In Jhaveri v. K1 Investment Management LLC, (Del. Ch.; 6/25), the Delaware Chancery Court declined to dismiss tortious interference claims brought by a former target stockholder against affiliates of the buyer and breach of contract claims against the target’s equityholder representative. These claims arose out of alleged misconduct associated with the representative’s decision not to pursue a lawsuit against the buyer for actions resulting in its failure to achieve an earnout milestone set forth the agreement.
The plaintiff brought breach of fiduciary duty and fraud claims against the buyer and various other defendants, but Vice Chancellor Will dismissed these claims on the grounds that they were covered by a broad release executed by the plaintiff in connection with the merger. However, she refused to dismiss claims that the equityholder representative Raj Goyle, who was the target’s former CEO, breached his obligations under the merger agreement.
Those breach of contract claims were premised on allegations that the representative was aware of active “interference” by certain affiliates of the buyer and its controlling stockholder in the achievement of the earnout but withheld written notice of their improper actions based on assurances of what the Vice Chancellor referred to as a “lucrative soft landing” from those affiliates.
Because the plaintiff’s breach of contract claim survived the motion to dismiss, Vice Chancellor Will turned to tortious interference claims brought against the buyer and the various affiliates. She noted that to prove a tortious interference claim, the plaintiff: “must show “(1) a contract, (2) about which [the] defendant[s] knew, and (3) an intentional act that is a significant factor in causing the breach of such contract, (4) without justification, (5) which causes injury.” At the outset, she dismissed the plaintiff’s claim against the buyer, because under Delaware law, a party to a contract can not tortiously interfere with that contract.
She then turned to the claims against the various affiliates. The Vice Chancellor acknowledged that tortious interference claims against a buyer’s affiliates must overcome the “affiliates exception,” which creates “a limited ‘privilege among affiliates to discuss and recommend action’ given their ‘shared economic interests.’” However, she said that this privilege only came into play when the affiliated party engaged in “lawful action in the good faith pursuit of its profit making activities.” In this case, she concluded that the plaintiff had adequately pled that the defendants’ conduct put them outside of the privilege:
He alleges that the K1 Defendants undertook “extraordinary steps to hide payments to Goyle”—including making “material misstatements” to Jhaveri and other [target] stockholders and taking other “bad faith acts”—to persuade Goyle not to challenge the earnout. Based on these facts, Jhaveri adequately pleads a “malicious or other bad faith purpose” allowing his tortious interference claim to proceed against [buyer’s] affiliates—provided that the elements of the claim are met.
Vice Chancellor Will also held that the plaintiff had adequately pled each of the other elements of a tortious interference claim against the buyer and controlling stockholders’ affiliates, and declined to dismiss those claims.
Yesterday, the SEC’s Division of Economic and Risk Analysis (DERA) announced the publication of a white paper intended to provide the public with information about changes in M&A activity over time. DERA used data on deals completed from 1990 to 2024 involving U.S.-based public and private acquirers and targets and at least a 50% stake purchased. The white paper analyzes:
– The U.S. M&A market over the past 35 years
– For recent (2020-2024) transactions, characteristics of a typical M&A deal and companies involved in it
– Geographic breakdowns based on acquirer and target locations within the U.S.
ICYMI, last week, Bloomberg reported that Goldman is back in the SPAC market. After being the second-largest underwriter of SPAC IPOs in 2021, the firm made the decision in 2022 not to work with SPACs anymore — through a self-imposed ban on underwriting SPAC IPOs or working on de-SPAC transactions — apparently deeming it too risky across the board.
It’s returning to assessing SPAC transactions on a case-by-case basis, although it may also limit the sponsors the firm decides to work with. All in all, this seems like a good sign for the SPAC market. But I also worry this means Goldman doesn’t expect the “IPO slump” to end anytime soon.
