Delaware Supreme Court Overturns the Court of Chancery’s Finding that a Controller-Led Transaction Was <em>MFW</em>-Compliant “<u>From</u> <u>the</u> <u>Outset</u>” of Negotiations—<em>Olenik</em>

Delaware Supreme Court Overturns the Court of Chancery’s Finding that a Controller-Led Transaction Was MFW-Compliant “From the Outset” of Negotiations—Olenik


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

In Olenik v. Lozinski (Apr. 5, 2019), the Delaware Supreme Court has undercut the suggestion made by the Court of Chancery (in its earlier decision in the case) that there could be considerable leeway for a controller-acquiror to engage in discussions with a target before determining whether or not to structure a transaction to be MFW-compliant. The Olenik parties had what the Court of Chancery characterized as “preliminary” and “exploratory” discussions for ten months before the buyer imposed the MFW conditions in its formal offer and the special committee was formed. The Supreme Court found, however, that those discussions had included “substantive economic negotiations” because the parties had “set the playing field” for the high and low ends of the deal pricing. The Supreme Court therefore held that MFW did not apply and reversed the lower court's pleading-stage dismissal of the case. The Supreme Court emphasized that the MFW-required conditions must be imposed “early in the process” and indicated that the appropriate time is “during the germination stage of the Special Committee process,” which is “when advisors [are] being selected” and “due diligence [is] beginning” and “before there has been any economic horse trading.”

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