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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 Second Half 2016 edition of the Ropes & Gray M&A Newsletter. Topics addressed in this edition include:

News from the Courts

  • Delaware Court of Chancery Once Again Rejects Transaction Price as the Best Measure of Fair Value in DFC Global Litigation
  • In an Appraisal Proceeding, Chancery Court More Likely to Equate Deal Price with Fair Value Where Transaction Is the Result of an Appropriate Sales Process
  • Some Non-Delaware Courts Reject “Disclosure-Only” Settlements and Endorse Trulia Standard, but a New York Court Adopts a Different Approach
  • Narayanan v. Sutherland Global Holdings: The Importance of Unifying D&O Indemnification and Expense Advancement Standards Across Corporate Documentation
  • Three Court of Chancery Decisions Consider the Effect of Stockholder Approval on Challenged Transactions
  • Chancery Court Dismisses Suit by Former Shareholders Against Board Members of OM Group, Inc., Applying the Corwin Standard and Making the Sale at Issue Subject to the Business Judgment Rule
  • Delaware Court of Chancery Applies Entire Fairness Standard to Find Interested Directors May Not Extinguish Breach of Fiduciary Duty Claims through Merger
  • Chancery Court Confirms Continued Applicability of “MFW” Standard in Dismissing Challenge to Controller Buyout
  • Additional Delaware Guidance on Avoiding Extra-Contractual Fraud Claims in a Sale Transaction
  • Delaware Supreme Court Revives Fiduciary Duty Claim and Provides New Guidance on Director Independence
  • Court of Chancery Addresses Standing to Bring Fiduciary Duty Claims Following a Freeze-Out Merger
  • Court of Chancery Invalidates Fee-Shifting Bylaw

Governance Update

SEC Update

Tax Update

Asia Update

UK Update

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