When a company is acquired, who “owns” the company’s pre-acquisition attorney-client privileged communications—the buyer or the seller? Last month, the Delaware Court of Chancery adopted a bright-line rule that any attorney-client privilege attached to pre-merger communications—whether they relate to business operations or the negotiation of the merger itself—pass to the acquirer in the merger, unless the parties agree otherwise in the merger agreement. In Great Hill Equity Partners IV v. SIG Growth Equity Fund I,1 Delaware Chancellor Leo E. Strine Jr. rejected the New York approach to post-merger privilege enunciated by the New York State Court of Appeals in Tekni-Plex v. Meyner & Landis,2 which held that the seller transfers to the buyer its privilege on most subjects but retains control of pre-merger privileged communications that relate to the merger and its negotiation.
Great Hill reminds practitioners that the parties to a Delaware law asset transaction, merger or sale of stock are free to vary by contract the automatic transfer of the seller’s attorney-client privilege to the buyer. Practitioners ordinarily should take privilege and post-closing attorney representation matters into account in negotiating acquisitions. Counsel for the seller may want to insist on a contractual provision excluding pre-merger attorney-client communications regarding the negotiation of the transaction from the assets transferred to the buyer, and expressly acknowledging that the attorney-client privilege for those communications belongs solely to the seller after the merger.
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