In a recent HLS blog, Sidley’s Kai Liekefett, Derek Zaba, and Leonard Wood discuss activism in the 2025 proxy season. They note a downward trend in activism overall:
The broad tariffs imposed by the Trump Administration had a significant impact on corporate deal-making in 2025 and helped to cool overall activity in shareholder activism . . . Compared to the prior year, 2025 saw approximately a 10% decline in activist campaigns initiated overall, 26% decline in proxy fights initiated, 15% decline in dissident nominations, 10% decline in Schedule 13Ds filed, and 10% decline in formal settlements.
They also made these observations about how the season played out:
In 2025, value beat virtue, as activists zeroed in on value and capital allocation and sidelined sustainability topics.
Under the universal proxy system, now in its third year, investors happily elected only parts of activist slates.
While proxy advisors continued to factor heavily in outcomes, and often recommended for dissident candidates, in one key contest they didn’t carry the day in the face of a tenacious company campaign.
This proxy season also saw a resurgence in the prominence of traditional economic activists using “vote no” (or “withhold”) campaigns instead of proxy contests.
And companies and activists were reminded to expect the unexpected, as regulatory and political curveballs—from CFIUS reviews to significant SEC guidance—showed a capacity to abruptly reshape campaign tactics and outcomes.
On “vote no” campaigns, the blog says this may not be indicative of a long-term trend and instead — “may have been a circumstantial feature of the 2025 proxy season, owing to the specific nature of a few campaigns in 2025.” Here are a few of the other key takeaways from year-to-date trends:
Performance still trumps every other issue. The key campaigns of the year have centered on TSR and capital-allocation pain points — mega hydrogen cap-ex at Air Products, refinery margins at Phillips 66, sales slides at Harley-Davidson, valuation at U.S. Steel and other companies. While activists avoided ESG rhetoric, value creation was the rallying cry.
Universal proxy continues to encourage “split decisions.” Shareholders felt comfortable electing only part of an activist slate (Air Products 3-of-4, Phillips 66 2-of-4). Boards should not necessarily think of “all-or-nothing” dynamics, and are not expecting to need a clean sweep in order to claim victory.
Proxy-advisor backing is helpful, but not necessarily decisive.ISS and Glass Lewis endorsed the dissidents at Air Products, Phillips 66, Matthews International and elsewhere, with mixed results in each case. This underscores that winning with BlackRock, Vanguard, and State Street matters more than winning the proxy advisors.
Politics, abrupt regulatory changes, and geopolitics can change the battlefield overnight. Ancora’s U.S. Steel withdrawal after a new CFIUS review shows how policy shifts can upend an activist timeline and force tactical retreats. The SEC guidance change of February 2025 also played its role in causing activists to be more cautious, especially in February and March – critical months in the ramp up of the proxy season.
The May-June issue of the Deal Lawyers newsletter was just sent to the printer. It is also available online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– Delaware Adopts Significant DGCL Amendments Related to Control Person Transactions and Stockholder Books and Records Requests
– Methods To Allocate Tariff-Related Risks in M&A Agreements
– The Current Landscape of Reverse Mergers: An In-Depth Analysis and Q&A
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at info@ccrcorp.com or call us at 800-737-1271.
When the FTC sued to enjoin Microsoft’s acquisition of Activision Blizzard (well-known for its popular Call of Duty video games), it argued that Microsoft would make the game exclusive to Xbox, diminishing competition with Sony’s PlayStation. In a May ruling in FTC v. Microsoft Corp., the Ninth Circuit affirmed the District Court’s denial of the FTC’s request to enjoin the merger, and the FTC subsequently dropped the related administrative litigation. Jody Boudreault of Baker Botts walks through the Ninth Circuit’s decision in an article for Bloomberg and offers suggestions for documenting and clearing vertical mergers subject to antitrust scrutiny, utilizing the dispositive factors outlined in the decision.
For example, the Ninth Circuit considered whether Microsoft was incentivized to foreclose external sales. In finding that it was not, it cited the importance of PlayStation sales to Call of Duty’s success (2x that on Xbox) and the fact that Microsoft could suffer reputational harm by removing Call of Duty from PlayStation.
