USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters LLP
which it established in its 2014 decision in Kahn v M&F Worldwide Corp (“MFW”). In MFW , the Court held that the more deferential business- judgement-rule standard of review applies in freeze-out mergers between a controlled cor- poration and its controlling shareholder only when the controlling shareholder conditions the transaction on the approval of: • a fully empowered and independent special committee that meets its duty of care; and • a majority of uncoerced and fully informed minority shareholders. In Match , the Court clarified that: • the MFW framework applies to all transac- tions in which a controlling shareholder stands on both sides of the deal and receives a non-ratable benefit (including non-freeze- out controlling shareholder transactions); • both requirements under the MFW framework must be met for the business-judgement-rule standard of review to apply; and • for a special committee to be independent, all members of the special committee must be independent. This was also a pivotal factor in the Delaware Court of Chancery’s decision to rescind Elon Musk’s compensation package from Tesla ear- lier this year in Tornetta v Musk. In that case, the Court applied the MFW framework in deter - mining that Musk’s compensation package was subject to judicial review under the entire fair- ness standard because Musk as a controlling shareholder was found to have exercised signifi- cant influence over the Tesla board’s decision- making process. Another notable decision in 2023, also involving Musk, was Crispo v Musk, where the Delaware
Court of Chancery addressed whether target shareholders could recover lost-premium dam- ages from a buyer in connection with a failed merger pursuant to the so-called Con Ed provi- sions in a merger agreement (most commonly found in public company mergers). While the opinion suggests that there are avenues where- by such damages could be recoverable under Delaware law (eg, setting out in the target’s charter that it is the exclusive agent on behalf of its shareholders recovering lost-premium dam- ages), uncertainty exists after Crispo regarding the limitations to enforceability of such options. 9. Due Diligence/Data Privacy 9.1 Technology Company Due Diligence In the USA, the buyer will generally carry out legal, financial, commercial and tax due dili- gence, involving reports from lawyers, account- ants and other specialists. The scope of due diligence review will vary based on: • the client’s needs and the nature of the target company’s business; • whether the target company is private or public; • the proposed transaction structure; and • the level of access to the target company. Some key areas of focus for legal due diligence of a tech company would include: • IP ownership and licensing; • use of open-source software; • IT and cybersecurity policies; • data privacy and data breaches; and • trade compliance and anti-corruption compli- ance.
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