USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Pierre-Emmanuel Perais, Clara Pang and Gregory Gewirtz, Linklaters LLP
the detriment of the other shareholders. A prop- erly functioning special committee should select and retain its own independent advisers, and the committee must be fully informed, both regard- ing the terms of the transaction and in terms of diligence. 11.3 Board’s Role Board’s Role in Negotiations Boards generally do not play an active role in the negotiations of an M&A transaction; however, they are expected to make the final decision on whether to approve a sale and recommend the sale and its terms to the target shareholders. Under the business judgement rule, Delaware courts will presume that directors have satis- fied their fiduciary duties if they have made their decisions in good faith, on the basis of a reason- able investigation and after careful considera- tion of all material factors reasonably available, in accordance with what they honestly believe to be the best interests of the corporation and its shareholders. In applying the business judge- ment rule, Delaware courts will only consider whether a rational decision-making process has been demonstrated. Shareholder Litigation Litigation by shareholders is common in relation to acquisition of public companies in the USA; however, it is relatively uncommon for such liti- gation 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 to obtain 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 Delaware Court of Chancery of the fair value of the shareholder’s shares. While appraisal actions have historically been common, recent decisions by the Dela- ware Supreme Court give significant weight to market-based indicators of value (eg, the tar- get 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. 11.4 Independent Outside Advice A target company board will generally engage external legal and financial advisers, and may also engage external accountants and consult- ants in consideration of a potential business transaction. A director can rely upon such out- side advisers, and consideration of robust advice from such advisers is important for demonstrat- ing satisfaction of the director’s fiduciary duties. Target company boards generally also request a “fairness opinion” from the financial advisers on whether the proposed consideration is fair from a financial standpoint.
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