Topic: Merger

Chancery Court Dismisses Plaintiff’s Claims against Three Former Members of the Board

By: Scott Waxman and Pouya Ahmadi

In Jacob Hasher Hindlin v. Lukasz Gottwald et al., C.A. No. 2019-0586-JRS (Del. Ch. July 22, 2020), the Delaware Court of Chancery (the “Court”) dismissed Plaintiff’s claims against three former members of the board of managers of Core Nutrition, LLC (“Core” or the “Company”) for breach of fiduciary duty and the implied contractual covenant of good faith and fair dealing.

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Chancery Court Holds Late Breach of Fiduciary Duty Claim Is Barred By Laches

By: Annette Becker; Pouya Ahmadi; Julia Knitter

In Gallagher Industries, LLC v. William M. Addy, et al., C.A. No. 2018-0106-SG (Del. Ch. May 29, 2020), the Delaware Court of Chancery (the “Court”) held that because Gallagher Industries, LLC (the “Plaintiff”) decided not to pursue an appraisal action following a problematic cash-out merger five years earlier, the Plaintiff’s tolling claim against William M. Addy and Joseph E. Eastin (the “Defendants”) for breach of fiduciary duty for disclosure weaknesses was barred by laches.

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DELAWARE HOLDS THAT A SPECIAL COMMITTEE FORMED AB INITIO WILL CLEANSE A CONFLICTED TRANSACTION IN THE CONTEXT OF A MAJORITY-CONFLICTED BOARD AND UNDERSCORES THE IMPORTANCE OF DISCLOSURES REGARDING FINANCIAL ADVISORS

By Scott E. Waxman and Sara M. Kirkpatrick

In Salladay v. Lev, C.A. No. 2019-0048-SG (Del. Ch. Feb. 27, 2020), the Delaware Court of Chancery held that former stockholders of Intersections, Inc. (“Intersections”) adequately pled facts that supported a pleading stage inference that WC SACD’s take-private merger of Intersections (the “Merger”) was subject to entire fairness review, because half of Intersections’ board stood on both sides of the transaction, and that it was reasonably conceivable that the merger was not entirely fair.

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Delaware Holds that Directors May Choose Lower Value All-Cash Deal Over Stock Deal So Long as the Decision is Made in Good Faith and Free of Conflicts

By Lisa R. Stark and Sara M. Kirkpatrick

Recently, the Delaware Court of Chancery dismissed fiduciary duty claims brought by former Essendant, Inc. (“Essendant”) stockholders after Essendant terminated its stock-for-stock merger with Genuine Parts Company (“GPC”) which was valued at $13.20 – $23.90 per share, including synergies, in favor of a lower all-cash offer of $12.80 per share, proposed by private equity fund Sycamore Partners (“Sycamore”), a minority stockholder of Essendant. Plaintiffs argued that Sycamore was a controlling stockholder of Essendant and either breached its fiduciary duties to Essendant’s stockholders or aided and abetted the Essendant directors’ breaches of fiduciary duty. Plaintiffs also argued that a majority of the Essendant directors acted disloyally or in bad faith in connection with the transaction. The Court dismissed the complaint, finding that the plaintiffs failed to adequately plead (1) non-exculpated claims against Essendant’s directors or (2) that Sycamore was a controlling stockholder or aided or abetted any breach of fiduciary duty. The Chancery Court decision, In re Essendant, Inc. Stockholder Litig., C.A. No. 2018-0789-JRS (Del. Ch. Dec. 30, 2019), was appealed to the Delaware Supreme Court on February 20, 2020.

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Delaware Court of Chancery Grants Stockholder’s Post-Merger Request to Review Company’s Books and Records under DGCL § 220

By Scott E. Waxman and Frank J. Mazzucco

In Kosinski v. GGP Inc., C.A. No. 2018-0540-KSJM (Del. Ch. Aug. 28, 2019), the Delaware Court of Chancery (the “Court”) granted a stockholder’s request, following a merger, to review a company’s books and records under Section 220 of the Delaware General Corporation Law (“DGCL”).

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Delaware Court of Chancery Holds That Third-Party Stockholder Has Standing to Enforce Anti-Takeover Protections

By Scott E. Waxman and Frank J. Mazzucco

In Arkansas Teacher Retirement System v. Alon USA Energy, Inc., et al., C.A. No. 2017-0453-KSJM (Del. Ch. Jun. 28, 2019), the Delaware Court of Chancery found that a plaintiff stockholder, in connection with a merger, had standing as a third-party beneficiary to bring claims for breach of fiduciary duty and breach of a stockholder agreement.

