Market Trends, Shareholder Activism, the SEC, and Litigation Get Lively Airing at Columbia Law School M&A and Corporate Governance Conference

Top practitioners, judges, regulators, and scholars gathered at Columbia Law School on December 2 to offer their unique perspectives and cutting-edge insights on a variety of topics related to M&A and corporate governance. The topics included current M&A market trends, the role of institutional investors and shareholder activists in dealmaking, and the impact of the SEC and litigation developments on M&A.

The day-long event started with a panel exploring current trends and trajectories in the M&A market. The panel was moderated by Professor Jeffrey N. Gordon of Columbia Law School and included panelists Lauren Hirsch, a reporter for DealBook at … Read more

ISS Discusses Dell’s $1 Billion Top-20 Settlement of Shareholder Lawsuit

On November 16, 2022, Dell Technologies Inc. reached a $1 billion settlement with shareholders, according to a recently filed 8-K filed with the U.S Securities and Exchange Commission. The announced agreement looks to resolve investors’ allegations that they were short-changed billions of dollars for their Class V stock in connection with a 2018 transaction that turned Dell into a public company. The settlement comes as the shareholder lawsuit alleging various breaches of fiduciary duties against Michael Dell, Silver Lake, and others was set to go to trial next month in the Delaware Court of Chancery.

In the asserted transaction valued

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How Directors’ Oversight Duties and Liability under Caremark Are Evolving

Corporate law prohibits companies from pursuing profits through criminal misconduct. It uses the fiduciary duties imposed on boards under the Caremark doctrine,[1] and the threat of personal liability of directors for deliberate breach, to help motivate directors to make sure their companies comply with the law. Yet Caremark has largely failed: Most boards have neither adopted effective systems to deter corporate crime nor asserted effective oversight over investigations. Caremark did not require directors to obtain information about material compliance failures or detected misconduct, information essential to effective oversight. To induce directors to deter misconduct – even when it is … Read more

A New Twist in Twitter: Can Musk “Rely” on Zatko?

As we get closer to the October 17th scheduled trial date for the Twitter lawsuit to compel Elon Musk to complete his proposed $44 billion acquisition of Twitter, the charges and allegations are getting wilder and woolier. Once, this was a case in which the party seeking to escape the merger agreement (i.e., Musk) asserted that the percentage of Twitter accounts that were “bots” (or fake) amounted to a “material adverse change” that permitted the buyer to back away. Given both Delaware’s strong commitment to deal certainty and Musk’s seemingly reckless indifference to due diligence, most law professors saw Musk … Read more

How Does Delaware Do It? Judges Alone Don’t Explain Chancery’s Speed

On July 19, 2022, in the Twitter v. Musk litigation, Chancellor Kathaleen McCormick presided over what was likely the most widely observed hearing on a motion to expedite in the Delaware Court of Chancery’s history. While deal bust-ups are front page fare for the financial press, the high profile of this case brought the Court of Chancery further into the national consciousness than usual (though who among us hasn’t asked “what is a chancery?”). On the day of the hearing, the public access telephone line was, indeed, “lit,” hitting its maximum capacity with merger arbs (and other interested Read more

Skadden Discusses Delaware Court Rulings on Advance Notice Bylaws and Incumbent Director Conduct

In early 2020, in BlackRock Credit Allocation Income Tr., et al. v. Saba Capital Master Fund, Ltd.,1 the Delaware Supreme Court reiterated that Delaware courts will enforce clear and unambiguous advance notice bylaws according to their terms using ordinary contractual principles. Its ruling reversed a decision by the Court of Chancery and held that a dissident stockholder was barred from presenting its slates of nominees for two closed-end investment funds and a trust because the nominees failed to provide supplemental information within the time period set by clear and unambiguous bylaws.

