Deal Diary

In mid-March 2020, concerned about opportunistic activist stockholders, a precipitous decline in oil prices and corresponding stock volatility, as well as uncertainty created by the unprecedented COVID-19 pandemic, the board of directors of the Williams Companies, Inc. (“Williams” or the “Company”) adopted a one-year stockholder rights plan with a five percent trigger (the “Williams Plan”). Less than a year later, the Delaware Court of Chancery, after reviewing the Williams Plan under the Unocal standard, permanently enjoined it, and found that the directors had breached their fiduciary duties, thereby rendering it unenforceable.

Akin Gump discusses the challenging decisions that equity investors and sponsors will need to make in reviewing the financial needs and business operations of their portfolio companies as a result of the economic upheaval and government-mandated social restrictions imposed by the spread of COVID-19. Accordingly, it is important to consider the responsibilities and duties that attach to equity investors and sponsors who are deemed “controlling equityholders” under applicable law.

In High River Ltd. P’ship v. Occidental Petroleum Corp., No. CV 2019-0403-JRS, 2019 WL 6040285 (Del. Ch. Nov. 14, 2019), the Court of Chancery of the state of Delaware recently refused to hold that Section 220 books and records demands could be used solely for furthering a proxy contest without otherwise stating and demonstrating a proper purpose, such as exploring a credible basis of corporate mismanagement. In this article we explore potential takeaways from the High River opinion and considerations for stockholders in making Section 220 demands and supplemental approaches aimed at enhancing the efficacy of such pleadings and demands based on Delaware case law.

This week we highlight a post by the Harvard Law School Forum on Corporate Governance and Financial Regulation which examines the effect the seminal case of Revlon v. MacAndrews & Forbes Holdings has on the takeover process. The dataset contains details of the private merger negotiation process before public deal announcements, including the number of bidding rounds, timing of bids, bid premiums, and indicators for single versus multiple bidding parties.

The Delaware Court of Chancery recently upheld a provision in a merger agreement that prevented the buyer from using privileged emails between the seller and its attorneys in post-closing litigation. The decision, in Shareholder Representative Services LLC v. RSI Holdco, LLC, C.A. (Del. Ch. May 29, 2019), clarified that sellers who apply strong contractual protections to premerger privileged communications need not segregate such communications from other documents to preclude the buyer from relying on them in future litigation.

Akin Gump litigation partner Michelle Reed and counsel Matthew Lloyd have published an article in Westlaw Securities Enforcement & Litigation Daily. The article notes that the increase in the number of federal securities class actions can be explained, in part, on the “apparent shift of merger and acquisitions suits from Delaware state court to federal court.” There is also another explanation, which they attribute to claims “filed in response to adverse company events such as a data security breach, sexual harassment allegations, a catastrophic explosion, allegations that a drug or product has side effects or caused injury, or a regulatory investigation or enforcement action.”

Akin Gump has issued an alert on the Delaware Court of Chancery’s decision that a buyer has the contractual right to terminate a merger based on a sudden and sustained decline in the seller’s business. The Delaware Court has made clear the decision was driven by facts, not legal innovation and that the decision provides guidance to both litigators and dealmakers for negotiation and interpretation of so-called “material adverse effect” clauses.

Click here to read the full alert.

Akin Gump recently covered two important rulings made in Delaware courts in December that provide critical guidance to corporations and their boards. On December 14, 2007, the Delaware Supreme Court issued its opinion in Dell, Inc. v. Magnetar Global Event Driven Master Fund, Ltd., Case No. 565, 2016, the latest in a series of noteworthy “appraisal arbitrage” cases that made their way through Delaware Chancery Courts in 2017. For the second time in 2017, the court reversed a Chancery Court’s decision to assign little or no weight to deal price in appraisal cases, leaving some confusion as to whether or not deal price should be the default standard absent mitigating factors. Learn more by reading the client alert here.