Tag: Merger litigation


Court of Chancery Upholds Customary Release in Spin-Off Transactions

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 a Wachtell Lipton publication by Mr. Katz, William 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.

The Delaware Court of Chancery last week validated a release of liability that extinguished certain claims a recently spun-off company may have had against its former parent and its directors. In re AbbVie Inc. Stockholder Derivative Litig., C.A. No. 9983-VCG (Del. Ch. July 21, 2015). The decision confirms that the mutual releases customary in spin-off arrangements are presumptively appropriate and enforceable.

Abbott Laboratories spun off AbbVie, its research-based pharmaceutical subsidiary, in January 2013. Before the spin, Abbott was a defendant in a False Claims Act action alleging unlawful off-label marketing of an AbbVie product. As part of the spin-off, AbbVie broadly released all claims it might have against Abbott or any Abbott affiliate relating to assets transferred to AbbVie, including liability for the False Claims Act claim.

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Delaware Court of Chancery Rejects M&A Litigation Settlement

Ariel J. Deckelbaum is a partner and deputy chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss 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.

In Acevedo v. Aeroflex Holding Corporation, in connection with a stockholder suit that challenged the sale of a company with a controlling stockholder to a third party, the Delaware Court of Chancery rejected a settlement which provided a global release of claims in exchange for a reduced termination fee and a shortening of the matching-rights period by one day, holding that these deal protections were not impediments to competing bidders and therefore were insufficient to support a global release.

In 2014, Aeroflex agreed to sell itself to a third-party and a class-action challenging the transaction was subsequently commenced. After engaging in discovery and consulting with third-party experts, the plaintiff concluded that the consideration offered to the Aeroflex stockholders fell within a range of reasonable value for Aeroflex’s shares, but that the proxy omitted certain material facts. The parties agreed to a settlement where the plaintiff granted the defendants a global release of all possible claims in exchange for modifying the deal protections by (i) reducing the termination fee by over 40% from $32 million to $18 million, and (ii) shortening the matching rights period from four business days to three business days. Additionally, the defendants agreed to make certain supplemental disclosures in the proxy.

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Appraisal Arbitrage—Is There a Delaware Advantage?

Gaurav Jetley is a Managing Principal and Xinyu Ji is a Vice President at Analysis Group, Inc. This post is based on a recent article authored by Mr. Jetley and Mr. Ji. The complete publication, 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.

Market observers have devoted a fair amount of attention to possible reasons underlying the recent increase in appraisal rights actions filed in the Delaware Chancery Court. A number of commentators have connected such an increase to recent rulings reaffirming appraisal rights of shares bought by appraisal arbitrageurs after the record date of the relevant transactions. Other reasons posited for the current increase in appraisal activity include the relatively high interest rate on the appraisal award and a belief that the Delaware Chancery Court may feel more comfortable finding fair values in excess of, rather than below, the transaction price.

In our paper Appraisal Arbitrage—Is There a Delaware Advantage?, we examine the extent to which economic incentives may have improved for appraisal arbitrageurs in recent years, which may help explain the increase in appraisal activity. We investigate three specific issues.

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Delaware Court Relies Exclusively on Merger Price in Appraisal Action

Toby Myerson is a partner in the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP and co-head of the firm’s Global Mergers and Acquisitions Group. The following post is based on a Paul Weiss memorandum authored by Matthew W. Abbott, Angelo Bonvino, Justin G. Hamill, and Jeffrey D. Marell. 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 a recent appraisal proceeding, the Delaware Court of Chancery concluded that the company had engaged in a thorough sales process, and therefore found that it was appropriate to determine fair value of the company’s stock by relying exclusively on the merger price less net synergies. The court found that a discounted cash flow (or “DCF”) analysis was an inappropriate method to value the company’s stock in this instance, as the DCF analyses relied upon by the parties were derived from unreliable management projections.

In Longpath Capital, LLC v. Ramtron International Corporation, Cypress Semiconductor Corporation (“Cypress”) issued a bear hug letter to acquire all of the shares of Ramtron International Corporation (“Ramtron”), a semiconductor company, for $2.48 per share. After the Ramtron board rejected this offer as inadequate, Cypress initiated a tender offer for Ramtron’s shares at $2.68 per share (which it later raised to $2.88 per share). During the time that Cypress pursued its tender offer, Ramtron authorized its financial advisor to market the company. The advisor contacted twenty-four potential buyers and Ramtron executed nondisclosure agreements with six of those potential buyers. Ultimately, however, none of the potential buyers made a firm bid for Ramtron. Eventually, Ramtron and Cypress engaged in active negotiations, which resulted in Cypress raising its offer price twice before the parties settled on a final transaction price of $3.10 per share. Approximately two months following the signing of the merger agreement, the merger was approved by a vote of Ramtron’s stockholders. Longpath Capital, LLC (“Longpath”), a Ramtron stockholder, properly demanded appraisal of the fair value of its Ramtron stock under Section 262 of the General Corporation Law of the State of Delaware and filed an appraisal action in the Court of Chancery against Ramtron.