The Delaware Supreme Court highlighted that there … Read more

The Need for Engaged Governance During Existential Crises: The Case of Aerojet Rocketdyne

Engaged shareholder voting is often perceived as the linchpin of sound corporate governance. That reputation is well deserved: Even as corporate governance has broadened its sights of late to accommodate a wider set of stakeholders, the pivotal role of shareholders in corporate decision making remains very much at the core of corporate law. Particularly within public companies, the shareholder voting franchise is a signature vehicle through which informed investors voice their approval, their concerns, and even their repudiation of managerial decisions. Highly diversified shareholders and institutional investors frequently engage the services of proxy advisers to help them become informed about … Read more

Poison Pills in a World of Activism and ESG

Since the creation of the poison pill in the 1980s as a response to hostile takeovers, the corporate world has seen the rise of stakeholder governance, ESG, and stockholder activism and a host of other dramatic developments. The stock market decline following the outbreak of COVID-19 prompted a resurgence of pills, and with the recent Williams decision, the structure and strength of pills have changed in meaningful ways. In a new paper, we examine modern poison pills and propose some new ground rules for pills. These rules, we believe, would effectively balance, on the one hand, a board’s interest in … Read more

Cleary Gottlieb Discusses Delaware Ruling on Appraisal Petitioners’ Discovery Demand

In Wei v. Zoox, Inc., the Delaware Court of Chancery found that an appraisal petition had been filed for the sole purpose of gathering discovery to be used in drafting a fiduciary duty complaint challenging a merger where the former stockholders had lost standing to seek books and records under Section 220 due to the rapid closing of the merger.  Nonetheless, in a novel ruling, the court permitted the appraisal petitioners to pursue some discovery in the appraisal action, limited to what would have been available to them under Section 220 had they not lost standing to seek such … Read more

Cleary Gottlieb Discusses Delaware Ruling on Post-Signing Value Changes in M&A Appraisals

In a noteworthy new post-sale appraisal ruling, the Delaware Court of Chancery in BCIM Strategic Value Master Fund, LP v. HFF, Inc.[1] awarded the petitioner additional consideration based on an increase in the value of the target company that arose between signing and closing.  The unique facts of this case, and particularly the sustained outperformance of the target in the interim period before closing, are worth keeping in mind in evaluating the risk that a successful appraisal proceeding can increase the amount of consideration payable in a public company acquisition.  Below we break down the Court’s analysis in determining … Read more

Sullivan & Cromwell Discusses Delaware Chancery’s First Fiduciary-Duty Opinion on SPACs

On January 3, 2021, in In re MultiPlan Corp. Stockholders Litigation,[1] the Delaware Court of Chancery denied a motion to dismiss a complaint brought by SPAC stockholders against the SPAC, its sponsor and its directors.  Plaintiffs alleged that defendants breached their fiduciary duties in connection with the de‑SPAC transaction by issuing a false and misleading proxy statement that failed to disclose the impending loss of the target’s largest customer, which led to a significant drop in stock price following the de-SPAC transaction.

Notably, the Court held that the entire fairness standard of review would apply to assess the … Read more

Cleary Gottlieb Discusses Delaware Chancery Decision on SPAC Merger Challenge

In one of the first opinions addressing fiduciary duty claims in the context of a transaction involving a special purpose acquisition company (“SPAC”), the Delaware Court of Chancery determined that the SPAC shareholders’ right to redeem can be undermined by insufficient disclosures regarding the transaction and allowed class-action claims to continue against a SPAC’s controlling shareholder and directors.[1]  This decision is important because it addresses some of the unique features of SPACs designed to mitigate inherent conflicts of interest in the SPAC structure, particularly the redemption feature.  While this opinion leaves open that the redemption feature of SPACs may … Read more

Skadden Discusses Recent Delaware Chancery “Caremark” Decisions

In 1996, the Delaware Court of Chancery issued its seminal decision in In re Caremark International Inc. Derivative Litigation,1 establishing the conditions for director oversight liability under Delaware law. Adopted a decade later by the Delaware Supreme Court in Stone v. Ritter,2 the Caremark test imposes liability under two “prongs”: where “(a) directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”3