Given those two important factors cited by the Ninth Circuit, the article suggests:
– That parties to vertical mergers use “deal assessment materials and future projections” to “carefully document business strategies and realistic post-merger plans involving third-party sales” and
– That parties to vertical mergers develop evidence of potential reputational risks from post-closing anticompetitive behavior.
It makes numerous other recommendations based on the Ninth Circuit’s reasoning.
On Wednesday, the Delaware Supreme Court issued its decision in In re Columbia Pipeline Group, Inc. Merger Litigation, (Del. 6/25), which reversed a Chancery Court ruling finding a buyer liable for $400 million in damages for aiding and abetting breaches of fiduciary duty by the target’s directors and officers.
In a 99-page opinion authored by Justice Traynor, the Court relied heavily on its recent Mindbody decision, which was issued after the Chancery Court’s Columbia Pipeline decision. The opinion notes that there are four elements that must be established in order to prevail on an aiding and abetting claim: (1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s duty, (3) knowing participation in that breach of the defendants, and (4) damages proximately caused by the breach.”
The “knowing participation” element was the central issue in this case, and the Chancery Court held that this element could be established through constructive knowledge. Subsequently, Mindbody clarified that a plaintiff must show that the buyer had actual knowledge of both the breach itself and that its own conduct regarding the breach was improper (i.e., “culpable participation”) in order to establish knowing participation.
Justice Traynor said that the circumstances cited by the Chancery Court were insufficient to satisfy this actual knowledge requirement. As in Mindbody, the Court also concluded that aggressive bargaining tactics in the buyer’s own self-interest do not constitute the kind of culpable participation that can give rise to aiding and abetting liability:
[A]n aider and abettor’s participation in a primary actor’s breach of fiduciary duty must be of an active nature. It must include something more than taking advantage of the other side’s weakness and negotiating aggressively for the lowest possible price. Put another way, a bidder who has not colluded or conspired with its negotiating counterpart, who does not create the condition giving rise to a conflict of interest, who does not encourage his counterpart to disregard his fiduciary duties or substantially assist him in committing the breach, does not aid and abet the breach.
Similarly, as in Mindbody, the Court held that failures to comply with contractual obligations to notify the target of misstatements in its proxy materials were insufficient to establish the kind of substantial assistance to the breach contemplated by the knowing participation requirement:
Our analysis of a claim that a buyer aided-and-abetted disclosure breaches by a seller, however, is not a question of whether the buyer breached its contractual obligation alone. Instead, we evaluate whether the buyer’s conduct constitutes “substantial assistance” in the seller’s disclosure breaches. “Substantial assistance” in this context extends beyond “passive awareness of a fiduciary’s disclosure breach that would come from simply reviewing draft Proxy Materials.”
The Court said that in order to establish that the buyer provided substantial assistance, the plaintiff had to demonstrate that the buyer “knew that its failure to abide by its contractual duty to notify [Columbia] of potential material omissions in the Proxy Materials was wrongful and that its failure to act could subject it to [aiding-and-abetting] liability.” In other words, “the knowledge that matters for the second prong of [the knowing participation element] is knowledge that the aider and abettor’s own conduct wrongfully assisted the primary violator in his disclosure breach.”
Last week, Meredith blogged about the Chancery Court’s decision to grant motions to certify certain constitutional questions relating to SB 21 to the Delaware Supreme Court. A recent AO Shearman blog reports that the Court has accepted both questions certified to it. This excerpt specifies the questions that the Supreme Court will review and where things go from here in these proceedings:
Plaintiffs moved for certification of two constitutional questions concerning the amendments to Section 144 of the DGCL by SB21, specifically: (i) whether the elimination of the Court of Chancery’s ability to award “equitable relief” or “damages” in circumstances where the safe harbor is met violates the Delaware constitution by purporting to divest the court of its equitable jurisdiction, and (ii) whether the retroactive application of SB21 “violate[s] the Delaware Constitution of 1897 by purporting to eliminate causes of action that had already accrued or vested.”