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Delaware Court of Chancery Applies Entire Fairness Review in Finding That Controlling Stockholders and Special Committee Members Breached Fiduciary Duties to Target Stockholders

By Lisa Stark and Frank Mazzucco

In FrontFour Capital Group LLC v. Taube, C.A. No. 2019-0100-KSJM (Del. Ch. Mar. 11, 2019), the Delaware Court of Chancery found that, due to their conduct in connection with two mergers of affiliated entities, controlling stockholders and special committee members breached their fiduciary duties to target stockholders under the entire fairness standard of review and failed to provide certain material disclosures to stockholders.

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DELAWARE COURT OF CHANCERY USES COMPANY’S UNAFFECTED MARKET PRICE TO DETERMINE FAIR VALUE IN APPRAISAL ACTION

By Josh Gaul and Frank Mazzucco

In In Re: Appraisal of Jarden Corporation, C.A. No. 12456-VCS (Del. Ch. Jul. 19, 2019), the Delaware Court of Chancery (the “Court”) determined in a statutory appraisal action that, in connection with a merger, the fair value of Jarden Corporation was best represented by the unaffected market price of the company’s shares.

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PLAINTIFF ALLEGED FACTS SUFFICIENT TO SUPPORT CLAIMS AGAINST DEFENDANTS TO SURVIVE A MOTION TO DISMISS

By Annette E. Becker and Annamarie C. Larson

In Chester County Employees’ Retirement Fund v. KCG Holdings, Inc. et al, C.A. No. 2017-0421-KSJM (Del. Ch. June 21, 2019), the Delaware Court of Chancery denied the defendants’ motion to dismiss claims of breach of fiduciary duty, aiding and abetting, and civil conspiracy brought against the largest stockholder of KCG Holdings, Inc. (“KCG”), its directors, and its long time financial advisor for failure to maximize value for KCG stockholders when negotiating the merger transaction due to certain actions taken by influencers during the sale process.  The Court held that the plaintiff stockholders adequately pled their claims against the defendants to avoid dismissal of claims. 

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Court to Sellers: Stockholder Notice Rights Matter

By Scott Waxman and Nadia Brooks

In Mehta v. Mobile Posse, Inc., six causes of action were before the Delaware Court of Chancery in Plaintiff’s complaint alleging inadequate stockholder notice and breach of directors’ fiduciary duty of disclosure regarding the merger of Mobile Posse. The defendants, Mobile Posse and its board, asserted motions for judgments on the pleadings for all counts, arguing they were entitled to the judgments because the violations were remedied by the supplemental notice they issued. The Court denied all but one of defendants’ motions, finding numerous deficiencies in the notice process and finding that the merger was not entirely fair.

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Chancery Court Enforces Privileged Communications Provision to Protect Seller Following Merger

By David Forney and Mark Hammes

In Shareholder Representative Services LLC v. RSI Holdco, LLC, C.A. No. 2018-0517-KSJM (Del Ch. May 29, 2019) the Court of Chancery held that a privileged communications provision in a merger agreement protected the pre-merger communications between the seller and the seller’s legal counsel in spite of the buyer’s insistence that the privilege had transferred in the merger or had been waived.

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Fiduciary Duty Claim Against Selling Company CEO Survives Motion to Dismiss with Aiding and Abetting Claim Missing the Mark

By: Annette Becker and Michael Payant

In In re Xura, Inc. Stockholder Litigation (C.A. No. 12698-VCS), the Delaware Court of Chancery (the “Court”) denied a motion to dismiss brought by defendants Phillippe Tartavull (“Tartavull”) and Siris Capital Group (“Siris”, and collectively with Tartavull, the “Defendants”) in a case filed by Obsidian Management LLC (“Obsidian” or “Plaintiff”) for breach of fiduciary duty in connection with the sale of Xura, Inc. (“Xura”) to a Siris affiliate. The Court held that Plaintiff pled a viable breach of fiduciary duty claim against Tartavull as CEO of Xura. The Court granted a motion to dismiss as to an aiding and abetting claim brought against Siris holding that Plaintiff failed to plead a viable claim.

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