A recent transcript ruling in the Delaware Court of Chancery could have a significant impact on the market for control of public companies, particularly in an auction context, if broadly adopted.

Vice Chancellor Laster’s bench decision in In Re Complete Genomics, Inc. Shareholder Litigation questions the enforceability of a standstill agreement that prohibits the bidder from privately requesting a waiver to make a topping bid, which he labeled a “Don’t Ask, Don’t Waive” standstill. The Vice Chancellor did not object to the bidder being prohibited from publicly requesting a waiver (which he understood would clearly circumvent the standstill), but held that directors have a continuing duty to be informed of all material facts, including whether the rejected bidder is willing to offer a higher price. By analogy to cases holding that a board that has agreed to sell the company may not close its ears to the possibility of higher bids, he suggested that “a Don’t Ask, Don’t Waive Standstill is impermissible because it has the same disabling effect as the no-talk clause, although on a bidder-specific basis.” While this may seem favorable for bidders, it raises questions about the protections afforded by typical standstill arrangements and the willingness of targets to engage in transaction discussions if they have doubts about those protections. The ruling also raises questions about its potential extension to standstill agreements in joint ventures and other commercial contexts, which could undermine the value of contractually bargained-for protections.

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