The November-December 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:
– Activision II’s New Lessons and Important Reminders for Boards When Selling the Company
– Preparing for a Cloudy Day — Advance Notice Bylaws Since Kellner
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.
With the uptick in continuation fund transactions in the past few years, this recent development in Chancery Court isn’t terribly surprising, but it does highlight the importance of process and documentation in these transactions (and may be worth sharing with clients). Here’s a summary of the litigation from this Davis Polk alert:
On December 3, 2025, the Abu Dhabi Investment Council . . . initiated litigation in the Delaware Court of Chancery against affiliates of the Energy & Minerals Group (EMG) arising from EMG’s proposed sale of a 30% stake in Ascent Resources to a continuation fund. The complaint . . . sought injunctive relief in aid of arbitration and alleges that EMG engineered a conflicted, below-market sale that would disadvantage existing investors at the current time. According to ADIC, the transaction, structured as a sale from one EMG-managed fund to another, would harm limited partners, confer substantial benefits on EMG insiders, and allow the manager to reset performance-fee economics on an asset that would be unlikely to generate carried interest if sold in a conventional exit or public offering at the current time.
Like many continuation fund transactions, EMG engaged a financial advisor to run a competitive process, sought approval of the limited partner advisory committee (LPAC) of the existing EMG fund for the transaction, obtained a fairness opinion with respect to the purchase price, and offered existing investors a “rollover” option and a “cash-out” option.
Nevertheless, the complaint emphasizes a number of procedural concerns with the transaction, in particular alleging (i) a lack of adequate notice and information provided to LPAC members before they were asked to vote on the transaction, (ii) a failure to address requests from certain LPAC members to delay the vote and hold an in-camera session (i.e., without EMG present), (iii) information asymmetry between the LPAC members relative to prospective investors in the continuation fund, resulting in the LPAC not being fully informed of all relevant facts, and (iv) a failure to conduct a process for alternative transactions such as a public offering or a merger despite having recently engaged in discussions about such transactions . . .
Although the governing fund documents require arbitration of disputes, ADIC sought, and EMG ultimately consented to, a temporary halt in Chancery Court. On December 4, the parties submitted, and the Court approved, a stipulation delaying the transaction until at least late February 2026 to allow review by an independent commercial arbiter. The matter now proceeds in a dual-track posture, with urgent equitable oversight by the Court occurring concurrently with the arbitration framework contemplated by the EMG funds’ partnership agreements.
The alert says, since these transactions involve inherent conflicts of interest (with the sponsor on both sides), they “present heightened sensitivity around valuation, timing, governance, and performance fee incentives.” It suggests:
– Sponsors should engage the LPAC early in the process, and maintain regular communication as the transaction progresses, so that any feedback received from the LPAC can be taken into account in determining the deal’s structure and terms.
– Further, sponsors should seek to avoid any misalignment of information provided to limited partners of their existing funds relative to prospective buyers in the continuation fund by providing both sets of investors with access to the same information about the underlying assets, including with respect to the sponsor’s future exit plans.
– As continuation fund transactions become more prevalent in the market, sponsors should anticipate increased scrutiny by existing investors of their conflict-management practices, valuation methodologies, and the sponsor’s economics and fee arrangements.
For background on continuation fund transactions, see this Skadden alert.
In two brief, two-page orders this week and last, the Delaware Supreme Court affirmed earlier Chancery Court opinions that we shared when they were issued.
– In Faiz Kahn v. Warburg Pincus, LLC (Del.; 12/25), the Delaware Supreme Court affirmed Chancery’s April 2025 dismissal of claims by minority LLC members that an amendment to an LLC agreement eliminating the minority members’ tag-along right to participate in transactions on the same terms as the LLC’s PE-affiliated majority investors (after the PE affiliates negotiated disparate consideration for themselves in the merger) breached the implied covenant of good faith and fair dealing. Vice Chancellor Will found that the implied covenant is a limited remedy that only applies when the contract does not address the conduct at issue, making the first step in an implied covenant assessment to determine whether the contract has a gap. She found the LLC Agreement explicitly addressed the requirements to amend the tag-along right, which left no gap for the implied covenant to fill.
