DealLawyers.com Blog

In the wake of its battle with Carl Icahn, ebay has built a special site devoted to its campaign leading up to its annual meeting. In this 2-minute video, I analyze the design & usability of this new site (although I don’t analyze ebay’s IR web page itself – which oddly doesn’t seem to link to this annual meeting site. Neither does ebay’s blog.):

Yesterday, as noted in this article, the Delaware Governor tapped Andy Bouchard to serve as the Chancellor of the Court of Chancery, succeeding Leo Strine in that position. Andy is the managing partner of Bouchard, Margules & Friedlander, a firm he and former Vice Chancellor Stephen Lamb founded in 1996 as a litigation boutique after serving a decade at Skadden. Here’s a BusinessWeek article. Andy will be the 21st Chancellor once confirmed by the Senate…

We have posted the transcript for the recent webcast: “The SEC Staff on M&A.”

This March-April Issue of the Deal Lawyers print newsletter was just sent to the printer:

– A History Lesson: The SEC’s Office of Mergers & Acquisitions
– A Look Back: Regulation M-A & The “Five-Business” Day Rule
– Still Risky Business: Unlicensed M&A Advisors After the Six Lawyers Letter
– The Board’s Evolving Role in Shareholder Communications
– When You’re Selling the Company, Are You Selling the Attorney-Client Privilege Too?
– “Dual Track” Structure Remains Useful to Strategic Acquirors: Even After DGCL Section 251(h)

If you’re not yet a subscriber, try a 2014 no-risk trial to get a non-blurred version of this issue on a complimentary basis.

As noted in this Hunton & Williams memo, the SEC recently brought an enforcement action against Lions Gate Entertainment, charging it with failing to make full and accurate disclose as part of its efforts to repel a hostile takeover bid. As Lions Gate paid a substantial $7.5 million penalty in settlement, the case serves as a reminder that the SEC polices the disclosure practices of those instituting defensive measures when activist investors and hostile bidders emerge.

Here’s news from Richards Layton:

In Kahn v. M&F Worldwide Corp., No. 334, 2013 (Del. Mar. 14, 2014), the Delaware Supreme Court affirmed the Court of Chancery’s decision in In re MFW Shareholders Litigation, 67 A.3d 496 (Del. Ch. 2013) (here’s a summary and the Chancery opinion), which granted summary judgment in favor of a board accused of breaching its fiduciary duties by approving a buyout by a 43.4% controlling stockholder, where the controller committed in its initial proposal not to move forward with a transaction unless approved by a special committee, and further committed that any transaction would be subject to a non-waivable condition requiring the approval of the holders of a majority of the shares not owned by the controller and its affiliates. Stockholder plaintiffs initially sought to enjoin the proposed transaction, but withdrew their preliminary injunction application and instead sought post-closing damage relief. After extensive discovery, the defendants sought summary judgment.

The Court of Chancery held that the transaction could be reviewed under the business judgment standard, rather than entire fairness, and granted the defendants’ motion. On appeal, the Supreme Court affirmed the Court of Chancery’s decision and adopted its formulation of the standard, holding that the business judgment standard of review will be applied in controller buyouts if and only if: (i) the controller conditions the procession of the transaction on the approval of both a special committee and a majority of the minority stockholders, (ii) the special committee is independent, (iii) the special committee is empowered to freely select its own advisors and to say no definitively, (iv) the special committee meets its duty of care in negotiating a fair price, (v) the minority vote is informed, and (vi) there is no coercion of the minority.

The Court further held, however, that if “after discovery triable issues of fact remain about whether either or both of the dual procedural protections were established, or if established were effective, the case will proceed to a trial in which the court will conduct an entire fairness review.” The Court also noted that the complaint in the action would have survived a motion to dismiss based on allegations attacking the fairness of the price, which called into question the adequacy of the special committee’s negotiations, thereby necessitating discovery on all of the prerequisites to the application of the business judgment rule.

Here’s analysis from Cooley:

Delaware law limits parties’ ability to contractually agree to lengthen the time period for making claims beyond the statute of limitations that would otherwise apply to the underlying claims. A line of Delaware cases (the most well known of which is GRT, Inc. v. Marathon GTF Technology, Ltd.) have held that the public policy behind statutes of limitations overrides contract language that states that representations and warranties survive “indefinitely”. In such cases, Delaware courts will hold that the underlying statute of limitations governs the time period in which actions for breach may be brought.

While not a new issue, this limitation under Delaware law is currently receiving attention among M&A lawyers because of the practical issues it creates for drafting agreements that implement the parties’ intent. For example, claims based upon inaccurate representations would usually be based upon a breach of contract claim, for which the statute of limitations in Delaware is three years from the time of breach. As a result, a business agreement that the time period for making claims based upon “fundamental representations” shall be longer than three years presents issues for the M&A lawyers seeking to draft enforceable contract language that implements the parties’ intent.

Because of the potentially disastrous consequences of improperly addressing this issue in the contract, all M&A lawyers should understand the law in this area and have strategies for addressing the issues it creates.

Brad Davey & Chris Kelly of Potter Anderson gives us this news:

In this transcript ruling, an Illinois state court dismissed an action brought by purported stockholders of Beam Inc. challenging Beam’s proposed acquisition by Suntory Holdings Limited. The Illinois court ruled that the action was barred by a bylaw adopted by Beam’s board of directors selecting Delaware as the exclusive forum for resolution of certain disputes involving the internal affairs of the corporation. The Illinois court relied heavily on the Delaware Court of Chancery’s decision in Boilermakers Local 154 Retirement Fund v. Chevron Corp., wherein then-Chancellor Strine upheld similar exclusive forum bylaws adopted by the boards of Chevron and FedEx. The Illinois court factually distinguished Galaviz v. Berg, a California federal court case that refused to honor an exclusive forum bylaw adopted by Oracle, but also stated that the Boilermakers decision is “simply more persuasive analytically.”

Courts in New York and Louisiana have also dismissed stockholder actions in reliance on exclusive-bylaws in favor of Delaware.

Here’s news from Richards Layton (note we’ll be holding a webcast on this case on April 2nd):

In a 91-page post-trial opinion in In re Rural Metro Corporation Stockholders Litigation, C.A. No. 6350-VCL (Del. Ch. Mar. 7, 2014), the Delaware Court of Chancery held RBC Capital Markets, LLC liable for aiding and abetting breaches of fiduciary duty by the board of directors of Rural/Metro Corporation in connection with Rural’s acquisition by Warburg Pincus LLC. The case proceeded against RBC even though Rural’s directors, as well as Moelis & Company LLC, which had served as financial advisor in a secondary role, had settled before trial.

The Court found that RBC, in negotiating the transaction on behalf of Rural, had succumbed to multiple conflicts of interest. According to the Court, RBC, motivated by its contingent fee and its undisclosed desire and efforts to secure the lucrative buy-side financing work, prepared valuation materials for Rural’s board that made Warburg’s offer appear more favorable than it was. Because those valuation materials were included in Rural’s proxy statement, the Court found that RBC was also liable for aiding and abetting the board’s breach of its duty of disclosure.

Despite its finding of liability, the Court stated that it is not yet in a position to determine an appropriate remedy. The Court also deferred ruling on plaintiffs’ request for fee-shifting, but it noted that, “given the magnitude of the conflict between RBC’s claims and the evidence, it seems possible that the facts could support a bad faith fee award.”

Leo Strine was sworn in as Delaware’s Chief Justice earlier this week – here is a video of the swearing-in ceremony, courtesy of Delaware Online. Meanwhile here’s my own 1-minute video showing how Strine adds pizzazz to the bench: