LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
In Liberty Media Corp v Bank of New York Mellon Trust, Vice
Chancellor Laster explained the step-transaction doctrine as they apply to
claims that a series of separate asset sales over a length of time. At issue
is whether such sales can be aggregated in order to substantiate a claim that
the corporation has engaged in a coordinated series of sales of assets of the
corporation that would have the effect of shifting assets away from the
corporation to the detriment of bondholders, and in effect be a sale of
substantially of all the assets of the corporation.
In order to determine whether Liberty Media's strategy of
engaging in acquisitions and spin-offs was effectively a sale of substantially
all the assets, the court applied the step-transaction doctrine:
The step-transaction doctrine applies if the component
transactions meet one of three tests.
* First, under the "end result test," the
doctrine will be invoked "if it appears that a series of separate transactions
were prearranged parts of what was a single transaction, cast from the
outset to achieve the ultimate result." Id. (internal
* Second, under the "interdependence test,"
transactions will be treated as one if "the steps are so interdependent
that the legal relations created by one transaction would have been
fruitless without a completion of the series." Id. (internal quotation
* The third and "most restrictive
alternative is the binding-commitment test under which a series of
transactions are combined only if, at the time the first step is entered into,
there was a binding commitment to undertake the later steps."
Applying this doctrine to the facts in the case,
Vice Chancellor Laster concluded that one could not aggregate the transactions
into a single asset sale for purposes of determining whether they constituted a
sale of substantially all the assets.
Following a consistent business strategy and deploying
signature M&A tactics does not transmogrify seven years of discrete,
context-specific business decisions into a single transaction.
Liberty has engaged in acquisitions and divestitures as part of the
regular course of its business. Liberty did not engage in an "overall
scheme" to sell substantially all of its assets. On the facts of
this case, aggregation is not appropriate.
The Trustee recognizes that the Capital Splitoff,
viewed in isolation, does not constitute a disposition of substantially
all of Liberty's assets. Accordingly, Liberty is entitled to a
declaration that the Capital Splitoff [is not a sale of substantially all
the assets of the corporation.]
Visit the M&A Law Prof
Blog, hosted by Brian JM Quinn, for blogs on legal developments in
corporate governance and mergers & acquisitions.
For more information about LexisNexis
products and solutions connect with us through our corporate site.