A Twist in the Delaware Two-Step: A Proposed Amendment to the Delaware General Corporation Law Would Eliminate Required Stockholder Vote

Posted by Rick Jordan on April 01, 2013

A two-step merger is a common acquisition structure for public company sale transactions.  Under this structure, the buyer commences a tender or exchange offer to obtain over 50% of the target’s voting shares, followed by a second-step merger to acquire the remaining voting shares.  Generally speaking, unless the buyer obtains 90% or more of the target’s voting shares in the first-step tender or exchange offer (or through exercising a "top-up option," if any), the target’s stockholders must vote to approve the second-step merger.  This stockholder vote requires a proxy statement or an information statement to be delivered to the target’s stockholders, which can be onerous.

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LINKEDIN WOULD LIKE TO ADD YOU TO ITS PROFESSIONAL NETWORK; DO YOU WANT TO ACCEPT?

Posted by Gardere Wynne Sewell LLP on May 18, 2011

Professional networking giant LinkedIn is courting investors in advance of its IPO, but its dual-class share structure gives cause for consideration.  No stranger to media heavyweights, including Facebook, Google, the Washington Post and the New York Times, a dual-class share structure is touted by some for its benefits, including the ability of controlling shareholders to:

•    protect corporate culture;

•    avoid the short-sightedness of quarterly performance expectations; and

•    thwart hostile takeovers.

But shareholders have cried foul in the past.  After a federal court struck down the SEC’s attempt to prohibit dual-class share structures in the late 1980s, the stock exchanges took matters into their own hands with rules forbidding exchange-listed companies from adopting a dual-class share structure.  The glaring loophole, however, remains: a company with an existing dual-class share structure can list its shares.

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POISON PILL UPHELD BY DELAWARE CHANCERY COURT

Posted by Gardere Wynne Sewell LLP on February 16, 2011

The Delaware Chancery Court upheld Airgas, Inc.'s poison pill defense in a ruling on Feb. 15, 2011 (PDF).  The Airgas poison pill had blocked a $5.9 billion hostile bid from Air Products & Chemicals Inc., which dropped the bid following the ruling.

As reported by The Wall Street Journal today, the Delaware court ruled that the “power to defeat an inadequate hostile tender offer ultimately lies with the board of directors.”  The court held that the poison pill was a reasonable response to the Air Products’ takeover attempt.  The key is that the court found the Airgas board of directors to be acting in good faith and complying with its fiduciary duties.

Bloomberg Businessweek reported today that the Air Products’ offer, which was made public on Feb. 4, 2010, was the eighth-longest-running U.S. hostile takeover bid since Bloomberg started tracking takeover offers.  Airgas subsequently announced a $300 million share buyback.

OUR TAKE:  This was an anticipated decision because poison pill cases are typically settled or dropped before the cases can be decided.  The Chancery Court has reinforced the viability of a poison pill as an appropriate response to a hostile bid that a board of directors in good faith believes is inadequate. 

DELAWARE CHANCERY COURT DELAYS STOCKHOLDER VOTE

Posted by Gardere Wynne Sewell LLP on February 15, 2011

The Delaware Chancery Court has delayed the Del Monte Foods Co. stockholder vote, scheduled for February 15, in a proposed multibillion sale to a KKR & Co.-led group.  In In re Del Monte Foods Co. S'holders Litig., C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011) (PDF), the Delaware court delayed the stockholder vote for 20 days based upon a preliminary finding that the Del Monte directors breached their fiduciary duties. The court also enjoined the proposed buyers' deal protection devices, including a termination fee and matching rights in conjunction with a go-shop provision. 

The Delaware court determined that the advice the Del Monte board of directors received from a financial advisor was tainted because of the financial advisor's conflicts of interest, including an effort to provide buy-side financing for the deal before there was an agreement on price and certain activities with potential bidders.  The court pointed to the board's ultimate responsibility for the process and the requirement to take "an active and direct" role.  The court also identified inappropriate activities by the potential buyers.

A Bloomberg report on Feb. 15, 2011 noted that both Del Monte and the financial advisor defended the sales process as achieving the best price for the Del Monte stockholders.

OUR TAKE:  While this case is not final, it serves as a wake-up call to a public company board to be fully engaged in the sale process.  This includes managing the relationship with the company's financial advisors, which, in an increasingly competitive environment, may have multiple, and potentially conflicting, interests in a sale transaction.

DELAWARE SUPREME COURT ACKNOWLEDGES LIMIT ON SHAREHOLDER INSPECTION RIGHT

Posted by Richard A. Tulli on October 26, 2010

In a recently published decision, City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc. (PDF), the Delaware Supreme Court upheld the Delaware Chancery Court’s dismissal of a petition to inspect corporate books and records because the plaintiff did not present “credible evidence” of mismanagement or other wrongdoing to constitute a “proper purpose” for the requested inspection.  The plaintiff was a stockholder of the defendant, a Delaware publicly held corporation, that filed a petition for inspection of corporate books and records under Section 220 of the Delaware General Corporation Law (the “DGCL”).  The defendant had recently been the target of an acquisition proposal, which the defendant’s board ultimately rejected.  The defendant also had recently held an election of one class of its directors, all of the members of which had received a plurality, but not a majority, of the votes for reelection.  Because of existing board policy in light of such voting results, each of the members of that class tendered his resignation, but the defendant’s board did not accept any of those resignations. 

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