Fried Frank Discusses Delaware Decision Absolving LCC Board of Duty to Maximize Price

In Miller v. HCP (Feb. 1, 2018), the Court of Chancery dismissed claims made against the members of a limited liability company board, a majority of whom had been appointed by the private equity firm that was the company’s controlling stockholder, for approving a sale of the company to an unaffiliated third party that was championed by the controller—without attempting to maximize the price.

Under the LLC operating agreement’s “waterfall” provisions governing the allocation of proceeds on a sale of the company, the controller was entitled to receive almost all of the proceeds of any sale up to $30 million … Read more

Fried Frank Discusses Delaware Ruling that Corporate Recapitalization Required “Entire Fairness” Review

In NRG Yield v. Crane (Dec. 12, 2017), the Court of Chancery dismissed fiduciary duty claims against directors who approved a corporate recapitalization that was proposed by a controller and would perpetuate its control. The reclassification provided for the issuance of non-voting equity that could be used by the corporation as currency to make future acquisitions without diluting the controller’s voting control.

Chancellor Bouchard concluded that the recapitalization was a “conflicted controller transaction” to which “entire fairness” presumptively applied because the controller obtained a “unique benefit” from the transaction not shared with the other stockholders—namely, the ability to maintain its … Read more