A briefing schedule will be set this week, indicating that the Delaware Supreme Court is moving quickly to resolve questions around SB21. Perhaps indicating the judiciary’s desire for clarity, stays have been issued in several cases currently pending before the Court of Chancery where similar constitutional questions are implicated.
A recent Paul Hastings memo discusses spin-offs as a potential alternative for biotech companies to unlock value. While the memo focuses on that industry, much of its discussion of the key legal and business considerations associated with a spin-off applies to companies in any industry considering such a transaction. This excerpt addresses some of the issues that need to be addressed when considering how to separate the businesses and employees involved in the transaction:
Planning for a spin-off involves identifying assets and liabilities to be separated, allocation of employees, identifying and addressing shared assets and contracts, consents, waivers, notices and possibly transition services agreements.
If the businesses to be separated are tightly integrated or are expected to have significant business relationships following the spin-off, it could take more time and effort to allocate assets and liabilities, identify personnel that will be transferred, separate employee benefits plans, obtain consents relating to contracts and other rights, and document ongoing arrangements for shared services (e.g., legal, finance, human resources and information technology) and continuing supply, intellectual property sharing and other commercial or operating agreements.
Other topics addressed include tax matters, intellectual property and licensing, legal and contractual considerations and public company considerations.
For an M&A blogger, the earnout litigation following Alexion Pharmaceuticals’ 2018 acquisition of Syntimmune is one of those gifts that keep on giving. We’ve already blogged about Vice Chancellor Zurn’s 2021 decision to deny Alexion’s motion to dismiss the case and her 2024 post-trial opinion finding that Alexion had breached its obligations under the earnout provisions of the merger agreement. Last week, in Shareholder Representative Services v. Alexion Pharmaceuticals, (Del. Ch.; 6/25), the Vice Chancellor turned her attention to the issue of damages.
If you decide to tackle this opinion, bring your calculator, because it’s as math-heavy a piece of work product as I’ve seen this side of NASA. A lot of that math was necessary to lay out and assess both sides’ arguments concerning the probability that specific earnout payment milestones would be achieved. Vice Chancellor Zurn concluded that the strongest probability evidence was derived from Alexion’s own estimates of the probability of technical and regulatory success of Syntimmune’s experimental drug made shortly before the breach.
Vice Chancellor Zurn then calculated each earnout milestone’s expected payment by weighting the amount of the milestone payment by its probability of achievement. Regrettably, more math ensued. When it was finally “pens down,” the Vice Chancellor determined the present value of expected milestone payments based on their expected payment dates and then applied an annual discount rate to certain milestone payments. Adding it all up, she concluded that Syntimmune’s stockholders were entitled to pre-interest damages in the amount of $180,944,915.32.
Yeah, I’m sorry that the preceding paragraph isn’t exactly a model of clarity. I’m doing the best I can here, but complex mathematical calculations aren’t exactly in my wheelhouse – the “C” I got in Calculus my freshman year in college remains my proudest academic achievement! So maybe the best way for me to exit from this blog is to say that I think the most important takeaway from Vice Chancellor Zurn’s opinion is her view of how the customary “expectation damages” measure for breach of contract claims should be approached when dealing with earnout milestones.
Citing the Chancery Court’s recent decision in Fortis Advisors v. Johnson & Johnson, (Del. Ch.; 9/24), the Vice Chancellor concluded that when a buyer’s breach of its efforts obligation made earnout milestones impossible to achieve, the expected value of those milestone payments at the time of the breach should be calculated by weighting each milestone by the proven likelihood it would be achieved:
SRS’s injury is best understood as the lost expected value of each milestone as compared before and after Alexion’s breach of its CRE Obligation. As in Fortis, an expected value approach reflects the theory behind expectation damages, which aim to put “the nonbreaching party in as good a position as he would have been in had the contract been performed, and no better.”
Compensating for lost expected value, rather than with full value whenever earnout payments are likely and zero value whenever earnout payments are unlikely, strives to hit the mark on the parties’ reasonable expectations, rather than award windfalls for some promisees and goose eggs for others.