Leave it to the entertainment industry to have a major merger announcement come with major drama, a really fun investor deck, chance restaurant photo ops and celebrities weighing in. The NYT reports that hostile takeover bids are pretty uncommon at top media companies, but, apparently, when they do happen, they’re extra exciting. Of course, I’m talking about Friday’s announcement of the Netflix & Warner Bros. cash and stock deal after a multi-week bidding war and Paramount’s hostile bid that came with only a weekend in between. This was the intersection of business news and Hollywood tabloids that I needed to make yesterday’s dreary Monday-in-December morning more interesting.
Paramount’s hostile bid includes the same terms as those included in the December 4th proposal to the Warner Bros. board. In communications before the Netflix announcement, Paramount had stressed to Warner Bros. that it did not include “best and final.”
Paramount disputes news reports that “Netflix was the only bidder whose paperwork was fully executable” at the time the Warner Bros. board decided to enter into the deal with Netflix. A December 1 proposal stated, “Our Board of Directors has approved this Offer and we would be prepared to immediately enter into definitive agreements. We have included as annexes to this letter the Merger Agreement and Disclosure Schedule which we are prepared to execute.”
Paramount argues its $30 per share all cash offer is superior because it reflects an 8.1% premium (using the $27.75 per share headline consideration announced by Netflix on December 5) and certainty of value and Paramount does not anticipate significant regulatory risks or delays, whereas Netflix anticipates needing 12-18 months to close for antitrust and regulatory approvals. For a tabular comparison of the Netflix merger agreement and Paramount’s terms, see pages 48 to 49.
News reports suggested that Warner Bros. execs were concerned about certainty of Paramount’s financing. Paramount’s OTP touts that the offer is not subject to any financing conditions; it is fully backstopped by Larry Ellison.
The offer is not subject to CFIUS clearance or FCC approval, but it is subject to two MAE conditions – general and regulatory.
Paramount’s attorneys had sent a letter on December 1 raising some antitrust and regulatory concerns with other bidders, including Netflix. Now, post announcement, President Trump has said (of the Netflix deal), “I’ll be involved,” and that the acquisition “could be a problem.”
Bloomberg’s Matt Levine presented a balanced assessment of the competing offers in yesterday’s Money Stuff. While Paramount has already said it’s willing to throw more money at it, he suggests that Netflix’s shareholders, given its stock price, still don’t seem to love the deal but also expect Netflix to stay in the game. I’m not into news betting, so I definitely won’t be making any predictions, but I’ll be popping popcorn and watching intently to see how this all unfolds.
Bloomberg reported last week that the latest M&A risk to balloon due diligence checklists even further is immigration compliance.
Raids have ticked up on companies suspected of employing undocumented workers, and the US Department of Labor recently unveiled plans to investigate companies’ H-1B visa practices. The information technology and financial sectors, two common sponsors of H-1B visas that go to foreigners in specialty occupations, were in the top three dealmaking industries globally this past quarter, according to S&P Global.
Here are some key takeaways from the practitioners cited in the article:
– Immigration compliance issues have the ability to slow down and even tank deals.
– Parties are engaging immigration counsel earlier in the M&A process.
– Some buyers are taking a particularly cautious approach.
– Immigration compliance risk differs by industry. (In tech, buyers might worry more about H-1B compliance; in construction, buyers might focus on I-9 verification.)
– Immigration compliance diligence may need to extend beyond the target (for example, where a target relies on key contractors).
The prospect of having a deal evaluated under the entire fairness standard can be pretty daunting and lawyers try very hard to avoid its application when possible. In recent years, however, the entire fairness standard has become a less formidable obstacle for those trying to defend a transaction. That point is brought home in a recent Richards Layton article published in the Delaware Business Court Insider.
