Piotr Korzynski is an associate at Baker & McKenzie LLP. This post is based on a publication by Mr. Korzynski and is part of the Delaware law series; links to other posts in the series are available here. This post represents the views of the author and not necessarily the views of Baker McKenzie LLP.
In the four and a half years since the Delaware legislature adopted Section 251(h) of the Delaware General Corporation Law (DGCL) and offered streamlined mechanics for closing two-step mergers, Delaware practitioners have made increasing use of the provision. The provision, subject to certain conditions, permits an acquiror’s near-simultaneous closing of an exchange or tender offer for a controlling stake in a target in the first transaction step and a merger for the remaining outstanding stake in the target immediately after in a final, second step. In its initial year, Section 251(h) was utilized in over 20% of deals involving Delaware public company targets and 33 of 41 Delaware two-step mergers. [1] In 2014, following the success of that first year, the legislature liberalized the use of Section 251(h) by, among other things, striking the condition that the provision was inapplicable to transactions involving “interested stockholders” (i.e., owners of 15% or more of a target company’s outstanding voting stock at the time of target board approval of the merger agreement). Such condition had restricted Section 251(h) transactions to true third-party transactions and likely depressed its use in the first year. By its third full year, nearly 25% of deals involving Delaware public company targets and 49 of 52 Delaware two-step mergers utilized Section 251(h).
