John Grossbauer of Potter Anderson notes: Recently, Delaware Vice Chancellor Laster delivered this opinion in Forsythe v. ESC Fund Mgmt. Co. (U.S.) I, L.P. In the opinion concerning a proposed derivative settlement, the Court of Chancery determined that it would enter a final order approving the settlement and the plaintiffs’ fee award in sixty days unless the objectors to the settlement “make the equivalent of a topping bid.” In order to forestall the Court’s approval of the settlement, the objectors must post a secured bond or letter of credit for the benefit of the nominal defendant, CIBC Employee Private Equity Fund (U.S.) I, LP (the “Co-Invest Fund”), for the full amount of the settlement consideration – valued at $13.25 million – and apply to take over the litigation. Should the objectors pursue the derivative claims and ultimately recover less than the settlement consideration, the Co-Invest Fund will have the right to execute on the posted security to collect any shortfall between the settlement consideration and the ultimate recovery.
In his blog, Ken Adams recently proposed that the clearest way to have a party make a statement of fact in a contract is to use states instead of represents and warrants or even represents. Check it out!
In his blog, Francis Pileggi gives us this news – repeated below:
Vulcan Materials, Inc. v. Martin Marietta Materials, Inc., No. 254, 2010 (Del. May 31, 2012). This is a Delaware Supreme Court ruling after oral argument on May 31, 2012 involving the penalty imposed on a hostile bidder for breach of a confidentiality agreement entered into during amicable negotiations.
We previously highlighted the 138-page Chancery opinion decided on May 4, 2012. Today, the Delaware Supreme Court ruled, in an expedited appeal, as reported by Bloomberg, that the Chancery decision was correct, and that Martin Marietta would be barred from bidding for Vulcan Materials due to Martin Marietta’s breach of a confidentiality agreement that was signed while the companies were discussing a “friendly deal”, before it became a hostile bid. It is noteworthy that all the briefing and the oral argument on this appeal were done is less than 30 days and a decision by Delaware’s High Court was provided at oral argument.
Courtesy of Frank Reynolds of Thomson Reuters we have the Opening Brief and Answering Brief in the expedited appeal.
Thanks to this Kaye Scholer memo, we have news of another Delaware confidentiality agreement-related case in recent days, RAA Management LLC v. Savage Sports Holdings – first one was Martin Marietta Materials – where the Delaware Supreme Court affirmed enforceability of non-reliance and waiver provisions in a non-disclosure agreement to bar claims by a would-be buyer of a business based on alleged fraudulently omitted or misstated information in due diligence.
And here’s some analysis from John Grossbauer of Potter Anderson:
Recently, the Delaware Supreme Court affirmed the Superior Court’s dismissal of a complaint brought by RAA Management, LLC against Savage Sports Holdings. RAA, once a potential bidder for Savage, alleged that Savage fraudulently misled RAA into incurring $1.2 million in due diligence and negotiation costs by falsely claiming at the outset of discussions that there were “no significant unrecorded liabilities or claims against Savage.”
The Court held that non-reliance disclaimer language in the non-disclosure agreement executed by the parties prevented RAA from bringing such claims. Although the Court decided the matter under New York law, it confirmed that the results would be the same under Delaware law. A key point is that the Court rejected the attempt to read some disclosure obligation into an NDA that expressly disclaimed any reliance on anything other than final agreement representations.
As noted in this Weil alert, a corporate executive has pled guilty to criminal felony charges in connection with a company’s HSR premerger notification. He has agreed to serve five months in prison for obstruction of justice charges in connection with altering documents submitted to the DOJ and FTC as part of the premerger investigation of a proposed acquisition. The penalties obtained by DOJ against the executive, and previously against the company, highlight the caution and diligence entities should use in drafting documents in connection with an acquisition and preparing HSR filings and responses to DOJ and FTC information requests.
This May-June issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Lessons Learned: Martin Marietta Materials vs. Vulcan Materials
– Delaware Chancery Enjoins Hostile Bid Based on Confidentiality Agreement Breach
– The JOBS Act: Implications for Private Company Acquisitions and M&A Professionals
– After the JOBS Act: The Increased Need for Common Sense
– Groping for Gold: $305 Million in Plaintiff Attorney Fee Awards Under Grupo México
If you’re not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue on a complimentary basis.
In this podcast, Paul Koenig of Shareholder Representative Services explains how his company’s novel initiative SRS MAX™ that allows for M&A analysis of merger agreements, including:
– What is the problem that the SRS MAX product is solving?
– How does it work and what do the users of the product receive?
– Do you charge for this, and if so, how much?
On May 9, 2012, the Board of Governors of the Federal Reserve System issued an order approving the acquisition of 80% of the shares of common stock of The Bank of East Asia (U.S.A.) National Association, by Industrial and Commercial Bank of China Limited. This Order marks the first occasion on which the FRB approved the acquisition of a U.S. bank by a Chinese bank since the Bank Holding Company Act of 1956 was amended by the Foreign Bank Supervision Enhancement Act of 1991. The FBSEA, which increased federal supervision of foreign banks operating in the United States, requires the FRB to make a finding that a foreign bank seeking to acquire control of a U.S. bank is subject to comprehensive supervision on a consolidated basis (“CCS”) by its home country supervisor. The Order marks the first time that the FRB has made a full and unqualified CCS determination for a Chinese bank to acquire control of a U.S. bank.
The Order should create the opportunity for other leading Chinese banks to acquire U.S. banks of a relatively modest size. Although the CCS determination is nominally bank-specific, in practice a CCS determination for one bank in a country is typically precedential for all similarly-situated banks in that country. In addition, because the FRB takes the position that a CCS determination is required before a foreign banking organization can obtain financial holding company status, the Order should pave the way for Chinese banks and their holding companies that are subject to the BHC Act to become FHCs.
I found this recent Dealbook piece entitled “The Curious Case of the Telus Proxy Battle” because I have long been fascinated by the problems of overvoting and similar anomalies in the shareholder meeting process that impedes the integrity of a meeting’s voting results. Another case in point is the article that Carl Hagberg mentioned in the his Shareholder Service Optimizer recently about the hedgie who inadvertently let slip that he was planning to vote both his own shares – plus a nearly equal number that he “borrowed”…from himself. Hopefully, the SEC will get around to fixing these serious problems as its proxy plumbing rulemaking gets off the ground. A few days ago, Telus withdrew its proposal in the face of the allegations…