Keeping Management in the Game without Tainting the Sale Process
Business Law Today
May 25, 2012,
The Court of Chancery has recently restated its skepticism with respect to sales processes that, while overseen by an independent board, may nonetheless be said to have been influenced by senior executives whose personal financial interests could be implicated, even tangentially, by the nature or terms of any resulting business combination. The concept itself is not entirely new, but it appears that in this most recent iteration, a little can go a long way. For example, in In re El Paso Corporation Shareholder Litig., C.A. No. 6949-CS, mem. op. (Del.Ch. Feb. 29, 2012), judicial suspicion was engendered with respect to the objectivity of a sales process where stockholders alleged that the CEO of El Paso Corporation, who had been commissioned by the company's independent board of directors to head up negotiations for the sale of El Paso to Kinder Morgan, failed to acknowledge to his board his expression of interest in pursuing a post-closing management-led purchase of an El Paso business unit that Kinder Morgan had declared an intention to put up for sale after the proposed merger. No secret deal or method by which the CEO would translate a less than rigorous negotiation of the merger into a discounted price for the asset post-closing was uncovered by plaintiffs. Yet the Court of Chancery found the nascent conflict sufficient to support the conclusion that plaintiffs' challenge to the fairness of the process would probably succeed at trial. Were it not for the absence of any challenge to the sufficiency of the disclosures, an unaffiliated stockholder constituency and the absence of a competing proposal, the transaction presumably would have been enjoined.
Click here to read the full article as published in the May 2012 issue of Business Law Today.