Mergers and Acquisitions - Dealing with Difficult Issues

February 18, 1999

Introduction

1.1 Scope of Outline.  This outline focuses on five difficult areas that corporate lawyers often struggle over when advising their clients in merger and acquisition transactions:  (i) using special committees of independent directors in acquisitions involving conflicts of interests with officers, directors and/or controlling stockholders, (ii) making timely disclosure of acquisition negotiations, (iii) choosing among competing bids, (iv) the emergence of a third-party interloper who makes a bid after an acquisition agreement has been executed, and (v) walking away from an executed acquisition agreement due to a “material adverse change” in the target.  These kinds of matters can be problematic due to the time pressures under which critical legal decisions must be made and due to the fact that these matters present the participants with exposure to substantial risks of personal liability.  To top that, the clients will expect legal counsel to safeguard them against later legal challenges while at the same time insisting that counsel not “kill the deal” by being too conservative in the giving of legal advice.  In that regard, allegations of breaches of corporate fiduciary duties and the duty of full disclosure under federal securities laws are likely to be basis for subsequent legal challenges.  This outline will discuss the pertinent legal issues and their ramifications as well as the steps that counsel may take in advising the client.

1.2 Role of Legal Counsel.  In dealing with difficult problems in mergers and acquisitions, legal counsel must prepare the client in advance for issues that may arise.  The goal of corporate lawyers will be to manage the legal issues in a manner that best protects the deal and insulates the client from liability under the circumstances.  Shepherding management, boards of directors and controlling stockholders through the problems discussed below is not an easy role for counsel to play.

1.3 Delaware Law.  With respect to corporate fiduciary duties, this outline focuses primarily on the application of Delaware corporate law since it is the most developed of all the states.  Indeed, it is common for the courts of other jurisdictions to look to Delaware law for guidance.  For an analysis of fiduciary duties under Texas corporate law, see Beck, Fiduciary Duties of Controlling Interest Shareholders, 35 Tex. J. Bus. L. 16 (Spring 1998).

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Dealing-With-Difficult-Issues.PDF

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