DealLawyers.com Blog

Earlier this week, I blogged about a Richards Layton article addressing how the MFW defense has fared in the Delaware courts in the decade since the Delaware Supreme Court established the MFW framework. The article observed that the success of the defense has declined markedly in recent years.  In a Linkedin post commenting on that blog, Vice Chancellor Laster offered his thoughts on why that might be the case:

I personally suspect that this is due to plaintiffs’ lawyers doing a better job triaging cases and only filing relatively strong complaints. When we started the MFW decade, we were still in an era that saw frequent filers challenging virtually any controller deal. That, at least, has changed.

It suggests to me that MFW has done its work. But its main effect has been to deter weak cases from being filed.

On X, Prof. Ann Lipton also observed that, when it comes to a decision as to whether or not to follow MFW, “apparently the price of noncompliance is not particularly high.” She cited a recent Reuters article on Endeavor Group’s decision not to require a majority-of-the minority vote on its $13 billion take private deal.  Here’s the money quote from that article:

Nearly a dozen lawyers and bankers told Reuters there is a growing realization among the controlling investors of companies that the financial benefit of depriving minority shareholders of a deal veto outweighs the legal risks.

“(The shareholder vote) opens the door to an activist who can say, ‘I know you’re negotiating with the special committee, but now you’re going to negotiate with me, and I’m going to squeeze a second bite’,” said Phillip Mills, an M&A partner at law firm Davis Polk.

– John Jenkins