Here’s news from this blog by Davis Polk’s Ning Chiu:
A recent case interprets and demonstrates the importance of the requirements in advance notice bylaws. The U.S. District Court in the Northern District of Texas granted a preliminary injunction to Ashford Hospitality Prime that invalidated Sessa Capital’s slate of candidates for Ashford’s annual meeting. Sessa owns more than 8% of Ashford’s stock and notified the company that it intended to nominate five candidates to Ashford’s seven-member board.
Ashford’s bylaws require nominees to fill out a questionnaire, and include all information relating to the nominee that must be disclosed in connection with the solicitation of proxies in a contested election under SEC rules. Those rules direct nominees to “[d]escribe any plans or proposals” that would result in a sale or transfer of material assets, any extraordinary corporate transaction, any other material change to the corporate structure or any similar action.
The Sessa candidates claimed to have no plans for Ashford and refused to provide answers to this question. There was correspondence, however, that revealed discussions at Sessa about amending Ashford’s bylaws, conversations about stopping acquisitions and details of a “gameplan” for selling the company after election. In phone calls, Sessa discussed with its candidates that the goal of maximizing value in today’s environment would mean having a “real and fair sale process.” Internal emails also indicated that Sessa employees believed a “gameplan” is necessary to convince ISS to support its nominees.
The Ashford board determined that the responses to the questionnaires from the Sessa candidates were deficient and offered them a chance to amend their answers, which they refused. Applying Maryland law, given the company’s state of incorporation, the Court reviewed the board’s actions under the business judgment rule.
The Court decided that the board could rationally believe that it is not possible that “a sophisticated hedge fund would engage in expensive litigation and a difficult proxy contest without any plans for the company after it seized control.” The Court found that the board reasonably exercised its business judgment in concluding that the Sessa candidates actually had a plan that they refused to disclose in their questionnaire, which rendered them ineligible under the bylaws.
Here’s the intro of this Reuters article:
Michael Dell and Silver Lake Partners underpriced their 2013 $24.9 billion buyout of Dell Inc by about 22 percent and may have to pay tens of millions to investors who opposed the deal for the computer maker, a Delaware judge ruled on Tuesday. The ruling, which applies to about 5.5 million Dell shares, is a victory for the specialized hedge funds that have increasingly tried to squeeze more money from mergers using a type of lawsuit known as appraisal. The lawsuits allow investors who oppose a deal, such as the bitterly contested Dell buyout, to sue and ask a Delaware judge to determine a fair deal price.
Activist investor Carl Icahn urged Dell shareholders to vote down the deal and take their case for fair value to court. Initially appraisal was sought for about 40 million shares, but the bulk was removed for procedural reasons. In Tuesday’s ruling, Vice Chancellor Travis Laster said fair value was $17.62 per share, not the $13.75 per share deal price. With interest, investors who sought appraisal will collect about $20.84 per share. The Dell investors presented evidence that fair value was $28.61 per share, which would have cost Michael Dell and Silver Lake hundreds of millions of dollars. The buyers contended that fair value was $12.68.
Here’s the summary of this Fried Frank memo:
The Delaware Court of Chancery’s decision in Chelsea Therapeutics Stockholder Litigation (May 20, 2016) underscores the benefits of disclosure to stockholders with respect to a board’s decision—in valuing the company in connection with a sales process—to not take into account (or to modify or revise) projections prepared by management. It should be noted that the court’s discussion highlights that, as reflected in the trend of Delaware decisions over the past couple of years, as a practical matter, the only viable path to liability of directors in a post-closing damages action—absent egregious facts—is a claim that the directors were conflicted (i.e., that the directors were not independent and disinterested).
Here’s the intro for this Orrick memo:
On May 19, 2016, the Delaware Chancery Court preliminarily enjoined the directors of Cogentix Medical from reducing the size of the company’s board because, under the facts presented, there was a reasonable probability that the board reduction plan was implemented to defeat insurgent candidates in a contested director election. Pell v. Kill, C.A. No. 12251-VCL (Del. Ch. May 19, 2016). The decision is a reminder that board actions that affect the shareholder vote—particularly decisions that make it more difficult for stockholders to elect directors not supported by management—will be subject to enhanced judicial scrutiny by Delaware courts on the lookout with a “gimlet eye” for conduct having a preclusive or coercive effect on the stockholder vote.
We have posted the transcript for our recent webcast: “M&A Research: Nuts & Bolts.”
In this 101-page study, SRS Acquiom analyzes the deal terms of 735 private-target acquisitions valued at $137 billion, to assist you in deal structuring and negotiation and bring you a robust view of the private-target M&A landscape…
Here’s the summary of this Goodwin Procter memo:
In yet another example of the Obama Administration’s continued vigorous enforcement of the antitrust laws, the Federal Trade Commission successfully sued and ultimately blocked the acquisition of Office Depot, Inc. by Staples, Inc. This litigation provides another reminder to potential merging entities that a careful assessment of the antitrust risks is an essential component to any transaction and that closing is by no means guaranteed, especially where the merging parties are close competitors and where the parties’ defenses are predicated closely on concepts of new and disruptive entrants. In this alert, we provide a detailed overview of the litigation itself, as well as some key takeaways for clients considering their own transactions.
Here’s the intro from this Richards Layton memo:
In In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 11, 2016), the Court held that fourteen mutual funds sponsored by T. Rowe Price & Associates, Inc. (“T. Rowe”) as well as institutions that relied on T. Rowe to direct the voting of their shares (the “T. Rowe Petitioners”) were not entitled to an appraisal of their shares of Dell Inc. in connection with Dell’s go-private merger, because the record holder had voted the shares at issue in favor of the merger, thus failing to meet the “dissenting stockholder” requirement of Section 262 of Delaware’s General Corporation Law. The T. Rowe Petitioners held their shares through custodians. The custodians, however, were not record holders of the shares; they were participants of the Depository Trust Company, which held the shares in the name of its nominee, Cede & Co., which, for purposes of Delaware law, was the record holder. As the record holder, Cede had the legal right to vote the shares on the Dell merger and to make a written demand for an appraisal of the shares.
Here’s the intro from this blog by Kevin LaCroix:
When Delaware Chancellor Andre Bouchard rejected the proposed disclosure-only settlement in the litigation arising out of Zillow’s acquisition of Trulia, there was some belief that his decision represented the death knell for these kinds of settlements in merger objection lawsuits. There is indeed some evidence that the number of merger objection lawsuits filed has declined. However, as discussed in a Washington Legal Foundation article by attorneys Anthony Rickey and Keola R. Whittaker, “Delaware’s sister courts continue to approved disclosure only settlements and award six-figure attorneys’ fees.” As discussed below, the net effect of Delaware’s hostility to disclosure only settlements may not necessarily be that fewer of these kinds of cases get filed, it may be that weaker cases are “driven to other jurisdictions.”
There’s some interesting stats in this article from “The Street” including the proportions of deals challenged by the DOJ and FTC over time…