DealLawyers.com Blog

Earlier this month, I blogged about Chancellor McCormick’s decision in Sjunde AP-fonden v. Activision Blizzard, Inc., (Del. Ch.; 2/24), in which the Chancellor refused to dismiss claims alleged that the board violated various provisions of the DGCL by, among other things, approving a late-stage draft of the merger agreement instead of a final execution copy.

Chancellor McCormick’s decision relied heavily on the language of Section 251(b) of the DGCL which explicitly requires board approval of the agreement of merger and contains language specifying the terms that must be included in it.  Keith Bishop subsequently provided a reminder that, in states with different statutory language, this aspect of the case may not raise the same kind of issues that it did in Delaware:

In my experience, California merger transactions typically involve two agreements – a long agreement typically styled as a “plan of reorganization” and much shorter agreement titled as an “agreement of merger”.  The reason for this practice is that a merger (other than a short-form merger) is effected by filing with the California Secretary of State an “agreement of merger” and an officers’ certificate.   Cal. Corp. Code § 1103.  The “agreement of merger” is only required to state four things, although it may include other desired details or provisions.  Cal. Corp. Code § 1101(a)(1)-(5).  The required items do not include such other heavily negotiated provisions such as representations and warranties, indemnification, escrows, hold-backs and schedules.  These are typically included in a separate plan of reorganization which is not filed with the Secretary of State.  See Must A Parent Of A Constituent Corporation Sign The Agreement Of Merger?

Section 1101(a) specifically requires that the Board of Directors “approve” an “agreement of merger”.  It makes no mention of approval of a “plan of reorganization” nor does it require that the Board sign the agreement of merger (as incorrectly stated by the Ninth Circuit Court of Appeals in Jewel Companies, Inc. v. Pay Less Drug Stores Nw., Inc., 741 F.2d 1555, 1561 (9th Cir. 1984)).  Section 1200 more generally requires that a “reorganization” must be approved by the Board of each constituent corporation.  Because “reorganization” is defined in Section 181 as a merger pursuant to Chapter 11 other than a short-form merger, this statute also should not be read to require express Board approval of a plan of reorganization.

By the way, the law firm memos on the Activision decision are starting to roll in, and we’re posting them in our “Fiduciary Duties” Practice Area.

– John Jenkins