On May 31, 2012, the Delaware Supreme Court affirmed the decision of the Court of Chancery, in the matter of Vulcan Materials, Inc. v. Martin Marietta Materials, Inc., C.A. No. 7102-CS (Del. Ch. May 4, 2012), which examined whether Martin Marietta violated two confidentiality agreements in pursuing a hostile take-over bid for Vulcan Materials that were previously entered into during friendly merger talks. While neither agreement included an express prohibition against a hostile bid, Chancellor Strine enjoined Martin Marietta from proceeding with the bid for four months. This decision and the Delaware Supreme Court’s affirmation of same has significant implications for the drafting of confidentiality agreements at the commencement of friendly transactions.
Vulcan and Martin Marietta executed a non-disclosure agreement covering both the information shared and the fact that the talks were taking place in connection with merger talks. The non-disclosure agreement allowed the use of information "solely for purposes of pursuing and completing" a "business combination transaction" that was "between" the parties, and it also contained a customary exception for "legally required" disclosures. The agreement did not include a standstill provision. As talks subsided, Martin Marietta launched a hostile bid of Vulcan.
In determining whether Martin Marietta had breached the confidentiality agreements, the Court examined the language of the agreements in detail and the intentions of the parties. Martin Marietta argued that the use and disclosure of information were permitted under the agreement because the hostile bid was pursuant to a business combination transaction between the parties. Vulcan asserted that only a consensual transaction was intended. The court found that the extrinsic evidence of the party's intentions indicated that such confidential information was not to be used in the context of hostile bids. The court enjoined Martin Marietta from proceeding with its hostile bid for four months, the time frame from Martin Marietta's breach until the expiration of the first agreement.
This decision makes clear that a court can preclude buyers from using confidential information to further a hostile bid if contractual language of the confidentiality agreement is ambiguous and the parties’ intentions indicate that an information exchange is solely to further a friendly, negotiated transaction.