The article reports on a review of post-trial entire fairness rulings issued by the Delaware Supreme Court and the Delaware Chancery Court over the past 10 years, and this excerpt addresses some of the key findings:
First, defendants won 66% (six of nine) of “big ticket” post-trial entire fairness cases. And because one case (Tornetta v. Musk) is on appeal, this percentage could jump to 77% (seven of nine). Defendants won three cases by proving that the transaction was entirely fair, two by proving that the business judgment rule applied, and one through a court determination of zero damages. In every “big ticket” case that went to trial, plaintiff proceeded on the theory that entire fairness applied due to the presence of a conflicted controlling stockholder.
Interestingly, no plaintiff has brought a “big ticket” entire fairness case not involving a conflicted controller to trial in over 10 years—perhaps a reflection of Corwin’s potency. While the sample size is small and thus statistical power is limited, these numbers suggest that when “big ticket” controlling stockholder cases are brought to trial, defendants are more likely to win.
Plaintiffs have fared better in “smaller-scale” entire fairness cases, where they have prevailed 65% of the time over the past decade. In terms of the kind of entire fairness cases that make it to trial, a whopping 87% involved conflicted controllers, while only 13% involved board conflicts.
Investment consulting firm Verus Investments recently published its 2025 Private Equity Outlook, which provides an overview of year-over-year trends in Private Equity, Venture Capital, and Private Credit activity. Here are some of the report’s key findings:
Deal activity increasing. Deal activity in Private Equity and Venture Capital has accelerated, driven by narrowing bid-ask spreads, rising public valuations, cheaper debt financing, and strong demand for select sectors and high-quality assets. 2025 activity may surpass all non-2021 years over the past decade, propelled by both opportunity and necessity as record levels of dry powder pressure managers to deploy and liquidity needs push sponsors and companies to transact.
Exit activity showing signs of potential recovery. Exit volumes are now on track to exceed all non-2021 years within the past decade for best-in-class assets and select sectors. Recent IPOs are broadly seeing market capitalization expansion, while Continuation Vehicles and strategic acquisitions (particularly in Artificial Intelligence and tech adjacencies) increase. Excluding continuation vehicles, sponsor to sponsor transactions are in line with 2023 – 2024 activity levels. Persistent macroeconomic conditions may accelerate exits.
Cost of debt decreasing. The declining cost of debt may be conducive to investment and exit activity. Should acquisition financing further cheapen through persisting spread compression and lowering base rates, an equity tailwind and credit headwind may occur. Equity segments that are more leverage dependent, such as large-caps, may be disproportionately supported relative to others. Less trafficked lending segments may warrant additional consideration as yields across corporate credits decline.
On the other hand, the report says that the fundraising environment remains challenging, with fundraising on pace for its lowest levels since 2017. The report attributes this to “muted distribution activity” and takes a deep dive into the current distribution environment.
In DrugCrafters L.P. et al. v. Evan Loh et al., (Del Ch.; 11/25), the Chancery Court dismissed breach of fiduciary duty claims against five officers of a target, two of whom also served as directors, in connection with the 2023 acquisition of Paratek Pharma by Gurnet Point Capital and Novo Holdings. The plaintiffs alleged that the defendants engaged in a fraud on the board by withholding material information during the sale process. Vice Chancellor Fioravanti rejected those claims, and held that the transaction satisfied the Corwin standard and was entitled to the protection of the business judgment rule.
Paratek was a biopharma company that had a promising product but that also faced significant financial challenges. Its primary product was called NUZYRA, which is name only a pharma (or maybe a bank holding company) could love. Nevertheless, NUZYRA but apparently showed promise as a treatment for pulmonary anthrax, which resulted in the government awarding a five-year contract to the company to continue development efforts on the drug.
In order to incentivize the company’s execs to market NUZYRA, the board’s comp committee approved an incentive plan under which the executives would receive a portion of a cash pool of $50 million based on the achievement of specified revenue milestones. The awards would become fully vested upon a change in control. Revenue milestones that were met before a change of control would be fully paid out at closing, while those that were partially achieved would be paid out using a preset formula. The five defendants were allocated 80% of this incentive pool.
