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Updated Guidance (and Ground Rules) for Controlling Stockholder Deals

The Delaware Supreme Court’s 2014 decision in Kahn v. M&F Worldwide (“MFW”) provided a business judgment rule protection for controlling stockholder transactions which are conditioned from the outset on certain procedural protections being utilized, including approval by (1) a fully-empowered independent special committee and (2) a fully-informed, uncoerced vote of a majority of the target minority stockholders unaffiliated with the controller. While MFW provided helpful guideposts for avoiding entire fairness review in controlling stockholder transactions, questions remained as to the application of MWF to different types of deals and negotiations, and the consequences of small deviations from strict adherence to MFW. Recent guidance from the Delaware Court of Chancery has given way to updated ground rules for controlling stockholder transactions: (i) MFW also applies to deals where the controlling is only on the sell-side; (ii) other conflicted controller transactions besides mergers, such as recapitalizations, are eligible for MFW protection; and (iii) small foot faults will not cause the business judgment rule protection afforded by MFW to be lost.

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The Ropes Recap: Mergers & Acquisitions Law News

Practices: Mergers & Acquisitions

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Linked is the First Quarter 2015 edition of the Ropes & Gray M&A Newsletter. Topics addressed in this edition include:

News from the Courts 

  • Chancery Court Denies Enforcement of Drag-Along Right in Transaction Where Notice to Minority Stockholders Improperly Provided After Majority Stockholder Approval 
  • Price Paid to, Inc. Stockholders Determined to be Fair, Despite Contrary Arguments from “Appraisal Arbitrage” Investors 
  • In Earnout Dispute Cases, Chancery Court Rules on Implied Covenant of Good Faith and Scope of Arbitration 
  • Chancery Court Declines to Apply Fee-Shifting Bylaw to Former Shareholder 
  • Substantial Damages Awarded for Breach of Contractual Obligation to Negotiate in Good Faith 

Delaware Legislative Update

Notable Deals 

  • Kraft and Heinz to Merge in Deal Orchestrated by Warren Buffet and 3G Capital 
  • Bidding War Ends for Salix Pharmaceuticals 

London Update 

  • The Small Business, Enterprise and Employment Bill: Timeline for Implementation of Key Corporate Aspects 

Asia Update 

  • China Continues Foreign Investment Reforms by Revising Foreign Investment Catalogue

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