In December the Delaware Supreme Court and the Delaware Chancery Court each issued decisions supporting board authority to approve mergers and acquisitions. In C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, the Delaware Supreme Court reversed an order preliminarily enjoining a shareholder vote on the merger between C&J Energy and a division of Nabors Industries. The Chancery Court had enjoined the vote because it found that the C&J board may have violated its fiduciary duties by not “shopping” the company before agreeing to the merger.
In dissolving the injunction, the Supreme Court noted that the Chancery Court failed to find that the plaintiffs demonstrated a reasonable probability of success on the merits. Moreover, the Chancery Court erroneously believed “that a company selling itself in a change of control transaction is required to shop itself to fulfill its duty to seek the highest immediate value.” There is no specific route that a board must follow when fulfilling its fiduciary duties, and “an independent board is entitled to use its business judgment to decide to enter into a strategic transaction that promises great benefit, even when it creates certain risks.”
Similarly, in In Re Family Dollar Stores, Inc. Shareholder Litigation, the Delaware Chancery Court refused to enjoin Family Dollar’s shareholder vote on Dollar Tree’s proposed acquisition of Family Dollar. The Chancery Court found that plaintiffs failed to demonstrate a reasonable probability of success on any of their claims. The record showed that the Family Dollar board acted reasonably when it decided not to engage in negotiations with a third company because of the antitrust risks associated with that proposal.
University of California at Berkeley law professor Steven Davidoff Solomon, writing for DealBook, noted the Delaware court’s philosophic approach to merger and acquisitions. Solomon summarized that approach as “a strict view of independent directors and advisers.” He then reviewed three decisions which illustrate that philosophy.
The D&O Diary discussed two other merger objection lawsuits in which settlements requiring large monetary payments were made. The blog post notes that a significant portion of the payments were made by the director and officer insurers.
The Harvard Law School Forum on Corporate Governance and Financial Regulation published a summary of New York University law professor Marcel Kahan’s article on “The Law and Finance of AntiTakeover Statutes.”