In a recent decision, the Delaware Court of Chancery dismissed multiple claims filed against Novell Inc. by its shareholders who alleged the company’s board was conflicted and breached its fiduciary duties when it sold a portfolio of patents and, in a separate transaction, approved a $2.2 billion acquisition by Attachmate Corp. Although the court found that Novell’s board was not conflicted and that patent sale survived scrutiny under the business judgment rule, it allowed shareholder claims that the board provided Attachmate with preferential treatment over a bidder who allegedly made a more lucrative offer to proceed toward trial. The decision has caused many in Delaware’s Chancery bar to question why different scrutiny was applied to the sale of company assets than the sale of the company itself.

“The only basis for reconciling the standard applied to the asset sale and the standard applied to the merger is that it is one thing to sell an asset to a third party and another thing to discriminate against potential bidders,” said Lawrence A. Hamermesh, the Ruby R. Vale Professor of Corporate and Business Law at Widener University School of Law. “The real question is whether that distinction should be allowed to exist. Why should the standard of review be any different for the sale of a few company assets than the company itself?”

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