There are now more than twice as many entities formed in Delaware as LLCs and other alternative entities as are formed as corporations. Private equity funds and hedge funds often are formed as LLCs or limited partnerships to take advantage of the structural flexibility and tax treatment available. A key advantage is the ability to modify or eliminate traditional corporate-type fiduciary duties and, specifically, to facilitate conflicted transactions which arise due to the fund managers’ various roles in managing multiple funds. Below we outline the key principles relating to the obligations of LLC directors under Delaware law, offer related practice … Read more
New Risk of Below-Deal-Price in Appraisal Results
Last quarter, the Delaware courts issued the first post-Dell appraisal decisions—Aruba and AOL (issued by the Court of Chancery) and SWS Group (issued by the Delaware Supreme Court, affirming the Court of Chancery decision below). In Dell, the Supreme Court had held that, in the case of an arm’s-length merger with a “robust” sale process, the deal price is generally the best “proxy” for appraised fair value and should be given “heavy, if not determinative weight” in determining fair value. The Supreme Court had also directed that, even if the … Read more
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
In a recent decision relating to the sale of a portfolio company by one private equity firm to another—Prairie Capital v. Double E (Nov. 24, 2015)—the court provided important guidance with respect to a buyer’s ability to make post-closing fraud claims against a portfolio company’s executives and its private equity fund sellers.
Significance of the decision
- Reminder that representations and warranties in the sale agreement affect not only indemnity claims but fraud claims. The decision serves as a reminder that, in a sale agreement that includes a typical non-reliance provision (i.e., a statement that the buyer has not relied