Vice Chancellor J. Travis Laster, continuing the tradition of prolific scholarship by members of the Court of Chancery, has authored two recent scholarly publications through which one might discern insights regarding his thought processes on the cutting edge legal issues addressed.
One of the articles by Vice Chancellor Laster is entitled: Revlon Is a Standard of Review: Why It’s True and What It Means, 19 Fordham J. Corp. & Fin. L. 5 (2013), and is based on his presentation of the Thirteenth Annual Albert DeStefano Lecture on Corporate, Securities and Financial Law at the Fordham Corporate Law Center. The article addresses the iconic Delaware Supreme Court decision in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 50 A.2d 173 (Del. 1986). His Honor suggests in the article the benefits that would flow from clarifying and simplifying an unnecessarily complex area of Delaware law.
His Honor’s second law review article bears the title of: Omnicare‘s Silver Lining, 38 J. Corp. L. 795 (2013). Referring to the Delaware Supreme Court decision in Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003), the article begins with an acknowledgement that it remains fashionable in some circles to join the chorus of vigorous dissents that accompanied the majority decision in this case involving the review of provisions related to a merger agreement. The article concludes with the rather upbeat view that:
Reasonable minds can debate the policy implications and empirical consequences of allowing bidders and targets to readily lock up their deals, but for Delaware to take such a step would have run counter to our law’s traditional concern about conflicts in negotiated acquisitions. In my view, the Omnicare majority correctly ruled on the facts of the case that the NCS board lacked sufficient justification at the time of contracting to agree to a fully locked-up deal given the company’s strengthened financial position, Omnicare’s significantly higher offer, and the high likelihood of further bidding.
VI. Conclusion
When the acorn fell on Henny Penny’s head, she feared the sky was falling. With Omnicare, the reaction was similar, with both the dissenters and practitioners predicting the end of the world for friendly deals. A decade later, we know better. M&A continued, even bubbled. Nor was its demise a rational prediction. At most, Omnicare affected only absolute majority lockups. It did not limit the ability of deal planners to agree to a range of other common protective measures, such as termination fees, no-shop provisions, match rights, or even voting agreements covering a lesser percentage of shares. These features give an initial bidder a significant leg up and provide ample reasons for a potential acquirer to want incumbent merger-party status.
No judicial decision is perfect (certainly none of mine are), and there are a number of valid criticisms that can be leveled at the Omnicare case. But the opinion was not all bad. It made several important contributions to Delaware law, most notably by applying enhanced scrutiny to defensive measures in negotiated acquisitions, regardless of the form of consideration. Instead of treating Omnicare as a punch line and greeting its mention with smugly knowing smiles, let’s recognize that the decision has a silver lining.