In 2023 and early 2024, the Delaware Chancery Court surprised many M&A practitioners with decisions questioning: ▪ the right of the target company to recover from the buyer, following a breach by the buyer, the lost premium the target company’s stockholders would have received for their shares had the deal closed, even when the merger agreement expressly provides for such damages, where (as in all public target deals and many private target deals) the stockholders are not party to, and are specified not to be third-party beneficiaries of, the merger agreement,13 and ▪ the ability of the target company’s board of directors in connection with a merger to give their final approval based on a draft that is less than a complete, final copy of the merger agreement, or without disclosure schedules.14 The Delaware legislature responded with amendments to the Delaware General Corporation Law (“DGCL”) 13 Crispo v. Musk, Del. Ch. Oct. 31, 2023. 14 Sjunde AP-Fonden v. Activision Blizzard (Del. Ch. Feb. 29, 2024 (corrected Mar. 19, 2024)). 15 DGCL Secs. 261(a)(1), 261(a)(2). 16 DGCL Secs. 147, 268(b), 232(g). that took effect on August 1, 2024. Under the amendments: Lost Stockholder Premium Damages and Stockholder Representatives15 ▪ Merger agreements can require the buyer to pay the target company damages for a pre-closing breach, including amounts based on lost stockholder premium, and the target company can retain such damages. Parties desiring such a result should provide for it expressly in the merger agreement. ▪ Merger agreements can provide for the appointment of stockholder representatives with exclusive authority to act on the stockholders’ behalf, codifying this longstanding market practice. Process for Approving Merger Agreements16 ▪ A board can approve a merger in “final or substantially final form,” which (according to the amendment synopsis) means that all the material terms are included in the draft or are determinable though other information or materials presented to or known by the board. ▪ After the initial board approval, a board may ratify a merger agreement so long as the ratification takes place prior to the effectiveness of the filing with the Delaware Secretary of State. ▪ The disclosure schedule is not deemed to be part of the merger agreement, and so does not need to be approved by the board or adopted by the stockholders, unless the merger agreement expressly states that the disclosure schedule forms part of the agreement. ▪ Documents (like a merger agreement) included with a stockholder meeting notice are deemed to be part of the notice, addressing concerns about the adequacy of merger agreement summaries in proxy materials. While the DGCL has been amended, the board’s fiduciary duties still apply. Thus, for example, while there is no statutory requirement to review a disclosure schedule if the merger agreement does not expressly incorporate it, a board may want to review a disclosure schedule, or material parts of it, to the extent necessary for the directors to understand the material terms of the merger agreement. While the DGCL has been amended, the board’s fiduciary duties still apply. 3. Delaware Addresses Questions on Merger Agreement Damages and Board Approvals 8 Morrison Foerster
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