USA Law and Practice Contributed by: Elena Rubinov, George Casey, Heiko Schiwek, Vinita Sithapathy, Pierre-Emmanuel Perais and Clara Pang, Linklaters LLP
sale and recommend the sale and its terms to target shareholders. Under the business judgement rule, Delaware courts presume that directors have satisfied their fiduciary duties if they have made their decisions in good faith, on the basis of a reasonable investigation and after careful consideration of all material factors reason- ably available, in accordance with what they honestly believe to be the best interests of the corporation and its shareholders. In applying the business judgement rule, Delaware courts will only consider whether a rational decision-making process has been demon- strated. Shareholder Litigation Shareholder litigation is common in relation to acqui- sition of public companies in the US; however, it is uncommon for such litigation to completely derail transactions, due in part to: • federal and state (largely Delaware) court decisions limiting the use of “disclosure only” settlements whereby plaintiffs seek additional information and legal fees; and
• Delaware courts’ continued expansion of steps to be taken to provide for application of the business judgement rule. Under Delaware law, shareholders who do not vote in favour of a cash merger are generally entitled to an appraisal by the Court of Chancery of the fair value of their shares. While appraisal actions have been com- mon, recent decisions by the Delaware Supreme Court give weight to market-based indicators of value (eg, the target company’s stock price or the deal price) in the absence of showing that the target’s stock trades inefficiently or that there was no robust sale process. 9.4 Independent Outside Advice A target company board will generally engage external legal and financial advisers, and may engage exter- nal accountants and consultants regarding a potential business transaction. Directors can rely upon outside advisers, and consideration of their advice is impor- tant for demonstrating satisfaction of a director’s fidu- ciary duties. Target company boards generally also request a “fairness opinion” from financial advisers on whether the proposed consideration is fair from a financial standpoint.
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