07/28/2011 12:47:00 PM EST
New Delaware Standard Proposed for Review of Target Boards
Professor Samuel C.
Thompson, Jr., Professor of Law and Director of the Center for the
Study of Mergers & Acquisitions at the Pennsylvania State University School
of Law, has written an article that proposes a new single standard to
address the multiple standards that have been discussed in Delaware court
decisions to determine the type of review that the courts will employ against
target boards who are involved in a takeover transaction. The article,
entitled Change of Control Special Committee: Breathing Life into CNX, is
on the Harvard Law School Corporate Governance Blog and is available
on SSRN here.
In a brief introduction to the article, the good professor explains the problem
as: "... the multiple standards of review under Delaware law for reviewing
the actions of a target's directors involved in a merger or acquisition
transaction are cumbersome, a source of needless litigation, and economically
Professor Thompson's scholarship in the field of mergers
and acquisitions generally was cited extensively and relied on for the
reasoning in the Delaware Court of Chancery's recent opinion in GRT Inc. v.
Marathon GTF Technology Ltd., C.A. No. 5571-CS (Del. Ch. July 11, 2011),
highlighted on these pages here.
The solution that his article proposes, in part, is:
"... to resolve these issues through changes in Delaware's General Corporation
Law ("DGCL"). The DGCL should be amended to permit the shareholders of a
corporation to adopt a provision requiring that if the corporation becomes a
target of a bona fide acquisition proposal, the board of the corporation must
petition the Delaware Court of Chancery for the appointment of an independent,
disinterested, and knowledgeable special committee of the board (a "Change of
Control Special Committee"). This Committee would have complete power over the
acquisition transaction. At the discretion of the Delaware Court of Chancery, a
member of the current board could be appointed to the Change of Control Special
Committee. All decisions of the Change of Control Special Committee,
including any decision to employ, maintain, or terminate a poison pill, would
be subject to the deferential business judgment rule standard of review."
The Court of Chancery's first CNX decision, In
Re CNX Gas Corp. Shareholders Litigation, C. A. Consol. No. 5377-VCL
(Del Ch. May 25, 2010), which recites the various standards currently
applied, was highlighted here,
and the Chancery ruling allowing an interlocutory appeal to the Delaware
Supreme Court (which was rejected by Delaware's High Court), was highlighted here.
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Eckert Seamans.
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