You reach the point in the sale of almost every public company where the buyer wants an exclusivity agreement. Lawyers representing the target wring their hands about the effect of an exclusivity agreement and the effect of effectively taking the target out of the market and the interplay with the board’s Revlon duties.

Previously we were not aware of much guidance from the Delaware courts on the effect of exclusivity agreements. However, the Delaware Court of Chancery addressed exclusivity agreements in the opinion in In Re Comverge, Inc. Shareholders Litigation (November 25, 2014).

In Comverge the court upheld the entry into an exclusivity agreement, noting the following: “Regarding the HIG exclusivity agreement, the Board initially pushed back against HIG‘s demands for exclusivity. Moreover, even when Comverge consented to the exclusivity in January 2012, the exclusivity period was less than 20 days long, as compared to the 30 days HIG had requested. In hindsight, the timing of the Company‘s agreement may have been unfortunate, because Company X indicated its $4.00–6.00 per share interest in Comverge shortly after the exclusivity period began. But Revlon requires reasonable decisions, not perfect ones. The Comverge Board had a firm $2.00 offer on the table, with HIG conditioning any further negotiations on the acceptance of exclusivity. Based on the facts alleged and all reasonable inferences drawn from them, I do not consider it conceivable that Plaintiffs could show that the Board‘s decision to accept the exclusivity period and continue their negotiations with HIG was wholly outside the range of reasonable conduct for a board seeking to maximize value for its stockholders.”