Posts Tagged ‘Merger litigation’

Court Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 30, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Michael Kaplan, co-head of Davis Polk’s global Capital Markets Group, and is based on a Davis Polk client memorandum. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On March 7, 2014, Vice Chancellor Travis Laster of the Delaware Court of Chancery found a financial advisor liable for aiding and abetting breaches of fiduciary duties by the board of Rural/Metro Corporation in connection with the company’s 2011 sale to an affiliate of Warburg Pincus LLC. In its 91-page, post-trial opinion, the Court concluded that the financial advisor allowed its interests in pursuing buy-side financing roles in both the sales of Rural/Metro and Emergency Medical Services (“EMS”) to negatively affect the timing and structure of the company’s sales process, that the board was not aware of certain of these actual or potential conflicts of interest, and that the valuation analysis provided to the board was flawed in several respects. Both the Rural/Metro board of directors and a second financial advisor to Rural/Metro settled before trial for $6.6 million and $5.0 million, respectively.

…continue reading: Court Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches

Forum Selection Clauses in the “Foreign” Court

Posted by Victor I. Lewkow, Cleary Gottlieb Steen & Hamilton LLP, on Saturday March 29, 2014 at 9:00 am
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Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow and Mitchell Lowenthal. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

It is now clear that, for Delaware companies, a charter or by-law forum selection clause (FSC) is a valid and promising response to the problems posed by multi-jurisdictional disputes involving claims based upon internal corporate affairs (such as M&A litigation and derivative actions). Three recent rulings by “foreign” courts—courts located outside of the forum selected in the charter or by-law (which is usually Delaware). In each case, the “foreign” court granted motions to dismiss based upon an FSC that selected Delaware as the exclusive forum. Still, as we have previously advocated, [1] the better course would be to include with an FSC a consent to jurisdiction and service provision for stockholders who commence the foreign litigation that would permit the defendants in the foreign case to enforce the forum selection clause in Delaware. [2]

…continue reading: Forum Selection Clauses in the “Foreign” Court

Shareholder Activism in the M&A Context

Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

With M&A activity expected to increase in 2014, shareholder activism is an important factor to be considered in the planning, negotiation, and consummation of corporate transactions. In 2013, a year of relatively low deal activity, it became clear that activism in the M&A context was growing in scope and ambition. Last year activists were often successful in obtaining board seats and forcing increases in deal consideration, results that may fuel increased efforts going forward. A recent survey of M&A professionals and corporate executives found that the current environment is viewed as favorable for deal-making, with executives citing an improved economy, decreased economic uncertainty, and a backlogged appetite for transactions. There is no doubt that companies pursuing deals in 2014—whether as a buyer or as a seller—will have to contend with activism on a variety of fronts, and advance preparation will be important.

…continue reading: Shareholder Activism in the M&A Context

The Evolving Face of Deal Litigation

Editor’s Note: Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, Sarkis Jebejian, Yosef J. Riemer, and Matthew Solum.

As dealmakers put the finishing touches on public M&A transactions, the question is no longer if there will be a lawsuit, but rather when, how many and in what jurisdiction(s). And while many of the cases remain of the nuisance strike-suit variety, recently it seems every few weeks there is an important Delaware decision or other litigation development that potentially changes the face of deal litigation and introduces new risks for boards and their advisers. Now more than ever, dealmakers need to be aware of, and plan to mitigate, the resulting risks from the earliest stages of any transaction.

…continue reading: The Evolving Face of Deal Litigation

Financial Advisor Liable for Aiding Board’s Breach of Fiduciary Duty

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 25, 2014 at 9:20 am
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Editor’s Note: The following post comes to us from James T. Lidbury, partner and co-head of the Investment Management practice group at Ropes & Gray LLP, and is based on a Ropes & Gray publication. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On March 7, the Delaware Court of Chancery published a post-trial opinion in In Re Rural Metro Corporation Stockholders Litigation (Rural Metro) finding Rural/Metro’s financial advisor RBC liable for aiding and abetting the Rural/Metro’s board of directors’ breach of its fiduciary duties in connection with the acquisition of Rural/Metro by Warburg Pincus. The decision is the latest in a series of Delaware opinions concerning conflicts of interest of banks and investment firms in advising companies in buy-out transactions.

…continue reading: Financial Advisor Liable for Aiding Board’s Breach of Fiduciary Duty

Delaware Decision Reinforces Need for Proper Procedure in Squeeze-Out Merger

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 20, 2014 at 9:04 am
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Editor’s Note: The following post comes to us from David N. Shine, partner and co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication.

The private equity firm that was the controlling stockholder of Orchard Enterprises effected a squeeze-out merger of the minority public stockholders. Two years later, a Delaware appraisal proceeding determined that Orchard’s shares at the time of the merger were worth more than twice as much as was paid in the merger. Public shareholders then brought suit, claiming that the directors who had approved the merger and the controlling stockholder had breached their fiduciary duties and should be held liable for damages. The Orchard decision [1] issued by the Delaware Chancery Court this past Friday adjudicates the parties’ respective motions for summary judgment before trial.

