The widespread economic uncertainty caused by COVID-19 poses distinct challenges for buyers and sellers seeking to identify M&A opportunities, as companies evaluate the impact of the pandemic on their businesses to date, and seek to predict its future impact. Continued volatility in the financial markets and the lack of visibility into how the pandemic will affect the global economy in the near or longer term, as well as the pace and scope of economic recovery, introduce elements of conjecture into the valuation process. Securing financing for a transaction is also likely to be difficult, as traditional credit providers may be … Read more
On July 10, the Securities and Exchange Commission (SEC) proposed a 35-fold increase – from $100 million to $3.5 billion – in the threshold for requiring institutional investment managers to publicly report their equity holdings on Form 13F. This is a remarkable development at a time when issuers and large sectors of the market are demanding more, not less, transparency from investment managers, particularly activist hedge funds.
Section 13(f) of the Exchange Act was adopted by Congress in 1975 and requires an institutional investment manager to file a report with the SEC if it exercises investment discretion over accounts … Read more
Directors of a Delaware corporation must act in the best interest of the corporation and its shareholders. Other stakeholders – such as employees, creditors, customers, and suppliers – may only be considered by directors to the extent there are rationally related benefits to the welfare of shareholders. The preceding two tenets of Delaware law may on occasion appear to pose challenges to a corporate board considering an environmental or social initiative that cannot readily be supported by traditional metrics of long-term financial value for shareholders. However, I submit that boards have the discretion to take an expansive … Read more
Law is a reflection of society, and corporate law is no exception. As we wrestle with broader questions around social justice, (very real) environmental risks, and the proper balancing of our long term societal goals, the proverbial corporate pendulum continues swinging away from the shareholder primacy model and towards a more holistic approach of the role of the corporation in society. In this context, so called ESG issues – an acronym for environmental, social, and governance – have taken center stage in the corporate debate. Although still amorphous and evolving, the term ESG now generally stands for the proposition that … Read more
A recent decision of the Delaware Court of Chancery highlights the need for boards of directors of Delaware publicly traded companies to develop heightened awareness and vigilance in responding to shareholder activists, particularly those following a short-term agenda of putting the company up for sale. The failure of boards to do so may put all directors at risk of being found in breach of their fiduciary duties.
The factual background of the court’s decision in In re PLX Technology Inc. Stockholders Litigation may sound familiar to many public company directors. Following the December 2012 termination of a pending sale … Read more
Two recent decisions confirm that, in the wake of the Delaware Supreme Court’s landmark decisions in Dell and DFC, Delaware courts are taking an increasingly skeptical view of claims in appraisal actions that the “fair value” of a company’s shares exceeds the deal price. However, as demonstrated by each of these recent Delaware Court of Chancery decisions—In re Appraisal of AOL Inc. and Verition Partners Master Fund Limited v. Aruba Networks, Inc.—several key issues are continuing to evolve in the Delaware courts. In particular, Delaware courts are refining the criteria in appraisal actions for determining … Read more
In re Appraisal of PetSmart, Inc.[i]
Under Delaware law, “the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger.”[ii] As the statute places the duty to determine fair value on the court, the burden of proof is not specifically allocated to either of the litigating parties, and so “the burden to establish fair value by a preponderance of evidence rests on both” the petitioners and the company.[iii] This construct presents what Vice Chancellor Slights described in In re Appraisal of PetSmart, Inc.… Read more
On January 22, 2016, the Delaware Court of Chancery signaled the demise of “disclosure-only” settlements in M&A stockholder lawsuits with its decision in In re Trulia, Inc. Stockholder Litigation. Arguing that the “optimal means by which disclosure claims in deal litigation” should be through adjudication rather than the settlement process, the Chancery Court cautioned that it would “continue to be increasingly vigilant in applying its independent judgment to its case-by-case assessment of the reasonableness of the ‘give’ and ‘get’” of disclosure-only settlements. The Chancery Court offered its “hope and trust that [its] sister courts will reach the same … Read more
Over the last twelve months, over fifty US publicly traded companies with a market capitalization of over $1 billion have announced plans to spin-off lines of business into independent companies. During that period, companies such as Starwood Hotels, ConAgra Foods, and Citrix Systems have announced spin-offs of one or more businesses.
Spin-offs are motivated by various reasons, but the common theme in these transactions is that the spun-off entity and the remaining corporation should perform better and achieve better market valuation on a stand-alone basis.
