Court of Chancery Finds MFW-Required Conditions Were Imposed from the “Outset of Negotiations,” Notwithstanding “Extensive Preliminary Discussions”—<em>Olenik v. Lodzinski</em>

Court of Chancery Finds MFW-Required Conditions Were Imposed from the “Outset of Negotiations,” Notwithstanding “Extensive Preliminary Discussions”—Olenik v. Lodzinski


By: Andrew J. Colosimo, Warren S. de Wied, Steven Epstein, Christopher Ewan, Arthur Fleischer, Jr., Andrea Gede-Lange, David J. Greenwald, Randi Lally, Mark H. Lucas, Scott B. Luftglass, Brian T. Mangino, Philip Richter, Robert C. Schwenkel, David L. Shaw, Peter L. Simmons, Matthew V. Soran, Steven J. Steinman, Gail Weinstein, Maxwell Yim

Olenik v. Lodzinski (July 20, 2018) is notable for providing a substantial discussion of the difference between “negotiations” and “preliminary discussions” for purposes of determining whether a buyer has satisfied the “ab initio” requirement under MFW for business judgment review of a controller transaction (i.e., the requirement that, at the “outset of negotiations,” the buyer imposed the MFW-prescribed conditions relating to approval of the transaction by a special committee and the minority stockholders). The factual context involved an all-stock merger between two companies (one of them, a financially troubled company) that had a common purported controller; a lead negotiator for the acquiring company who was the CEO and had a financial interest in the controller; and an equity split that provided the acquiring company with a smaller equity interest in the resulting entity than was supported by the contribution analysis prepared by the special committee's banker. The court held that, notwithstanding ten months of discussions between the parties, for MFW purposes, the “negotiations” did not begin until the buyer submitted a “definitive proposal” (in the form of a formal offer letter). In the attached Briefing, we analyze the court's decision and provide related practice points.

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