on the basis of its compliance with the terms of a “safe harbor” for affiliated transactions laid out in the limited partnership agreement. A key condition to the applicability of safe harbor was a requirement that the GP rely upon a fairness opinion in making its decision concerning the proposed deal’s fairness.
The Chancery Court rejected the GP’s argument and granted summary judgment to the plaintiffs as to the inapplicability of the partnership agreement’s safe harbor. As this excerpt from Fried Frank’s recent memo on the decision notes, while the GP received the required fairness opinion, its reliance on it in reaching its own fairness determination was another matter:
In Dieckman, the question of reliance arose because the minutes of a Conflicts Committee meeting held before the Committee received the fairness opinion indicated that the Committee determined, at that meeting, that the proposed transaction (which at that time reflected terms that were less favorable than the final terms of the Merger) was fair. The issue was compounded by the fact that the fairness opinion was never updated to reflect the final terms of the Merger.
The memo makes the point that a final determination about fairness should not be made before receipt of the fairness opinion and meeting minutes should state that the board or committee received “and relied on” the fairness opinion.
– John Jenkins