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Delaware Decision Highlights a Director May be Considered Non-Independent of a Controller Based on Having a Lower Income or Having Admired the Controller—BGC Partners

M&A/PE Briefing | October 7, 2021

BGC Partners, Inc. Derivative Litigation involved a merger between entities that both were controlled by the same person, Howard Lutnick, through his control of Cantor Fitzgerald. The merger was  approved by a special committee of the buyer’s four outside directors. The plaintiffs claimed that, because Lutnick had a larger economic interest in the target than the buyer, he caused the buyer to overpay, and the directors breached their fiduciary duties by improperly approving the transaction. The court found that, despite evidence that was “not overwhelming,” two of the outside directors may not have been independent of Lutnick—one because his directorship compensation constituted a majority of his total household income, and the other because he had highly praised Lutnick. In the attached Briefing, we discuss the court’s approach to determining director independence, note the impact of the court’s conclusions relating to independence, and offer related practice points.
 

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