M&A 2018 Annual Review

declined to 62, from 85 in 2016, 18 and in 2018 the number dropped even further, with roughly 30 appraisal cases filed in Delaware. The changing landscape has also resulted (in our experience) in more modest settlements in existing litigation. In its 2018 decisions, the Delaware Chancery Court highlighted deal process features that increased the likelihood of reliance on a deal price, as well as features that tended to make the court reject the deal price and seek other ways of valuing the company: • In Verition Partners Master Fund Ltd . v . Aruba Networks , Inc ., 19 the court highlighted several factors reflecting a non-exploitative process: a third party deal negotiated at arm’s-length; the lack of a controlling stockholder; no stockholders receiving preferential treatment; no conflicts of interest by the target’s ultimate decision makers; and nothing untoward in the standard deal terms (in other words, nothing that would support a breach of fiduciary duty claim). • In BlueBlade Capital Opportunities LLC v . Norcraft Companies , Inc ., 20 the court declined to defer to the deal price and undertook its own discounted cash flow analysis, resulting in a price that was roughly 2.6% above the deal price. The process problems included: • Lack of a pre-signing market check, with the target focused on a single bidder, which the court acknowledged could be defensible in appropriate cases but here appeared to have been done without an understanding by the directors of the reasons for eschewing the pre-signing market check and the likely tactical impact; • Evidence of a conflicted lead negotiator; and • A go-shop that, among other things, was subject to a relatively short time period and provided information and unlimited matching rights to the initial buyer. 9 REP AND WARRANTY INSURANCE – WIDER USAGE BY STRATEGIC BUYERS Rep and warranty insurance has been used by PE buyers for several years, but it is still used by just a fraction of strategic acquirers. More recently, however, strategic acquirers have become more comfortable with the idea of deal protections through representation and warranty insurance. This willingness by some strategic acquirers to compete on both value (taking account of strategic synergies) and escrow/indemnity terms will put pressure on other strategic buyers to get comfortable with rep and warranty insurance in order to remain competitive. More generally, rep and warranty insurance policy terms have continued to improve from the perspective of both the buyer and the seller, although not with the same scope of changes that followed the policies’ introduction to the market. Coverage by rep and warranty insurance continues to be limited to unscheduled and unknown breaches. Buyers thus continue to explore other mechanisms, such as specific indemnities (or, in some cases, other kinds of insurance), to address issues disclosed by sellers or otherwise known to buyers. 1 See “Global & Regional M&A Report, ” Mergermarket (2018). 2 Id . 3 “Tax Reform: Key Considerations for M&A, Private Equity & Venture Capital Transactions, ” Morrison & Foerster Client Alert (January 2018). 4 8 Key M&A Trends , Morrison & Foerster Article (January 2018). 5 “CFIUS Reform Enacted: Immediate Impact and Extended Uncertainty, ” Morrison & Foerster Client Alert (September 2018). 6 “New CFIUS Pilot Program Expands U.S. Government Review of Tech Transactions, ” Morrison & Foerster Client Alert (October 2018). 7 “Opportunity to Comment on Emerging Technologies Subject to Future Export and Investment Restrictions, ” Morrison & Foerster Client Alert (November 2018). Commerce Department notices with respect to “foundational technologies” will be issued separately. 8 “Delaware Court of Chancery Finds a Material Adverse Event and Excuses Buyer from Obligation to Close in Akorn v . Fresenius Kabi AG , ” Morrison & Foerster Client Alert (October 2018); “Delaware Supreme Court Upholds Lower Court’s Material Adverse Effect Finding,” Morrison & Foerster Client Alert (December 2018). 9 “Tech-led M&A, ” Financier Worldwide Magazine (September 2018). 10 For a wealth of information and resources about GDPR, please visit MoFo’s GDPR Readiness Center, available at www.mofo. com/special-content/gdpr-readiness- center/. 11 For information and updates on CCPA, please visit MoFo’s California Consumer Privacy Act Resource Center, available at https://www.mofo.com/special-content/ california-consumer-privacy-act/. 12 “Five Key Legal Risks for Data-Centric Technology M&A, ” The M&A Journal , Morrison & Foerster Article (July 2018). 13 “2018 Review of Shareholder Activism,” Lazard (January 2019). 14 “Elliott takes big stake in Nielsen to push company to sell itself: WSJ, ” Reuters (August 2018). 15 “2017 Activism Year in Review,” Lazard (January 2018). 16 For examples, see In re Tangoe , Inc . Stockholders Lit ’ n , Del. Ch. Nov. 20, 2018; In re PLX Technology Inc. Stockholders Lit’n , Del. Ch. Oct. 16, 2018. 17 “Delaware Supreme Court Reverses Dell Appraisal Award ,” Morrison & Foerster Client Alert (December 2017). 18 “Shareholder Litigation Involving Acquisitions of Public Companies: Review of 2017 M&A Litigation, ” Cornerstone Research (2018). 19 “Delaware Chancery Court in Aruba Appraisal Finds Fair Value to be the Pre- Announcement Market Price: 30% Below Deal Value, ” Morrison & Foerster Client Alert (February 2018). 20 “Delaware Courts, in Determining How to Value Companies for Appraisal Purposes, Start with Deal Process, ” Morrison & Foerster Client Alert (August 2018). MORRISON & FOERSTER 2018 M&A ANNUAL REVIEW 6