By now, virtually every Delaware practitioner, adviser to companies incorporated in Delaware, and observer of Delaware law and practice is aware of the recent Delaware Court of Chancery decisions criticizing and arguably doing away with the once standard practice of settling lawsuits challenging mergers and acquisitions (M&A) transactions through “disclosure-only” settlements. This article addresses what we can anticipate in Delaware practice following these important decisions.
Long accepted in Delaware (and in courts throughout the country), “disclosure-only” settlements were common in lawsuits brought by stockholders of a corporation sold in an M&A transaction. These lawsuits alleged that directors of the seller breached their fiduciary duties in connection with the sale price and process and through allegedly deficient proxy materials provided to stockholders in connection with their vote on the deal. In disclosure-only settlements, the seller would agree to provide additional disclosures in advance of the stockholder vote on the transaction. As part of these settlements, all defendants typically would obtain the benefit of a broad release of liability of all claims and potential claims (not limited to disclosure claims), and the plaintiff lawyers would typically obtain a fee for obtaining a benefit for the putative class of stockholders in the form of the additional disclosures (whether helpful to stockholders or not). Many M&A participants came to view these fees as a customary “deal tax” required to be paid by the buyer as part of the transaction price.
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