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Custodial Bank’s Technical Failure Results in Dell Stockholders Losing Appraisal Rights

Steven Epstein is a partner and Co-Head of the Mergers & Acquisitions practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Epstein, Robert C. Schwenkel, John E. Sorkin, and Gail Weinstein. 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 In re Appraisal of Dell (July 13, 2015), Vice Chancellor Laster, stating that he was compelled by Delaware Supreme Court precedent, applied a “strict” interpretation of the “Continuous Holder Requirement” of the Delaware appraisal statute. The Vice Chancellor, granting summary judgment in favor of Dell, Inc., held that the funds seeking appraisal of almost one million Dell shares (acquired by them after announcement of the Dell going-private transaction) had not met the Continuous Holder Requirement and so had lost their right to appraisal.

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Merger Price and Process Win the Day Yet Again In Delaware Appraisal Action

Jason M. Halper is partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper and Gregory Beaman. 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 June 30, 2015, the Delaware Court of Chancery issued a post-trial opinion in which it yet again rejected a dissenting shareholder’s attempt to extract consideration for its shares above the merger price through appraisal rights. See LongPath Capital, LLC v. Ramtron Int’l Corp., Slip. Op. June 30, 2015, C.A. No. 8094-VCP (Del. Ch. June 30, 2015). LongPath is just the latest decision in which the Chancery Court has upheld merger price as the most reliable indicator of fair value where it was the result of a fair and adequate process. Vice Chancellor Parsons’ opinion reaffirms the importance of merger price and process in Delaware appraisal actions, and offers helpful guidance to companies, directors and their counsel in defending against claims that the company was sold at too low a price.

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Court of Chancery Again Looks to Merger Price in Appraisal Ruling

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, William 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.

The Delaware Court of Chancery this week held that the “fair value” payable in a statutory appraisal proceeding was less than the merger price. LongPath Capital, LLC v. Ramtron Int’l Corp., C.A. No. 8094-VCP (Del. Ch. June 30, 2015). The decision adds to a growing body of Delaware case law confirming the importance of the market in establishing fair value in the context of increasingly frequent (and increasingly economically significant) “appraisal arbitrage” litigation.

The case arose from Cypress Semiconductor Corp.’s hostile bid for Ramtron in 2012. In response to the bid, Ramtron tested the market but no other buyers emerged. Ramtron eventually agreed to be acquired by Cypress for $3.10 per share, a substantial premium to the stock’s trading price. After the merger was announced, LongPath, a hedge fund in the business of buying appraisal claims, acquired almost 500,000 shares of Ramtron, with the purpose of bringing an appraisal action.

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Delaware Court: Seating Board Designee Subject to Reasonable Conditions Not a Breach

Steven Epstein is a partner and Co-Head of the Mergers & Acquisitions practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Epstein, Robert C. Schwenkel, John E. Sorkin, and Gail Weinstein. 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 Partners Healthcare Solutions Holdings, L.P. v. Universal American Corp. (June 17, 2015), the Delaware Chancery Court granted summary judgment to defendant Universal American Corp. (“UAM”), rejecting the contentions of one of UAM’s largest stockholders, Partners Healthcare Solutions Holdings (“Partners”), that UAM had breached a board seat agreement by imposing conditions on the seating of Partners’ designee to the UAM board that were not provided for in the agreement. Partners, a subsidiary of a private equity firm, acquired its stake in UAM through, and the board seat agreement had been entered into in connection with, UAM’s acquisition of a subsidiary of Partners (the “Portfolio Company”). The dispute relating to the seating of Partners’ board designee arose at the same time that UAM and Partners were involved in a separate fraud litigation arising from the Portfolio Company’s performance after the merger.

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D&O Liability: A Downside of Being a Corporate Director

Alex R. Lajoux is chief knowledge officer at the National Association of Corporate Directors (NACD). This post is based on a NACD publication authored by Ms. Lajoux. 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.

One of the few downsides to board service is the exposure to liability that directors of all corporations potentially face, day in and day out, as they perform their fiduciary duties. The chance of being sued for a major merger decision is now 90 percent; but that well known statistic is just the tip of an even larger iceberg. The Court of Chancery for the state of Delaware, where some one million corporations are incorporated (among them most major public companies), hears more than 200 cases per year, most of them involving director and officer liability. And given the high esteem in which Delaware courts are held, these influential D&O liability decisions impact the entire nation.

This ongoing story, covered in the May-June issue of NACD Directorship magazine, recently prompted the National Association of Corporate Directors (NACD) to take action. Represented by the law firm Gibson Dunn & Crutcher LLP, NACD filed an amicus curiae (“friend-of-the-court”) brief in the matter of In re Rural/Metro, a complex case likely to continue throughout the summer. Essentially, the Court of Chancery ruled against directors and their advisors, questioning their conduct in the sale of Rural/Metro to a private equity firm.

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New DGCL Amendments Endorse Forum Selection Clauses and Prohibit Fee-Shifting

Jack B. Jacobs is Senior Counsel at Sidley Austin LLP, and a former justice of the Delaware Supreme Court. The following post is based on a Sidley update, and 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.

As expected, the Delaware State Legislature approved amendments to the Delaware General Corporation Law (DGCL) that will (i) authorize forum selection clauses in the charters or bylaws of Delaware corporations specifying Delaware as an exclusive forum for litigating internal corporate claims, (ii) prohibit clauses designating only courts outside of Delaware as the exclusive forum for internal corporate claims and (iii) invalidate fee-shifting provisions in the charters or bylaws of Delaware stock corporations. The bill incorporating the amendments passed the Delaware Senate on May 12, 2015 and the Delaware House on June 11, 2015. If the Governor of Delaware signs the bill into law as expected, the amendments will become effective on August 1, 2015.

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