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Forging ahead with “entire fairness,” or playing it safer (procedurally speaking)

Controlling stockholder buy-outs of Delaware corporations are generally scrutinized under the lens of “entire fairness” to determine whether the transaction was the product of fair dealing and fair price. Notably, however, under M&F Worldwide, the Delaware Supreme Court confirmed that a target corporation’s use at the outset of a transaction of a special committee of disinterested directors and an informed vote of a majority of the minority of the target’s stockholders, among other factors, will result in a transaction that would otherwise be subject to the stringent entire fairness test instead being reviewed under the deferential business judgment rule. The burden of proving entire fairness and the perception of a significant risk of a negative outcome under an entire fairness review frequently results in deal participants allowing the fate of the transaction to be determined not only by a special committee, but even more critically, by the majority of the minority stockholder vote. However, the recent Delaware Chancery Court decision in ACP Master, LTD., et al. v. Sprint Corporation, et al. / ACP Master, LTD., et al. v. Clearwire Corporation highlights that entire fairness may not be fatal, and that a finding of entire fairness may overcome earlier instances of conduct or process that may fall short or that otherwise had “flaws” and “blemishes”.

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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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