A spin-off is effected by reorganizing a line of business, contributing its assets and liabilities … Read more
On January 22, 2016, Chancellor Andre Bouchard of the Delaware Court of Chancery issued an important decision in In re Trulia, Inc. Stockholder Litigation—likely hammering the final nail in the coffin of “disclosure-only” settlements with broad releases of liability in M&A stockholder lawsuits in the Court of Chancery. There could, however, be an increase in “mootness fee” applications resulting from stockholder lawsuits that are voluntarily dismissed following any supplemental disclosures defendants may voluntarily provide. Stockholder plaintiffs (and their lawyers) may use this vehicle to continue filing lawsuits challenging M&A transactions, albeit not in the same volume that has been … Read more
On November 19, 2015, in Depomed, Inc. v. Horizon Pharma plc, the Superior Court of California, County of Santa Clara granted Depomed’s request for a preliminary injunction to enjoin Horizon’s hostile exchange offer to acquire Depomed. The injunction was issued based on Horizon’s misuse of Depomed’s confidential information under a pre-existing confidentiality agreement. Less than one hour after the ruling was issued, Horizon withdrew its bid to acquire Depomed. The outcome highlights the importance of careful drafting of confidentiality agreements, and the need for companies to regularly monitor compliance with their obligations under pre-existing agreements.
Background: In 2013, … Read more
On July 2, 2015, in Hill International, Inc. v. Opportunity Partners L.P., No. 305, 2015, the Delaware Supreme Court affirmed a Court of Chancery decision that Opportunity Partnership L.P. (the “Fund”), a stockholder in Hill International, Inc. (“Hill” or the “Company”), had complied with the Company’s advance notice bylaws and thus timely submitted two business proposals for consideration and two nominees for election at Hill’s 2015 Annual Meeting (the “Notice”). Accordingly, the Supreme Court held that it was proper to enjoin the Company from conducting any business at the Annual Meeting other than convening the Meeting for the sole … Read more
On December 19, 2014, the Delaware Supreme Court issued a ruling reversing an order of the Court of Chancery granting a preliminary injunction that would have enjoined an agreed-to merger and required a mandatory post-signing 30-day go-shop period. In C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, No. 655/657 (Del. Dec. 19, 2014), the Supreme Court held, among other things, that the Court of Chancery had imposed a non-existent requirement that a selling company must engage in an active market process as a matter of law.
The Transaction. The transaction that … Read more
On September 18, 2014, Gibson Dunn hosted a webcast on shareholder activism. In addition to partners Eduardo Gallardo, Beth Ising and Adam Offenhartz, Matthew Sherman from Joele Frank and Scott Winter from Innisfree M&A also participated. Topics covered include current trends in shareholder activism (including advance notice bylaws), effective shareholder communication strategies, Rule 14a-8 proposals and stockholder identification programs. An audio replay and slides are available at http://www.gibsondunn.com/publications/pages/Webcast-M-A-Shareholder-Activism.aspx.… Read more
In two recent decisions written by Vice Chancellor Travis Laster, the Delaware Court of Chancery provided helpful judicial guidance on the application of the covenant of good faith in the context of related party transactions involving master limited partnerships (MLPs). In both decisions, the Court made clear that when dealing with limited partnerships, contractual terms control and that, once fiduciary duties are contractually eliminated as permitted by Delaware law, courts should not imply terms that would alter the contract or attempt to reconstruct outcomes that fiduciary duty analysis in the corporate setting would generate.
An MLP is a publicly … Read more
On May 29, 2013, Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery issued an important decision that lays the foundation for controlling stockholders to pursue going-private merger transactions with the comfort that, if certain conditions are met, such transactions will be reviewed under the deferential business judgment rule standard, rather than the exacting entire fairness standard.
In In re MFW Shareholders Litigation, C.A. No. 6566-CS (Del. Ch. May 29, 2013), Chancellor Strine considered a question of law that had long vexed the deal community: whether a controlling stockholder that expressly conditions a going-private merger transaction on … Read more
In two recent rulings, the Chancery Court of the State of Delaware has provided important guidance on how so-called “don’t ask, don’t waive” standstill provisions—which are designed to encourage bidders to provide their best offers during an auction—will be viewed in future litigation. While the Chancery Court has recognized that “don’t ask, don’t waive” provisions can be appropriate and valuable tools for a board, these two rulings will affect the processes boards establish when conducting an auction process.
“Don’t ask, don’t waive” provisions have become increasingly common in M&A standstill agreements as a way of incentivizing competing bidders to put … Read more