On December 19, 2014, the Supreme Court of Delaware reversed the Delaware Court of Chancery’s November decision (discussed on the Forum here) to preliminarily enjoin for 30 days a vote by C&J Energy Services stockholders on a merger with Nabors Red Lion Limited, to allow time for C&J’s board of directors to explore alternative transactions. The Supreme Court decision clarifies that in a sale-of-control situation, Revlon and its progeny require an effective, but not necessarily active, market check, and there is no “specific route that a board must follow” in fulfilling fiduciary duties.
The decision also reaffirms the type of record that must be made to support a mandatory preliminary injunction, a type of injunction that requires parties to take affirmative actions as opposed to merely maintaining the status quo. The Court found that the Chancery Court “blue penciled” the merger agreement, and in the process stripped Nabors of its contractual rights, by effectively inserting a go-shop provision into the contract where the parties never agreed to one. Moreover, the Chancery Court improperly did so without finding that Nabors aided and abetted a fiduciary duty breach and based its holding only on disputed facts that were not adjudicated following a trial. While the decision does not break new ground, it is significant in better defining directors’ duties when selling control and articulating the limits of a court’s ability to issue mandatory preliminary injunctions.