DealLawyers.com Blog

Earlier this week, in In Re Via Renewables, Inc. Merger Litigation (Del. Ch.; 8/26), the Delaware Chancery Court added to the list of cases finding that MFW‘s conditions weren’t met. The litigation challenged a squeeze-out transaction with a founder-controlling stockholder. (This was a pre-SB 21 transaction.) The special committee repeatedly insisted on MFW protections but faced pushback from its controlling stockholder. The controller submitted a take-private proposal in September 2023 that was withdrawn after the committee requested MFW protections. But the parties continued to negotiate, with the majority-of-the-minority vote remaining a sticking point. The controller submitted a new offer in November and finally agreed to MFW protections in December.

But, as the opinion details:

Between November 15, when Maxwell sent the $9-per-share offer, and December 15, when Maxwell formally assented to MFW conditions, Maxwell and the Committee negotiated the length of a go-shop period, as well as Maxwell’s ability to use his Company stock as collateral to secure financing. The Committee also made a counterproposal of $12.65 per share after consulting its financial advisor. In fact, these negotiations all occurred prior to the Committee sending Maxwell the revised Merger Agreement with MFW conditions on December 7.

Chancellor McCormick found this to be an issue, at least at the dismissal stage:

Plaintiff advances many arguments for why Defendants did not comply with MFW. One suffices. For MFW to replicate arm’s length negotiations, the conditions must be established up front. This “require[s] the controller to self-disable before the start of substantive economic negotiations.” Establishing the dual protections of MFW’s first prong at the “germination” stage prevents the controller from using the conditions as a bargaining chip that can be “dangled in front of the Special Committee . . . as a substitution for a bare-knuckled contest over price. By the time Maxwell acceded to including a version of the majority-of-the-minority condition on December 15, it is reasonably conceivable that the deal had moved passed germination and onto economic horse trading.

– Meredith Ervine