On October 21, 2015, the Delaware Court of Chancery issued a post-trial opinion in an appraisal action in which it yet again found that the merger price was the most reliable indicator of fair value. Vice Chancellor Glasscock’s opinion in Merion Capital LP v. BMC Software, Inc., No. 8900-VCG (Del. Ch. Oct. 21, 2015), underscores, yet again, the critical importance of merger price and process in Delaware appraisal actions. In fact, as we have previously discussed, Merion is just the latest of several decisions by the Delaware Chancery Court over the past six months finding that merger price (following an arm’s length, thorough and informed sales process) represented the most reliable indicator of fair value in the context of an appraisal proceeding. See also LongPath Capital, LLC v. Ramtron Int’l Corp., No. 8094-VCP (Del. Ch. June 30, 2015); Merlin Partners LP v. AutoInfo, Inc., No. 8509-VCN (Del. Ch. Apr. 30, 2015).
On October 10, 2014, the Delaware Court of Chancery issued a decision awarding nearly $76 million in damages against a seller’s financial advisor. In an earlier March 7, 2014 opinion in the case, In re Rural/Metro Corp. Stockholders Litigation, Vice Chancellor Laster found RBC Capital Markets, LLC liable for aiding and abetting the board’s breach of fiduciary duty in connection with Rural’s 2011 sale to private equity firm Warburg Pincus for $17.25 a share, a premium of 37% over the pre-announcement market price. The recent decision reinforces lessons from the March 7 decision and provides new guidance for directors and their advisors in M&A transactions and related litigation.
In a virtual course on how to bring—or not bring—an M&A strike suit, on June 30, a Delaware Chancery Court dismissed all shareholder claims against a merger target and its acquirer, ending nearly two years of litigation. Though the allegations are familiar in the strike-suit context, the 45-page opinion which this ~$100 million merger yielded is notable for its methodical tour of Delaware fiduciary-duty law, 102(b)(7) exculpatory provisions, and so-called Revlon duties. The roadmap opinion should be required reading for directors considering a merger.
Defendants Ramtron International and Cypress Semiconductor both work in the technology industry and the two began their courtship in 2011. Though shareholder-plaintiff Paul Dent couldn’t prevent the 2012 Ramtron-Cypress marriage, he continued to hold out for a better dowry, naming Ramtron’s board and Cypress in a suit alleging that Cypress aided and abetted Ramtron’s board in breaching its duty to shareholders, and seeking quasi-appraisal of his shares. Vice Chancellor Parsons disposed of these claims, taking the time to explain in unusual detail why the allegations utterly failed. Read More
On January 31, 2014, Chevron Corporation moved to certify to the Delaware Supreme Court the question of whether exclusive forum bylaws are valid under Delaware law. Chevron filed its motion before the Honorable Jon S. Tigar of the Northern District of California. If Judge Tigar certifies the question, it seems likely that the Delaware Supreme Court will affirm a recent Delaware Court of Chancery decision finding such bylaws to be valid under statutory and contractual law, given that the author of that decision, then-Chancellor Leo E. Strine, is now Chief Justice of the Delaware Supreme Court.
In 2013, plaintiffs filed suit in both the Delaware Court of Chancery and the Northern District of California challenging Chevron’s board-adopted forum exclusivity bylaw. The case in the Northern District was stayed pending the outcome of the Delaware case, since both involved questions of Delaware state law. The Delaware plaintiffs argued that the forum exclusivity bylaw was statutorily invalid under Delaware General Corporation Law (DGCL), and contractually invalid because it was adopted unilaterally without shareholder consent. In June 2013, the Delaware Court of Chancery – in a decision by then-Chancellor Strine – found that the bylaw was enforceable, and that the Delaware Court of Chancery should be the sole and exclusive forum for (1)any derivative action brought on behalf of the Corporation, (2) any action asserting a claim of breach of a fiduciary duty, (3) any action asserting a claim arising pursuant to any provision of the DGCL, or (4) any action asserting a claim governed by the internal affairs doctrine. Read More
These days almost every public company that announces an agreement to sell itself can expect to be the subject of multiple shareholder class actions challenging the transaction – even if shareholders will be receiving a blowout price for their shares under the terms of the agreement. Many of these cases are baseless, and are brought by plaintiffs hoping to leverage a quick settlement. Their strategy, in blunt terms, is to force a speedy payment by threatening to disrupt or stall the deal. Unfortunately, even if the litigation presents only a small risk of disrupting or delaying the deal, many companies feel obligated to settle rather than risk upsetting the deal.
It’s bad enough that target companies and their boards are forced to deal with these “worthless” “sue-on-every-deal cases,” as Delaware Vice Chancellor Travis Laster once described them, but they often have to deal with them in multiple jurisdictions. Indeed, rarely are shareholder class actions challenging a merger brought in a single forum. Instead, companies and their boards are forced to expend time and money defending against duplicative lawsuits in multiple fora around the country. Read More
Delaware law gives shareholders the right to request corporate books and records in order to investigate issues that are of interest to them. For several decades now, Delaware courts have encouraged shareholders to take advantage of this right as a matter of first course, to use the “tools at hand” and seek company records before filing litigation or making a litigation demand. In recent years, more shareholders (and their attorneys) have been following that advice, and the so-called “Section 220 books and records demand” is more common than ever.
Delaware courts have acknowledged, however, that the shareholder’s right to obtain corporate records must be balanced against the board’s right to manage the company’s business without undue interference. Accordingly, where a shareholder requests mundane company materials like stock ledgers or shareholder lists, the company generally must produce. But where the shareholder seeks more sensitive company records, the law puts the burden on the shareholder to show why the production is necessary. Read More
On April 25, 2012, Cornerstone Research released an interesting report entitled “Recent Developments in Shareholder Litigation Involving Mergers and Acquisitions—March 2012 Update.” The report notes that the incidence of litigation in connection with mergers valued at $500 million or greater rose from 57% in 2007 to 96% in 2011. This observation has already caught the attention of the Delaware Chancery Court where Vice Chancellor Laster commented in a teleconferenced ruling, “I don’t think for a moment that 90%—or based on recent numbers—95% of deals are the result of a breach of fiduciary duty. I think there are market imbalances here and externalities that are being exploited. What this means is that the Court needs to think carefully about balancing.”
The report also shows that the number of lawsuits per litigated deal increased from an average of 2.8 in 2007 to 6.2 in 2011. The absolute count of lawsuits involving deals with values of $500 million or greater also nearly doubled from 289 in 2007 to 502 in 2011. The report also noted that as of March 2012, 67 lawsuits have already been reported for 13 out of 17 deals announced during January and February.