Buyer Beware: The Fiduciary Duties of a Buyer's Board

Mark A. Morton, Michael A. Pittenger and Michael K. Reilly

The fiduciary obligations of a selling corporation’s board of directors in the context of a corporate sales transaction, and the permissible scope of so-called “deal protection” measures in that context, have been the subject of frequent analysis in both case law and legal commentary. The fiduciary obligations of a buyer’s board in connection with such a transaction, however, have until recently received scant attention.

A recent decision of the Delaware Court of Chancery, Energy Partners, Ltd. v. Stone Energy Corp., touched on the fiduciary duties of a buyer’s board in agreeing to deal protection provisions that arguably restricted its ability to evaluate potential alternatives. While the Court concluded that the relevant provisions of the merger agreement were consistent with the fiduciary obligations of the buyer’s directors, the decision nevertheless serves as an important reminder that directors and corporate practitioners should be sensitive not only to the fiduciary obligations of a seller’s board in entering into a merger agreement, but also those of a buyer’s board, particularly where a vote of the buyer’s stockholders will be required.

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