Delaware Supreme Court Issues Landmark Opinions on Financial Advisor Disclosures in M&A Deals – What You Need to Know!

The Delaware Supreme Court recently issued two significant opinions that shed light on the importance of disclosures involving board advisors in M&A transactions. These rulings have far-reaching implications for companies and financial advisors involved in such transactions, as they underscore the critical need for full and transparent disclosure of material information.

In one case, the Court of Chancery initially dismissed a challenge to a $3.3 billion squeeze-out transaction under the MFW doctrine, citing compliance with MFW’s requirements. However, the Supreme Court reversed this decision, emphasizing that minority stockholders were not fully informed prior to approving the transaction. The court highlighted the failure to disclose conflicts involving the financial advisor on the special committee, including proprietary equity holdings and undisclosed investments in private equity funds managed by the controller.

Similarly, in another case challenging a $7.3 billion acquisition, the Supreme Court reversed a dismissal due to inadequate disclosure related to the financial advisors of the target company’s board and special committee. The court emphasized the importance of disclosing conflicts, such as concurrent representations of buyers and consortium members, as well as the specific amount of fees earned by the financial advisor from all members of the equity consortium.

These rulings underscore the court’s emphasis on full disclosure of financial advisor conflicts and the potential impact on minority stockholders’ decision-making process. The court’s scrutiny of proxy statement disclosures and comparison to meeting minutes highlights the need for accuracy and transparency in describing the roles and actions of advisors and committees.

Furthermore, the Court of Chancery’s refusal to dismiss breach of fiduciary duty claims against directors and aiding and abetting claims against advisors reinforces the importance of disclosing all material information, including compensation structures tied to non-ratable benefits.

In light of these rulings, practitioners and M&A participants must be vigilant in ensuring comprehensive disclosures regarding financial advisor conflicts and prior engagements. Legal counsel should be consulted to navigate the evolving disclosure requirements, especially in complex transactions involving affiliates and consortium members.

Directors, officers, and financial advisors must proactively seek updates on conflicts and take steps to ensure accurate and thorough disclosures in public filings. The recent decisions serve as a reminder of the need for expert legal advice to navigate the changing landscape of disclosure requirements and mitigate potential conflicts in M&A transactions.

In conclusion, the Delaware Supreme Court’s rulings underscore the critical importance of transparent and comprehensive disclosures in M&A transactions, highlighting the need for accuracy, diligence, and expert legal guidance to navigate complex financial advisor conflicts effectively.