…continue reading: Delaware Decision Reinforces Need for Proper Procedure in Squeeze-Out Merger

Fixing Merger Litigation

Posted by Steven Davidoff, Ohio State University College of Law, Jill Fisch, University of Pennsylvania, and Sean Griffith, Fordham University, on Friday March 14, 2014 at 9:00 am
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Editor’s Note: Steven M. Davidoff is Professor of Law and Finance at Ohio State University College of Law. As of July 2014, Professor Davidoff will be Professor of Law at the University of California, Berkeley School of Law. Jill E. Fisch is Perry Golkin Professor of Law and Co-Director of the Institute for Law & Economics at the University of Pennsylvania Law School. Sean J. Griffith is T.J. Maloney Chair in Business Law at Fordham University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In the US, every M&A deal of any significant size generates litigation. The vast majority of these lawsuits settle, and the vast majority of these settlements are for non-pecuniary relief, most commonly supplemental disclosures in the merger proxy.

The engine that drives this litigation is the concept of “corporate benefit.” Under judge-made law, litigation that produces a corporate benefit allows the court to order plaintiffs’ attorneys’ fees to be paid directly by the defendants provided that the outcome of the litigation is beneficial to the corporation and its shareholders. In a negotiated settlement, plaintiffs will characterize supplemental disclosures in the merger proxy as producing a corporate benefit, and defendants will typically not oppose the characterization, as they are happy to pay off the plaintiffs’ lawyers and get on with the deal. The supposed benefits of these settlements thus are rarely tested in adversarial proceedings. Knowing this creates a strong incentive for plaintiffs’ attorneys to file claims, put in limited effort, and negotiate a settlement consisting exclusively of corrective disclosures. But is there any real value to these settlements?

…continue reading: Fixing Merger Litigation

Court of Chancery Stresses Need for Board Monitoring of Advisors and Potential Conflicts

Editor’s Note: Paul Rowe is a partner in the Litigation Department at Wachtell, Lipton, Rosen and Katz. This post is based on a Wachtell Lipton memorandum by Mr. Rowe, David A. KatzWilliam Savitt, and Ryan A. McLeod. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Last week, the Delaware Court of Chancery reached the rare conclusion that an independent, disinterested board breached its fiduciary duties in connection with an arm’s-length, third-party, premium merger transaction. The decision, In re Rural Metro Corp. Stockholders Litig., C.A. No. 6350-VCL (Del. Ch. Mar. 7, 2014), which relies heavily on findings that the board’s financial advisor had undisclosed conflicts of interest, holds the advisor liable for aiding and abetting the breaches, but does not reach the question of whether the directors themselves could have been liable, as they settled before trial. The decision sends a strong message that boards should actively oversee their financial advisors in any sale process.

…continue reading: Court of Chancery Stresses Need for Board Monitoring of Advisors and Potential Conflicts

Delaware Chancery Emphasizes Materiality as Key in Disclosure-Based M&A Settlements

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday February 21, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Bradley W. Voss, partner in the Commercial Litigation Practice Group of Pepper Hamilton LLP, and is based on a Pepper Hamilton publication. This post is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Some corporate practitioners could have the impression that significant fee awards are granted as a matter of course in M&A class action litigation, even where the results obtained by class counsel were supplemental (and arguably routine) disclosures regarding the proposed transaction. Recent comments by the judges of the Delaware Court of Chancery, however, may suggest an increasing concern over what might be perceived as “default” fee awards in this context, as well as the value of purely supplemental, as opposed to remedial, disclosures.

In 2011, Vice Chancellor J. Travis Laster analyzed M&A fee awards in a published case titled In re Sauer-Danfoss Inc. Shareholders Litigation, 65 A.3d 1116 (Del. Ch. 2011). This undertaking, it reasonably could be hoped, would serve to promote consistency and establish reasonable expectations, especially in an area where precedent frequently lies in transcripts and unpublished orders. Of particular note, Vice Chancellor Laster wrote:

…continue reading: Delaware Chancery Emphasizes Materiality as Key in Disclosure-Based M&A Settlements

2013 Delaware Decisions and What They Mean For 2014

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday February 20, 2014 at 9:26 am
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Editor’s Note: The following post comes to us from John L. Reed, chair of the Wilmington Litigation group and a partner in the Corporate and Litigation groups at DLA Piper LLP. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Delaware’s Leading Role in Business and Business Litigation

Delaware has long been known as the corporate capital of the world. It is the state of incorporation for 64 percent of the Fortune 500 and more than half of all companies whose securities trade on the NYSE, Nasdaq and other exchanges. Its preeminence in business law started with its corporate code—the Delaware General Corporation Law—and has been enhanced by business law innovations that have led to the creation of many new business entities designed to meet the expanding needs of corporate and financial America.

…continue reading: 2013 Delaware Decisions and What They Mean For 2014

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