In the 25 years since Caremark … Read more

The Board of Directors’ Duty of Oversight and Cybersecurity

Over the last several years, cyberattacks, including from foreign state actors, have affected thousands of companies and government agencies. Past corporate victims include Yahoo!, Home Depot, and LinkedIn. And the real world consequences of a cyberattack became vivid to the Americans public in May 2021, when the operator of the Colonial Pipeline was compromised. As a consequence of the attack, the pipeline, which provides roughly 45 percent of the gasoline and other types of fuel for the East Coast, had to be shut down for six days. The stoppage precipitated a run on gasoline along parts of the East Coast … Read more

What Do Stockholders Own? The Rise of the Trading Price Paradigm in Corporate Law

In a spate of recent decisions, the Delaware Supreme Court has embraced a shift in its approach to stockholder appraisal rights, a development that has attracted considerable comment. The greatest impact of these decisions, however, may lie beyond appraisal and still be to come.  The decisions present a new conception of how trading prices relate to the stockholder’s entitlement, one that would alter basic ideas surrounding mergers, stock ownership, and the nature of the corporation as a vehicle for co-ownership. Delaware corporate law appears to be on the verge of a paradigm shift.

At the heart of the shift is … Read more

Weil Gotshal Discusses Boeing Decision and Board Oversight of Product Safety Risks

The Delaware Court of Chancery’s recent decision denying a motion to dismiss in In re The Boeing Company Derivative Litigation, 2021 WL 4059934 (Del. Ch. Sept. 7, 2021), reminds directors and their counsellors of the importance of board and board committee level oversight and monitoring of “mission critical” product safety risks – in this case airplane safety. Perhaps even more important for litigation purposes, the Boeing decision also reminds directors and their counsellors of the importance of documenting these efforts in a manner that can be produced to stockholders making demands for books and records under Section 220 of … Read more

Wachtell Lipton Discusses Boeing’s MAX Woes in the Boardroom

In an important decision this week, the Delaware Court of Chancery permitted a Caremark duty-of-oversight claim to proceed against the directors of the Boeing Company.  Stockholder plaintiffs sued Boeing’s board, seeking to recover costs and economic losses associated with the crash of two 737 MAX jetliners.  The plaintiffs’ complaint alleged that the directors failed to monitor aircraft safety before the crashes and then failed to respond to known safety risks after the first crash.  The lawsuit seeks to hold the directors liable for the resulting loss of “billions of dollars in value.”

The court denied the directors’ motion to dismiss.  … Read more

Stock Market Value and Deal Value in Appraisal Proceedings

In a new article, I consider two methods of valuing public companies in appraisal proceedings under Section 262 of the Delaware General Corporation Law: the unaffected market price of the company’s shares and the deal price (less synergies, as applicable) that the acquirer pays in the merger.

Following their decisions in the DFC, Dell, and Aruba cases, the Delaware courts have strongly favored market-based methods of valuation in appraisal proceedings, and they have used both the unaffected market price and the deal price in appropriate cases. To be sure, each of these methods is reliable only when certain assumptions … Read more

Arnold & Porter Discusses Delaware Case on SPACs and Breaches of Fiduciary Duties

The complaint filed in Franchi v. Multiplan Corp. et al. in the Chancery Court of Delaware on April 9, 2021 [1], has received a fair amount of attention because it claims breaches of fiduciary duties of a SPAC’s Board of Directors and officers with respect to a de-SPAC transaction, requiring entire fairness judicial review, and because it essentially alleges that, as a general matter, conflicts of interest and flawed processes in approving mergers with targets is endemic to the nature of SPACs. Given the prevalence of SPACs and the recent SEC statement regarding the risks of conflicts of interest in … Read more

Sullivan & Cromwell Discusses Delaware Chancery’s Rejection of MAE Claim for Covid Effects

On April 30, 2021, then Vice Chancellor (now Chancellor) Kathaleen McCormick of the Delaware Court of Chancery issued a post-trial decision in Snow Phipps Group, LLC v. KCAKE Acquisition, Inc.[1] ordering specific performance of a private equity purchaser’s obligation to purchase a business.  The Court rejected the buyer’s argument that COVID-19 was reasonably expected to cause a sales decline that would mature into a material adverse effect (“MAE”), noting that, although the company sustained a precipitous drop in sales at the outset of the COVID-19 pandemic, it rebounded in the two weeks prior to termination and was not projected … Read more