Paratek spent heavily on marketing NUZYRA and its financial position weakened. In mid-2021, the board began evaluating strategic alternatives with its financial advisor. That led to an extended dance with potential merger partners that featured the usual back-and-forth involving a few serious contenders. One of those buyers repeatedly conditioned its acquisition proposals on the defendants’ accepting a haircut on the incentive payments that they would be entitled to upon a change in control.
Ultimately, that process resulted in a sale of the company to the buyer at a price of $2.15 per share in cash, together with a CVR that would entitle shareholders to an additional $0.85 per share upon the satisfaction of post-closing NUZYRA milestones. As part of the deal, the executives participating in the incentive plan agreed to reinvest a portion of their awards in the surviving company’s equity. However, they also received significant payments at closing – two defendants each received approximately $10.4 million, one received approximately $5.8 million, and two others each received approximately $3.3 million.
The incentive program played a central role in the plaintiffs’ fraud on the board allegations, as this excerpt from Vice Chancellor Fioravanti’s opinion explains:
Plaintiffs’ fraud-on-the-board theory is novel. It is, as they say, “essentially the inverse of the common factual scenario in which fiduciaries seek an early transaction to facilitate liquidity needs.” Plaintiffs assert that rather than tricking the board into approving a quick transaction to generate liquidity, Defendants were supposedly incentivized to “sabotage[] any potential deal for nearly two years” so that the Company could grow NUYZRA sales and increase the Defendants’ [incentive plan] payout.
But then, according to Plaintiffs, Defendants’ scheme simultaneously pushed the Company to the brink of bankruptcy (which would have wiped out the [incentive plan]), and at the last minute, Defendants coerced the Board into closing a deal with an acquirer willing to honor the [incentive plan’s] obligations in full. Plaintiffs allege that Defendants steered the sale process to Gurnet Point because it was willing to continue employing [three defendants] after the transaction and because all were offered additional upside benefits through the reinvestment of their [incentive plan] payouts into equity in the post-transaction company.
In support of their fraud claims, the plaintiffs pointed to the fact that initial contacts between the buyer and management were not reported to the board. However, Vice Chancellor Fioravanti noted that the plaintiffs failed to allege that the defendants tried to conceal those contacts, and that the plaintiffs failed to offer a persuasive argument that these early discussions, which were general in nature, were material.
The plaintiffs also argued that the defendants tilted the playing field in favor of their preferred bidder by sharing information that gave the ultimate buyer an “unfair tactical advantage” over a competing bidder and didn’t disclose that to the board. They pointed to a December 2022 meeting held by the defendants and the buyer during a period when the company had paused negotiations with a competing bidder because it had MNPI about NUZYRA’s status, and to a June 4, 2023 statement to the buyer by one of the defendants to the effect that a “competing strategic party had ‘meaningfully increased negotiation efforts.'”
Vice Chancellor Fioravanti didn’t bite on either of these. As to the December 2022 meeting, he noted that there were no allegations that the defendants shared MNPI with the buyer, and that even if they did, the complaint didn’t allege that it gave the buyer an unfair advantage over competing bidders, particularly since the information in question was publicly disclosed shortly after the meeting and the buyer was still seeking financing and didn’t even submit a bid until February 2023.
The plaintiffs argued that the June 4th communication was a “tip” that encouraged the buyer to sign the merger agreement on June 6 and deprived the board of an opportunity to receive a counteroffer from the competing bidder. The Vice Chancellor concluded that it was not reasonably conceivable from the complaint’s allegations that the communication in question rose to the level of a breach of fiduciary duty. In reaching this conclusion, he pointed to the fact that the competing bidder had already informed the board that it would be unable to meet the required timeline to submit a binding proposal.
