Document: In re OPENLANE, Inc. S’holders Litig., C.A. No. 6849-VCN (Del. Ch. Sept. 30, 2011)
The Court of Chancery found that plaintiffs did not have a reasonable likelihood of succeeding on the merits of their claims that a board breached its fiduciary duties by approving a merger agreement without a fiduciary out to a non-solicitation covenant, where the merger agreement was approved by the stockholders by written consent immediately following execution of the merger agreement by the defendant corporation, and the board could terminate the merger agreement if the consents were not delivered within twenty-four hours of signing. The consents represented over 68% of the corporation’s voting power, which was held by board members and officers. There was no voting or other agreement requiring that the board members or officers vote in favor of the merger.
This is the first decision addressing the validity of a common work-around to the Delaware Supreme Court’s decision in Omnicare, Inc. v. NCS Healthcare, Inc., No. 605, 2002 (Del. Apr. 4, 2003), which held invalid a merger agreement that did not contain a termination right in connection with a superior proposal where there existed a voting agreement locking up more than a majority of the corporation’s voting power and a board commitment to submit the merger agreement to a vote of stockholders even if the board no longer recommended the transaction. The Supreme Court held that, under such circumstances, the board had contracted away its continuing fiduciary obligation to get the best transaction for its stockholders which ended upon the stockholder vote. Many practitioners believed that a merger agreement without a fiduciary-out should survive scrutiny under Omnicare if approved by written consent of stockholders immediately after the signing of the merger agreement because the delivery of the written consents terminated the board’s Revlon duties. In OPENLANE, if the consents were not immediately delivered, the target board could also terminate the merger agreement and potentially pursue another offer; thus, the board preserved its ability to pursue a superior offer if the current deal was not immediately approved. There was also no voting agreement.