DealLawyers.com Blog

Last November, I blogged about the Chancery Court’s post-trial opinion in Jacobs v. Akademos, Inc. (Del. Ch.; 10/24) in which Vice Chancellor Laster found that the sale of a distressed company to a controlling stockholder where the common stockholders received no consideration was entirely fair. Plaintiffs appealed to the Delaware Supreme Court, arguing three errors. The Court affirmed the Chancery Court’s decision by swiftly dispensing with two arguments but addressing the third — that the Chancery Court failed to address fair dealing in its entire fairness analysis — with a three-page discussion.

In the order, the Court took issue with one statement made in the Chancery Court’s opinion:

Here, the Court of Chancery stated that “the fair price evidence is sufficiently strong to carry the day without any inquiry into fair dealing.” Our Court has not gone so far. Rather, in Tesla, we stated that “[e]ntire fairness is a unitary test, and both fair dealing and fair price must be scrutinized by the Court of Chancery.”

That said, the decision confirms that the Chancery Court can consider the “evidence as a whole” and that the fairness of the price may be a “paramount consideration” in some cases, which the Court was satisfied was true in this case. It also found that VC Laster did make extensive factual and credibility determinations that supported fair dealing, citing the following evidence considered by the Vice Chancellor:

– The director defendants explained persuasively that the company lacked the funds to support a full-blown MFW process.
– During the first half of 2020, Akademos and its financial advisor conducted a dual-track process to seek outside investment or an acquisition proposal.
– The term sheet contemplated a go-shop period and committed the KV Fund to support any transaction that the directors unaffiliated with the KV Fund (“Unaffiliated Directors”) deemed superior.
– After the go-shop period concluded, the Unaffiliated Directors determined that none of the counterparties had made a superior offer.
– A majority of the Unaffiliated Directors voted in favor of the transaction (with Jacobs casting the only “no” vote).
– A majority of the Akademos directors voted in favor of the transaction (with Jacobs casting the only “no” vote).

– Meredith Ervine