Professor Steven Davidoff, a corporate law professor who closely scrutinizes Delaware decisions both in his scholarship and in his posts on the DealBook blog, writes here about a recent settlement of a shareholder suit filed in Delaware regarding the buyout by private equity firms of the J. Crew company, and what he describes as model procedures that special committees should require of bidders who team up with management:
Go-Shop Period Extension: The go-shop period is extended another 30 days and now runs through Feb. 15.
Reduced Termination Fee: The termination fee if an alternative bid is accepted during the go-shop period is reduced from $27 million to $20 million plus a $5 million expense reimbursement. This is less than 1 percent of the transaction value.
Matching Rights: The matching rights are now eliminated if a bidder bids $45.50 a share or a greater amount. (TPG and Leonard Green are currently offering $43.50 a share.)
Expense Reimbursement: A third-party acquirer making a superior proposal who is subsequently outbid will be reimbursed for its expenses up to $3 million.
Limited Information Rights: The rights of TPG and Leonard Green to know about the go-shop process are limited.
Approval by Unaffiliated Shareholders: Since J. Crew’s chairman and chief executive, Millard S. Drexler, is also part of the buyout group, his shares will not be counted for purposes of determining whether shareholders have approved the acquisition.
He discusses the J. Crew settlement in much greater detail at the above link. He also refers to the much earlier and separate settlement in the Health Grades-Vestar Capital deal, regarding which the good professor describes the transcript here of Vice Chancellor Strine refusing to enjoin the transaction, as must-reading, in part because discovery disclosed the likelihood of a fiduciary duty breach but the transaction still was allowed to go forward. He describes the case in more detail in his post here.
The recent Hammons decision by the Delaware Court of Chancery that Kevin Brady summarized on this blog here was also referenced by Prof. Davidoff in the same above post regarding the J. Crew settlement.