Ultimately, the Vice Chancellor dismissed these allegations, as well as allegations that the board failed to adequately manage management’s role in the transaction process and various alleged disclosure shortcomings. He held that the transaction had been approved by a fully informed, uncoerced vote of the disinterested stockholders, and that, per Corwin, the business judgment rule applied.
Over on the Harvard Governance Blog, S&C’s Melissa Sawyer has a recent post addressing something that’s become apparent to anyone who has been around M&A for a while – merger agreements have become much longer than they used to be. Melissa attributes this phenomenon to the common practice of developing a “reference set” of the other party’s (and their counsel’s) precedent agreements and the tech tools – now supercharged by AI – that allow deal lawyers to “cobble together Frankenstein drafts from different sources within the reference set in record time.”
She says that this practice has had two detrimental effects on the quality of drafts – “feature creep” and “recency bias.” This excerpt explains:
Feature creep. “Addition by subtraction” is virtually unheard of in M&A drafting. Document assembly almost always results in supplementation: more “belts and suspenders”, more “provided howevers”, more “for the avoidance of doubts” and more “notwithstandings”. For example, the 2009 ABA Public Company Target Deal Points Study analyzed five potential carve-outs to “material adverse effect” (“MAE”) clauses that had become customary at that time. That list of customary carve-outs had more than tripled by the time of the 2024 study, with many MAE definitions now covering over a page and a half of dense text. With scant evidence of reliance on these carve-outs in the real world, the utility of all this extra wording is largely untested.
Recency bias. Examples of recency bias abound in merger agreement drafting. Since COVID-19, almost every merger agreement has included explicit pandemic-related clauses. After the publication of an influential article in 2014, almost all merger agreements have defined the term “Fraud”. Since the height of the #metoo movement, many merger agreements now include sexual misconduct reps. The triggers for new provisions are variable – Delaware judicial opinions, geo-political events, broken deals, academic literature – but the results are the same: more words on the page and more time spent negotiating whatever issue is the latest flavor of the day, often without regard to whether those issues are likely to be material to the parties and in some cases long after the waning of the socio-political discourse in which concept originated.
Melissa posted a link to this blog on LinkedIn, and the responses to her post are worth reading. For example, John Coates added a link to his own analysis of the growing length of merger agreements, while Joung Hwang asked whether clients would be willing to pay for the effort it would take to trim down the typical merger agreement.
My favorite response comes from Enam Hoque. His decision to quote (“yes I said yes I will Yes”) from Molly Bloom’s 4,391-word, one sentence soliloquy that ends James Joyce’s Ulysses in response to Melissa’s question “Do you agree with me on this?” works on many levels and wins the Internet for today.
We’ve previously blogged about some of the complications that the 1% stock buyback excise tax imposed by the Inflation Reduction Act and the proposed regulations implementing that tax create for some M&A transactions. Fortunately, the Treasury Dept’s recently promulgated final regs provide relief from excise tax liability for take privates, LBOs, & tax-free reorgs. This excerpt from Debevoise’s memo on the regs explains:
– The Final Regulations exempt take-private and leveraged buyouts from the Buyback Tax if the transaction results in the public company ceasing to be publicly traded.
Comment: The application of the Buyback Tax to leveraged buyouts may have increased the tax cost of borrowings by target corporations in take-private transactions if acquisition debt was incurred by the target corporation. This exemption will help acquirors optimize a formerly public target’s state tax profile and avoid special structuring.
– For tax-free acquisitive reorganizations, the Final Regulations allow taxpayers to receive cash boot without triggering the Buyback Tax. Upstream reorganizations or liquidations of subsidiaries with minority public stock are similarly no longer subject to the Buyback Tax.
Comment: Cash boot received in split-off transactions is still subject to the Buyback Tax. Cash boot received in a spin-off transaction may avoid the Buyback Tax if the boot is treated as a dividend.
The memo says that a company that’s paid the excise tax on a transaction that’s exempt under the final regs may receive a refund by filing an amended quarterly return after the November 24, 2025 effective date of the regulations.