- Morris James, Where Is Delaware Corporate Litigation Going?
To begin with, it is clearly a good thing for Delaware to reject disclosure-only settlements when little value has been generated for the stockholders. Trulia is a good decision given the current legal landscape. Under it, clearly meritorious disclosure settlements still will be approved. Other cases can proceed on the merits to a pre-close injunction hearing, and may be resolved through voluntary supplemental disclosures that can benefit stockholders, or through post-close litigation where damages may be pursued. Moreover, Corwin will not affect post-close litigation where the challenged transaction is among the most scrutinized under Delaware law: deals involving a conflicted, controlling stockholder. Nor will Corwin affect post-close litigation in third-party deals where the stockholder vote was uninformed, or coerced. E.g., In re Saba Software, Inc. S’holder Litig., Cons. C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017).
Previously, transaction insurance (or R&W insurance) was used sparingly and predominantly by East Coast private equity funds. PE funds have historically found R&W insurance to be attractive on the buy-side to enable them to make more competitive buyout bids for private targets by foregoing large escrows and significant post-closing indemnifications from targets. At the same time, when the PE fund is on the sell-side, it will insist that the buyer purchase R&W insurance to protect the fund’s risk exposure to breaches of representations and warranties by its portfolio company in the sale. Outside of the US, R&W insurance has already become widely used in private M&A deals in Europe by both PE funds and strategic buyers alike.
As the underwriting process has streamlined, and premiums have come down in the US, R&W insurance has secured a significant position in the M&A toolbox for middle-market M&A nationwide (outside of the PE context). Most financial buyers and now many strategic buyers increasingly use these policies as a means to manage risk and to help facilitate a deal.
- Fried, Frank, Harris, Shriver & Jacobson LLP, 2017: Where Things Stand—Appraisal, Business Judgment Rule and Disclosure (2017)
- K&L Gates LLP, Insider Trading Law After Salman
- Sheppard Mullin, Delaware Supreme Court Confirms that Dilution Claims Typically Are Derivative and Are Extinguished After a Merger
Stockholder claims alleging wrongful dilution are typically considered to be derivative in nature. Several decisions out of Delaware, however, have created exceptions to this general rule allowing stockholders to sue directly (rather than derivatively on behalf of the corporation) where, for example, a controlling stockholder authorizes a “disloyal expropriation” which reduces the economic value and voting power of the non-conflicted stockholders. See, e.g., Gentile v. Rossette, 906 A.2d 91, 100 (Del. 2006); Gatz v. Ponsoldt, 925 A.2d 1265 (Del. 2007); Feldman v. Cutaia, 951 A.2d. 727 (Del. 2008). In El Paso Pipeline GP Company, L.L.C. v. Brinckerhoff, No. 103, 2016, 2016 Del. LEXIS 653 (Del. Dec. 20, 2016), the Delaware Supreme Court declined to add to these exceptions and reaffirmed the general rule that dilution claims must be brought derivatively. As a result, a derivative plaintiff losses his or her standing to pursue a dilution claim if the entity is acquired through a merger.
- Sidley Austin LLP, Proxy Access Reaches the Tipping Point: Adopted by Just Over 50% (251) of S&P 500 Companies as of December 31, 2016 (Jan. 3, 2017)
- Gibson Dunn & Crutcher LLP, Planning for Your Annual Shareholder Meeting: Selected Considerations for a Virtual-Only Meeting
(Nov. 16, 2016)
- Davis Polk & Wardwell LLP, Preparing Your 2016 Form 20-F (Dec. 8, 2016)
Sullivan & Cromwell, 2016 U.S. Shareholder Activism Review and Analysis (Nov. 28, 2016)
Steven Davidoff Solomon, A New Strategy for Shareholder Activism: Engagement