Here is news drawn from this Milbank alert, drafted by Robert Reder:
In Gentile v. Rossette, the Delaware Court of Chancery recently reaffirmed the duty of a board of directors to establish the “entire fairness” of both the process and price of a transaction likely to benefit a controlling shareholder. Vice Chancellor Noble’s opinion demonstrates that the board of directors of even a relatively small corporation in financially dire straits, when approving a transaction between the company and a controlling shareholder, will find its actions subject to strict judicial scrutiny. On the other hand, the decision also points out that a director who approves a transaction found not to be entirely fair will not be held personally liable for damages, at least so long as the director acts “loyally and in good faith” and the corporation’s charter contains appropriate exculpatory language for duty of care violations.
The decision is a reminder that a board of directors must not shy away from its inherent duty to carefully structure and analyze transactions that have the likelihood of benefiting a controlling shareholder. Even with their companies facing financial calamity, directors must diligently consider both price and process, and obtain expert and independent financial and legal advice, when approving seemingly crucial transactions with a controlling shareholder. Nevertheless, directors of Delaware corporations can take comfort from the fact that, if the appropriate exculpatory provisions are available in their corporations’ certificates of incorporation, they will not be held monetarily liable for approving transactions that fail an entire fairness analysis so long as they act “loyally and in good faith.”
Recently, Corporate Board Member posted this useful article about what questions compensation committees should be asking about executive pay in the M&A context.
In the midst of this “M&A Law Prof Blog” repeated below is a link to the “cutest” merger announcement – via video – ever made:
Not the most conventional of press releases, but this has got to be the best merger announcement ever. Woot! announces its acquisition by Amazon. Typically, for a public-private deal the merger agreement requires that the seller make no public announcements with respect to the transaction. All announcements should come from the acquirer. But, if the seller is going to be this fun and creative, why not!
We thought there must be easier ways of making it big
without working like dogs and sweating like pigs
…and then “boom!” we got acquired by Amazon!
So no more rolling in late with our pajamas on.
…”You can labor all day til you’re tired and old or
you can wait for Amazon to call and when they do you say ‘$old!’ ”
-bjmq
Update: For its part, Amazon didn’t make any public announcement re the transaction, but Woot!’s CEO released this “serious” comment on the company’s website describing the transaction. It includes this jewel of a line in the FAQs:
Q: Is Snapster [the CEO] leaving?
A: Are you kidding? He’s out the door about ten seconds after that check clears – that is to say, Snapster will continue as Woot.com CEO, just like before, and the rest of our staff’s not going anywhere either.
Tune in tomorrow for our webcast – “Critical FCPA Diligence in Deals Today” – to hear Brian Saulnier of K&L Gates, Soren Lindstrom of K&L Gates, Keith Hennessee of National Oilwell Varco and Susan Munro of Steptoe & Johnson discuss the latest in how diligence is being conducted and how reps & warranties related to FCPA violations are being negotiated.
With the Senate and House expected to vote upon the Dodd-Frank Act – formally known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act” – within the next few days – with President Obama then signing it before the 4th of July – the 2000-pages of the Act have been posted. Note that the passing of Senator Byrd last night might delay adoption of the legislation, according to this WSJ article.
Back when the Sarbanes-Oxley Act was passed in ’02, it took a while for “SOX” and “Sarbanes-Oxley” to become the common way that folks referred to the historic legislation. An early movement towards “SarBox” never took off – thankfully – although a few still use that term for some reason. So now we have a new piece of legislation to “name.” I personally like the “DFA” – but doubt that will catch on. Please participate in this anonymous poll about how we should refer to the Dodd-Frank Act on a shorthand basis:
During negotiations on financial reform legislation on Tuesday, U.S. Senate conferees agreed to drop their opposition to a House provision to require public companies to hold separate shareholder votes on “golden parachute” payments, according to Dow Jones Newswires.
The conference committee’s negotiations will continue on Wednesday. House and Senate lawmakers still have not reached an agreement on a Senate proposal to require investors to hold a 5 percent stake to nominate board candidates under the SEC’s proposed proxy access rule, according to Dow Jones. House lawmakers and investor advocates argue that a 5 percent threshold would be too high.
Last week, this Reuters article noted that a provision in the regulatory reform bill being negotiated by the House-Senate conference committee would limit deal activity of US banks. This so-called “Volcker Rule” is one of the provisions being hotly debated and it’s unknown in what form it will end up – but the Base Text would prohibit banks that engage in proprietary trading from merging if the liabilities of the resulting institution exceeded 10 percent of total US liabilities.
From Kevin Miller of Alston & Bird: In a recent decision – Berger v. Pubco Corp. – Delaware Chancellor Chandler held that the application of a control premium in an appraisal action under Delaware law is not appropriate where the appraisers did not rely upon a comparable company valuation methodology. Here is a notable quote from the opinion:
“First, as to the control premium issue, I conclude that the addition of a control premium in this case is not appropriate. Both appraisers used the discounted cash flow and book value methodologies. Under Delaware law, it is appropriate to add a control premium when appraisers use a comparable public company methodology. This has been the teaching of cases following the Delaware Supreme Court’s decision in Rapid-American Corp. v. Harris.
Since the comparable public company methodology was not a methodology used by either appraiser in this case, I decline to extend the rule of Rapid-American in these circumstances. Even the Court in Rapid-American held that the inclusion of a control premium was required “under the unique facts” of that case, which was based on comparable values using the market price of similar shares of stock.
Cases decided in the Court of Chancery since Rapid-American have clearly held that the addition of a control premium to a discounted cash flow valuation, as here, is not appropriate.
Authoritative commentators have likewise observed that it is improper and illogical to add a control premium to a discounted cash flow valuation. Accordingly, the value of Pubco’s shares should not be increased by a control premium because no such premium was implicit in any valuation methodology used by the appraisers.”