Target Boards in Single-Bidder Context Given Guidance

In two recent Delaware Court of Chancery decisions — In re Plains Exploration & Production Stockholder Litigation, C.A. No. 8090-VCN (May 9, 2013), and Koehler v. NetSpend Holdings, C.A. No. 8373-VCG (May 21, 2013) — the court reached opposite conclusions with respect to whether the plaintiffs were likely to succeed in establishing that a target board of directors breached its fiduciary duties in connection with a single-bidder sales process. These decisions serve as a useful reminder that while a target's board of directors may reasonably conclude that negotiating a sale of the company with a single bidder is consistent with the board's Revlon duties, the board must ensure that, at every step in the transaction, it has followed a process reasonably designed to achieve the best possible price under the circumstances, including through the implementation and monitoring of deal protection measures.

In Plains Exploration, the stockholder plaintiffs sought a preliminary injunction in connection with the combination of mining and natural resources companies Freeport-McMoRan Copper & Gold Inc. and Plains Exploration. The plaintiffs alleged that they were likely to succeed on their claim that the Plains board breached its fiduciary duties by negotiating a sale of the company with Freeport, and by not seeking out alternative bidders. In rejecting the plaintiffs' argument, Vice Chancellor John W. Noble found that the expertise of the Plains directors — most of whom had extensive experience in the oil and gas industry — supported a reasonable inference that they were capable of determining whether the transaction price was a fair one to the Plains stockholders, notwithstanding the absence of a market check or go-shop process. The court went on to conclude that the deal protections in place — a no-solicitation clause coupled with a fiduciary-out, a 3 percent termination fee and matching rights — were not so onerous that they would have precluded a competing bidder from making an offer or the board from accepting a superior proposal. Moreover, given that more than five months had passed since the deal was announced, the court credited the Plains board with "allowing sufficient time for competing acquirers to emerge," which, according to the court, was further evidence that the board had acted reasonably under the circumstances. Accordingly, the court denied the plaintiffs' request for a preliminary injunction.